Bao Fan, a prominent tech banker and head of China Renaissance, has gone missing, sparking fresh fears of another Chinese tech crackdown.
Bao Fan is one of China’s leading financial CEOs, having founded China Renaissance in 2005 after stints at Morgan Stanley and Credit Suisse. According to The Guardian, quoting local news outlet Caixin, Bao Fan has been unreachable for two days, sparking a 50% drop in the company’s stock price. The price eventually regained 30%, but the questions about the CEO’s whereabouts remain.
“[We] believe that everyone has had a restless night. At this time, [we] hope that you do not believe in or spread rumours,” the company said in a message to employees, seen by The Wall Street Journal.
The incident is reminiscent of Alibaba founder Jack Ma’s disappearance in early 2021 amid Beijing’s crackdown on the tech and finance sector. Ma went missing for months before finally reappearing in a state media video. The fact that it was a state media video did little to reassure investors and fans that he was ok. Interestingly, Ma has since agreed to give up control of the Ant Group, the financial company at the heart of China’s regulatory efforts surrounding Ma.
Many fear Bao Fan’s disappearance could be indicative of a similar crackdown on China Renaissance.
Wang Wenbin, a spokesperson for China’s foreign ministry, told The Guardian he was “not aware of the relevant information” about Bao’s disappearance.
“But I can tell you that China is a country under the rule of law,” he added. “The Chinese government protects the legitimate rights of its citizens in accordance with the law.”
Alibaba has undergone a major reorganization of its executives, with the CEO taking over as head of the company’s cloud unit.
Unlike many companies, Alibaba has a system in place to rotate its executives, courtesy of former CEO Jack Ma. The system is designed to keep Alibaba nimble and prevent it from stagnating in a fast-moving industry.
As part of its latest shuffle, CEO Daniel Zhang “will assume the role of acting President of Alibaba Cloud Intelligence and responsibility for the communication and collaboration platform DingTalk.”
The previous head of Alibaba Cloud Intelligence, Jeff Zhang, will focus on his role head of Alibaba DAMO Academy, as well as T-Head, Alibaba’s proprietary chip development team. He will also continue leading the company’s Internet of Things (IoT) efforts.
“Over the past four years, Jeff has led the Alibaba Cloud Intelligence team to deliver outstanding results in technological innovation and industry influence,” said Daniel in an internal email to staff.
“As the country enters a new stage of living with Covid and policymakers have given direction to the future development of the platform economy, we are more confident than ever that continued development is the key to solving the challenges we face today,” Daniel continued in the email.
Chinese firms are going to extreme measures to circumvent US chip sanctions, even resorting to throttling semiconductor performance.
The US has imposed strict sanctions on semiconductor exports to China. The US is even using its export rules to prevent foreign companies from exporting advanced semiconductors to China if those companies use American-developed tech.
US authorities are tightening the noose even more with the CHIPS Act, which makes $53 billion available to chipmakers — with the caveat that they cannot ship advanced semiconductors to China if they accept US funds.
According to Ars Technica, companies like Alibaba, Biren Technology, and others are throttling their processor designs in an effort to bring them under the threshold that would make them subject to US sanctions. In many cases, the companies already had designs in play and being manufactured by TSMC, but have had to go back to the drawing board to redesign them.
“Attempting to freeze a country in place for a technological level of hardware is a big deal,” said Paul Triolo, ASG consulting group head of tech policy. “That is what the US is trying to do by restricting sales and closing off the manufacturing road map to get to these advanced levels of hardware.”
The US has added Alibaba to a list of companies that could face delisting from the NYSE over audit concerns.
The US has been cracking down on Chinese firms, especially those whose finances cannot be properly audited. Alibaba is the latest to run afoul of US regulators, according to The Register, and is now on the 2020 Holding Foreign Companies Accountable Act (HFCAA) list.
As the report goes on to highlight, being on the HFCAA list doesn’t automatically lead to delisting. Alibaba’s addition to the list merely means it had its first “non-inspection” year. For delisting to occur, the company would need to file two more consecutive annual reports that are not compliant.
Alibaba will continue to monitor market developments, comply with applicable laws and regulations and strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange.
Tech mogul Jack Ma will give up control of Ant Group after a coordinated crackdown by Chinese regulators.
China has a love-hate relationship with its tech companies. Beijing clearly wants its tech companies to succeed on the global scene but wants to maintain a tight reign on them at the same time. Jack Ma’s companies, and especially Ant Group, are Exhibit A.
Ant Group originated from Ma’s Alibaba and quickly grew into a fintech powerhouse. The company was slated for an IPO that was projected to top $300 billion before Beijing canceled it and brought the company under the regulatory authority of China’s central bank.
According to The Wall Street Journal, Ma now plans to relinquish control of the company as it reorganizes itself. Giving up control could help the company eventually move toward another IPO, although it would be at least another year or more, as Chinese regulations call for a one-year pause on IPO plans following an ownership change.
The news is not particularly surprising, given the scrutiny Ma has been under. In fact, following criticism of China’s regulatory system, Ma disappeared from the public’s view so suddenly that some were worried about his well-being. Even a sighting months later did little to quell concern about the tech mogul.
WSJ’s sources say Chinese regulators did not stipulate that Ma give up control of Ant Group but did approve of the decision. Ultimately, it seems Ma has been concerned for some time over the company being too tied to a single figure but had not made any moves sooner in an effort to not trigger the one-year IPO timeout.
As regulatory scrutiny has increased, however, it seems Ma finally decided the IPO delay was the lesser of two evils.
Multiple reports are showing that Microsoft Azure is increasingly becoming a major threat to AWS in the cloud space.
AWS is the current market leader among public cloud providers, with Microsoft Azure in second place and Google Cloud in third. Despite AWS’s lead, according to the Flexera 2022 State of the Cloud Report, Azure usage has surpassed AWS in several instances, representing the first time this has happened in 11 years of Flexera’s reporting:
As in previous years, AWS, Azure and Google Cloud Platform are the top three public cloud providers. But for the first time, Azure has closed the gap with AWS, while other cloud providers have not shown much growth. For each public cloud provider, respondents specified whether they’re running significant workloads in that cloud, running some workloads, experimenting, plan to use it or had no plans to use it.
Interestingly, Azure took the lead in overall breadth of adoption among organizations:
Azure passed AWS for breadth of adoption among enterprises. Google Cloud Platform has the highest percentage for experimentation (23 percent) and Oracle Cloud Infrastructure has the highest percentage of plan to use (twelve percent), which could drive more adoption in future years.
Azure also scored a win among “enterprises running some or significant workloads on the platforms.” While Azure tied with AWS at 47% of organizations using it for significant workloads, it surpassed AWS among organizations using it for some workloads, at 33% vs 30%.
Of the top six cloud providers, Azure was the only one that saw its adoption rate increase year-over-year, coming in at 80% in 2022 vs 76% in 2021. In contrast, AWS adoption rates dropped in 2022 to 77%, down from 79% in 2021. Similarly, Google dropped from 49% to 48% and Oracle dropped from 32% to 27%. IBM Cloud’s adoption rate stayed steady at 25%, while Alibaba dropped from 13% to 11%.
While Flexera’s report is telling enough, it’s supported by a new report from Credit Suisse. According to Investing.com, Credit Suisse analysts outlined how “Azure has grown meaningfully faster than AWS” and, as companies transition to the cloud, “the full multi-year impact of Azure’s growth opportunity is still not properly reflected in consensus estimates.”
Overall, the two reports are excellent news for Microsoft and dovetail with previous reports demonstrating the growth potential of Azure.
The cloud infrastructure market continued its impressive gains, with spending hitting $42 billion in Q2, according to Synergy Research Group.
Synergy’s latest data is good news for the industry, and provides a number of important revelations. According to the company, the top three cloud companies continue to be AWS, Microsoft and Google, with 33%, 20% and 10% of the market respectively. Alibaba, IBM, Salesforce, Tencent, Oracle and “Others” round out the industry.
Interestingly, that means the top three companies account for 63% of money spent on cloud infrastructure.
“This market continues to be a runaway success story for Amazon, Microsoft, Google and some other cloud providers. You would not normally expect to see growth rates actually increasing in such a huge and rapidly developing market, yet once again that is what our research has shown,” said John Dinsdale, a Chief Analyst at Synergy Research Group. “It must be said that this success is hard earned. Amazon, Microsoft and Google in aggregate are typically investing over $25 billion in capex per quarter, much of which is going towards building and equipping their fleet of over 340 hyperscale data centers. There remains a wealth of opportunity for smaller, more focused cloud providers, but it can be hard to look away from the eye-popping numbers coming out of the big three.”
Synergy’s report is further evidence that, despite the accelerated cloud transition as a result of the pandemic, there appears to be plenty of room for further growth.
Intel is looking at possibly purchasing chipmaker SiFive, as it looks to compete with Arm Holdings.
Once the dominant chipmaker in the world, Intel has lost its luster, losing much of the mobile market to Arm Holdings. Arm’s chips are renowned for offering the optimal blend of performance and battery life. Apple has used Arm-based designs to power the iPhone and iPad for years, and recently began migrating its Mac platform away from Intel, in favor of its Arm-based custom silicon.
Intel is keen to reassert its dominance, even stating it would love to get Apple back as a customer. A big step toward regaining its spot at the top is designing chips that can compete in the mobile market and challenge Arm head-on.
According to Bloomberg, Intel is looking at SiFive as a possible option to help jumpstart its ambitions. SiFive currently designs chips based on the RISC-V architecture, and employees several individuals who helped create the architecture. RISC-V is seen as one of the primary competitors to Arm, targeting the same type of applications. Unlike Arm, however, RISC-V was designed to be open source, making it a cheaper alternative.
Because its open source, companies are increasingly seeing RISC-V as an attractive option, with Alibaba recently announcing its Apsara cloud OS would support the chip. Its open source nature is especially attractive to Chinese companies looking to avoid the sanctions and bans Huawei has faced.
Beyond China, many companies are keeping an eye on RISC-V as a result of NVIDIA’s efforts to acquire Arm. Arm has long been considered the Switzerland of the semiconductor industry, willing to work with anyone and everyone. Many companies fear NVIDIA may change that, reserving Arm’s best technology and designs for itself, hurting its relationships with its customers and costing them a competitive advantage.
Intel has reportedly offered as much as $2 billion for SiFive, considerably more than the $500 million it was valued at during its last round of funding in 2020. Should the deal go through, it may help put RISC-V adoption into overdrive.
Alibaba is working to make its Apsara cloud OS compatible with a variety of architectures in an effort to future-proof it.
Alibaba started as an online marketplace, but has grown to be one of the biggest companies in the world. The company is a leader in AI, e-commerce and, increasingly, the cloud market.
The company is working on its Apsara cloud OS, and is learning from the challenges its fellow Chinese firms have faced. Huawei, ZTE and Xiaomi have all experienced setbacks as a result of sanctions by the US government and its allies. Huawei, in particular, has struggled due to being cut off from the semiconductors it relied on for its products.
Alibaba’s solution is to make sure Apsara can work on a variety of chip architectures, ensuring no geopolitical factors negatively impact the OS or the company’s plans. According to TechCrunch, Alibaba is building support for x86, Arm and RISC-V into Aspara.
The addition of RISC-V is particularly interesting, as it is an open source architecture that anyone is free to use. There are no fees associated with using it, and it is beyond the reach of US sanctions. As a result, RISC-V is growing in popularity among Chinese companies, offering them a measure of security they do not have with other options.
If RISC-V continues to gain widespread use, other companies will likely be forced to support it too.
Alibaba co-founder Jack Ma has finally resurfaced, after being out of the public view for months.
Ma’s absence sparked concern, largely because of his recent criticism of China’s regulatory system. There was swift backlash, with Chinese authorities blocking the IPO of Alibaba’s Ant Group, estimated at $37 billion.
According to CNN Business, Ma was spotted in a video posted by Chinese state media. The billionaire was seen in rural China, speaking to teachers as part of his philanthropic work.
Alibaba’s stocks were up in both the Hong Kong and New York exchanges on the news.
At the same time, not all investors are convinced everything is ok. Just because Ma made an appearance doesn’t mean Alibaba, or Ma himself, are in the clear.
“What his actual state is will be completely up to Beijing to reveal to us,” Leland Miller, CEO of U.S.-based consultancy China Beige Book, according to Reuters. “What we do know is whether Jack is running around, Jack is hiding or something else, Alibaba is not in the clear. There is a lot more of the story still to see.”
Concern is mounting over Jack Ma’s status, amid a months-long absence from the public’s eye.
Alibaba founder Jack Ma is one of the most well-known businessmen in the world, and the highest-profile entrepreneur hailing from China. Recently, however, Ma has been critical of China’s regulatory system. As a result, an estimated $37 billion IPO of Ant Group, Alibaba’s fintech venture, was suspended.
Traditionally, Chinese authorities have a low threshold for dissent, even from popular and successful businessmen, further fueling concern. Since Ma’s criticism, he even missed the final episode of a TV show where he was scheduled to appear as a judge.
“I think he’s been told to lay low,” said Duncan Clark, chairman of Beijing-based tech consultancy BDA China, reports CNBC. “This is a pretty unique situation, more linked to the sheer scale of Ant and the sensitivities over financial regulation,” he said.
It remains to be seen if Ma is laying low, or if there is something more serious going on. Either way, given how respected he is, it’s a sure bet the industry will be watching closely for any sign of Ma’s reappearance.
A huge survey by Alibaba of 5,015 US B2B SMBs and SMB manufacturers indicates a significant pivot to digital. Small and medium manufactures have traditionally been slower to integrate digital into their businesses. However, according to the survey, SMB manufacturers have been digitizing at twice the rate of other industries during the pandemic – to support other manufacturers as they accelerate their digitization.
Key findings from the full U.S. B2B SMB survey:
SMBs accelerated their pivot to digital: 93% of B2B companies are now conducting some portion of their business online, up from 90% in December, and 43% are utilizing ecommerce, an 8% increase over the same time period.
SMBs are finding opportunities internationally: even with supply chain disruptions during the pandemic, 63% of B2B companies report conducting some amount of cross border B2B trade, up from 59% in December.
SMB manufacturers surpassed other industries in digitization: amid the pandemic, manufacturers’ online B2B trade increased 8% – twice the rate of the overall 4% increase in all industries for the same period and tied with retail as the industries with the most digital growth. In December, U.S. manufacturers’ online B2B trade volume lagged all other industries except construction but have now passed multiple industries in their pivot to digital.
“We were happy to see the increasing digitization of US B2B companies and that many are increasing trade despite the pandemic, showing the resilience and grit of American business owners and entrepreneurs,” said John Caplan, President of North America and Europe of Alibaba.com. “Our research finds that digitization is no longer a nice-to-have, but a must-have for companies in every industry to bridge from surviving to thriving in the next era of business.”
Alibaba today announced it will invest $3.6 billion in Sun Art Retail Group, a huge hypermarket and supermarket operator in China. Sun Art is the largest retailer in China and competes head to head with Walmart. The transaction will give Alibaba a 72% controlling interest in the China-based brick and mortar retailer. Alibaba says that this purchase furthers its ‘New Retail’ strategy of integrating online and offline retail in China.
“Alibaba’s strategic investment in Sun Art in 2017 was an important step in our New Retail strategy,” says Alibaba CEO Daniel Zhang. “The alliance we formed with Auchan Retail and Ruentex was instrumental in building a robust infrastructure to create opportunities and value in China’s retail sector. Led by Chief Executive Officer Peter Huang, Sun Art has achieved impressive results in its digitalization and pursued promising synergies with businesses across the Alibaba digital economy. As the COVID-19 pandemic is accelerating the digitalization of consumer lifestyles and enterprise operations, this commitment to Sun Art serves to strengthen our New Retail vision and serve more consumers with a fully integrated experience.”
In 2017 Alibaba entered into a strategic alliance to digitalize and introduce New Retail solutions at Sun Art stores. The company says that since then “Sun Art has made significant progress in the digital transformation under a fast-changing market environment by leveraging resources and technology from the Alibaba ecosystem, to capitalize on the growth opportunities in China’s hypermarket and supermarket space.”
This acquisition reflects a growing retail trend in China. Euromonitor International said in a report earlier this year that merger and acquisition activities are expected to continue in the forecast period. As China’s retailing industry modernizes it is undergoing a drastic digital transformation. The forecasting firm also said that sun Art held a 14.1% share of the country’s hypermarket sales last year. That compares to Walmart’s 10.3% market share in that category.
As of June 30, 2020, Sun Art operates 481 hypermarkets and 3 mid-size supermarkets in China, with a focus on strengthening its position through small and offline community stores.
Here is the official joint announcement of the acquisition.
As US-led sanctions take a toll, Huawei is increasingly shifting its focus to the cloud to help secure its future.
Huawei is one of the main network equipment providers worldwide, competing with Nokia and Ericsson. In addition, it is one of the top smartphone makers. Despite its success, it has been under increasing pressure from the US over security concerns.
While all Chinese companies must comply with the Chinese government, Huawei is largely seen as having unusually strong ties to the Chinese intelligence and military community. As a result, US officials have been adamant in their accusations that Huawei represents a threat to the national security of any country allowing the company’s equipment on their networks. This has led the US, Australia, New Zealand and the UK to institute bans of the beleaguered company.
The US has also modified its Entity List and Foreign Direct Product Rule to exclude Huawei from accessing products based on US technology, even if those products are manufactured by non-US companies. This effectively cut Huawei off from TSMC, one of its biggest chip suppliers, causing Huawei to admit it will likely have to stop making its own chips as a result.
According to the Financial Times, Huawei is now shifting its focus to its cloud business in an effort to stabilize and ensure its future survival. Recognizing the growing importance of its cloud unit, Huawei elevated it to equal footing with its telecoms and smartphones units back in January. The company still has much ground to cover before it catches up with rivals Tencent and Alibaba, but FT reports the Chinese government is planning to give Huawei more public cloud contracts to help it stabilize.
Chinese tech giant Alibaba has announced its plans to invest $1.4 billion in smart speaker AI systems.
Alibaba gained famed as an e-commerce giant, but has been working to branch into other markets. One of its endeavors is the Tmall Genie smart speaker, similar to the Amazon Echo, which is not available in China.
According to U.S. News & World Report, “the money will be used to add more content to Tmall Genie, as well as develop proprietary technology, Alibaba said.”
AI has become the new tech battleground, as companies across multiple industries race to harness the power and promise of the technology. It seems Alibaba is willing to spend big to make sure it’s not left behind.
“Alibaba.com is the largest B2B marketplace on the planet,” says John Caplan, the North America B2B President at Alibaba Group. “Today is a great day for US small businesses. Manufacturers and wholesalers can join Alibaba.com today to sell to the world. The platform is now open to enable those businesses to reach the 190 countries at four corners of the globe where we have ten million business buyers on the platform. That business is $23.9 trillion and in fact, it’s six times larger than the B2C market.”
Today is a great day for US small businesses. Manufacturers and wholesalers can join Alibaba.com today to sell to the world. The platform is now open to enable those businesses to reach the 190 countries at four corners of the globe where we have ten million business buyers on the platform. That business is $23.9 trillion and in fact, it’s six times larger than the B2C market. Alibaba.com is the largest B2B marketplace on the planet. What we built are simple to use tools for small businesses to have a global storefront, to market to customers, and then to reach deep into the globe so that they can sell their goods.
Today’s the big announcement. But in fact, one-third of the demand, the buyers on Alibaba.com, are here in the United States. So those folks we’ve been doing business with for 20 years since Jack founded the company. Now what we’re saying to them is you’ve been sourcing on the platform and now you can, in fact, sell to the world on the platform. We are entirely focused on the B2B market. It is $23.9 trillion. Alibaba.com is purpose-built to help small businesses sell to the world. We’re very focused on helping digitize small businesses around the globe.
70 Percent of US Small Businesses Do Not Sell Online
One interesting statistic, 70 percent of US small businesses do not sell online today. This market is not yet digitized. What we’ve created are simple to use tools to help small businesses get online. It’s an interesting space because. In fact, the value chain for small businesses, the value chain for B2B is so complex that no one has digitized it end-to-end other than Alibaba.com.
We’ve actually created a platform that enables a small business to message, talk to, negotiate with, pay, and handle the logistics for orders end-to-end. I think we’re in a class by ourselves. Our business has seen a triple-digit growth and this plan has been in the works for many years. I joined Alibaba.com in 2017. The transformation of our business from a yellow page business to an end-to-end procurement platform is now adding the globalized supply to the platform.
Alibaba.com Opens World’s Largest B2B Marketplace To US Businesses – John Caplan
With the future of retail we have crossed over the demarcation line, says Walter Robb, the former co-CEO of Whole Foods. “We’re not going back to the old retail,” said Robb. “It’s just not going to happen. That’s the combination of digital and physical. We’re in what I would call new retail, which is the integration.”
From where I sit the customer is doing pretty well. They’re spending. They’re pretty strong. There was a lot of pessimism at the back half of last year that was reflected in some of the stock prices, but I think that was overblown. We’re going to see a customer that’s doing pretty well this year in 2019 and might surprise a little bit to the upside. That being said, traditional retail models are under pressure. The customer is spending their dollars in so many different ways and places than they could before. You used to just open up four walls and open a store and now the customer has so many more options.
We do know that in the United States we’re about 24 square feet of retail space per capita and that’s two and a half times more than any other industrialized country. We have too much space so there’s going to be a winnowing out that’s going to happen here. There’s going to be winners and losers and we’re already seeing that. In 2019, I think that continues, but I do think that we’re in the second half of that. What we’re actually seeing that the mall is beginning to switch over and putting in exciting new uses and we’re seeing retail stores start to open again.
We Are Not Going Back to Old Retail
With the future of retail, we have crossed over the demarcation line. We’re not going back to the old retail. It’s just not going to happen. That’s the combination of digital and physical. You’re seeing the digital retailers, the Allbirds, the Warby Parker’s, come out and say, alright we’re going to open physical stores because we realize our customers want to experience our brand and be with us in that way. They’re bringing new ideas to that presentation of retail, which is pretty exciting.
At the same time, you’re seeing physical retailers adapt to digital ways. Take a look at Target and how they’ve employed all the new tools that they have for the customers, in-store apps and those sorts of things. You’re seeing a combination of these two. In some cases it’s adolescent and in some case it’s more mature, but we are not going back to just the simple form retailer. We’re in what I would call new retail, which is the integration.
The edge of which is actually in China with a supermarket called Hema from Alibaba, which is which is simply fantastic. It’s integrated on the back end and on the front end. I think you’re seeing retailers say, we’ve adapted to the age of Amazon and we understand this is how customers want to shop. We’re seeing a whole new generation of businesses and entrepreneurs say, I’m going to bring the customer this fusion of digital and physical in a way that’s really exciting and really compelling. We’re not going back. I opened my first store in 1978 but that’s just not as easy to do anymore because you have to have that the tools to really understand your customer personally. I think it’s pretty exciting to see what’s happening.
Physical and Digital Retailers Need Each Other
The business model on the last mile is very challenging unless you’re connected into a physical store. If you just out there floating without a connection to physical retail those have not proven to be sustainable. I think it’s clear to me that the customer wants that choice. I think the data is very clear that they want both. They’re not going to give up physical stores and that’s why you’re seeing these digital and physical retailers. They need each other and they need both parts of that to make the thing actually compelling for the customer.
I think there’ll be a shakeout. You seem some consolidation already, but the most interesting combinations are where the physical retailer buys the digital, where Target buys Shipt and where Walmart buys Flipkart or whatever you see around the world, realizing the combination is the most powerful. That will be the most sustainable from a business model perspective.
We Are Not Going Back to Old Retail, Says Walter Robb, former co-CEO of Whole Foods
SAP CEO Bill McDermott remains very optimistic about doing business in China. He says that SAP has a fundamental belief in China and continues to invest in China. “We’re not having challenges in China,” says McDermott. “We’re doubling down in China. China has been very kind to SAP and we have been very kind to China. It’s a win-win.”
Bill McDermott, CEO of SAP, discussed their continued belief in China in an interview on CNBC International:
We’re Doubling Down in China
We have really a fundamental belief in China. China is the jewel in the crown for SAP. We actually defined it as a second home many years ago. We continue to invest in China and China continues to invest in SAP. It’s the fastest growing market we have in the world. As you know I spend quite a bit of time in China. When I was there last year we formed a very strategic partnership with several firms including the Alibaba Group, partnering with Jack Ma and Daniel Zhang and the Alicloud.
When you think about the infrastructure as a service of Alicloud with SAP’s business software market leadership you have a business model that generates incredible growth for both companies, but also serves customers beautifully. We’re not having challenges in China. We’re doubling down in China. China has been very kind to SAP and we have been very kind to China. It’s a win-win.
I Think a Trade Deal is on the Horizon
I remain optimistic on that front. Optimism is probably the only free stimulus any of us can get our hands on these days. Look, it’s an uncertain world. If there’s not the US-China tariff and global uncertainty on trade, it’ll be Brexit. If it’s not Brexit, it’ll be something else. What we do is we manage a portfolio of businesses geographically and through our industry domain expertise. When you go to market in 193 countries you’re going to have dislocations.
In an uncertain world, steady leadership always prevails. Our numbers said that in 2018 and they’ll say that again in 2019 and beyond. I do hope that it comes to terms in a positive way. I actually believe it will because business sense tends to prevail and you’ve got the number one and two economy in the world that both could benefit greatly from a deal. So I think a deal is on the horizon. I’m actually very optimistic.
Starbucks CEO Kevin Johnson isn’t worried about competitors in the fast-growing coffee market in China. He says that competition is actually broadening the addressable market by introducing tea drinking Chinese to coffee. Starbucks has nearly 3,700 stores in China already and is generating double-digit transaction growth. For Starbucks, their growth in China and around the world continues to be driven by providing a unique customer experience that is like no other in their industry.
Kevin Johnson, CEO of Starbucks, talked about how their unique customer experience is driving massive growth in China in an interview on CNBC:
We Are Playing the Long Game in China
The number one metric that we look at in China is total transaction growth. Those total transactions come from a combination of new stores that we build as well as same-store comps. We increased the number of stores in China by 18 percent this quarter and so if you put all of that together we had double-digit transaction growth in China. China is a market that is all about first mover advantage. It’s about building new stores and expanding our presence.
In fact, we’re now approaching 3,700 stores in China. We entered ten new cities last quarter and we’re now in 158 cities in China. The addressable market and the growth opportunity in China is significant. So the priority we have is really expanding our footprint while we continue to enhance the experience in our stores, drive beverage innovation, and enable new channels for customers to engage with Starbucks, as we are with Starbucks Delivers. We are playing the long game in China.
Starbucks Coming Out on Top in China
Whenever you have a large addressable market around coffee in China you’re going to have a lot of competitors come in. Some of those competitors are going to try and differentiate in different ways. They’re going to have to use price and be highly promotional in what they do. For Starbucks, we differentiate on the in-store experience. We differentiate on the quality of our coffee and we differentiate on the digital reach that we have through our partnership with Alibaba.
The one thing that the competition is certainly doing in China is expanding the addressable market for coffee. It’s introducing the Chinese consumer, who is primarily a tea drinking culture, to coffee. That’s helpful for the growth in the addressable market for Starbucks. We’re confident we’re going to play our game. We know how to create the kind of experience and leverage the brand strength that we have in China to create that unique differentiated opportunity for us to engage in customers. So I think if you look at the overall landscape of who is growing the most share of transactions and engagement with the customer, I think Starbucks comes out on top.
When you look at a competitor in China like Luckin and they talk about the number of units that they’re growing, I think sometimes a unit would look perhaps like a Starbucks store, but most of the times they look like a point of presence. That said, we have a lot of points of presence. We’re at 3,700 stores. We’ve also got our global coffee alliance with Nestle coming in with food services and CPG.
Extending In-Store Experience With a Digital Mobile Relationship
The reason you want to come to Starbucks is because we create that unique customer experience. We serve the world’s finest Arabica coffee. Our partners will handcraft that beverage to your perfection. We create an experience like no other in the industry. We’re going to continue to stay true to the experience we create in our stores and how we extend that experience with a digital mobile relationship.
The China Digital partnership with Alibaba is making great progress. We now have the virtual Starbucks store integrated into the Alibaba properties. That’s now reaching 600 million Chinese who use Alibaba on a daily basis. We think the strategy that we’re on is the right one. It’s it’s allowing us to continue to grow transactions in the double digits and we’re going to continue to play the long game with the strategy that made Starbucks what it is today in China.
Based on a successful delivery trial in China via Alibaba and Uber Eats in Miami, Starbucks has announced that they are adding delivery nationwide. Starbucks COO Rosalind Brewer says they are still looking at the total cost of delivery very “carefully” but they are emboldened by the higher average sale with delivery orders.
Starbucks Delivery via Uber Eats Expanding Nationwide
We’ve had a great trial in Miami and we chose Miami because we know what the temperatures are in Miami. We’ve seen great drink consistency. We’ve seen really good leverage on the ticket, so we’re seeing both food and beverages being ordered. We’re seeing a much larger ticket when we see a delivery from Starbucks.
We’re really pleased that we’re doing this partnership with Uber. We’re learning a lot about technology integration and that’s the real result here, just really making sure that the technology comes together and then we deliver the best product for the customer.
The question around is this a profitable opportunity for us is one of the things that we’re evaluating because it does cost more to deliver coffee. But we are seeing an expanded ticket and that average ticket is really what we need to see happen as we approach delivery. We’re encouraged right now but we’re actually monitoring that very carefully.
Learned From the Alibaba Partnership in China
We’re using a lot of the learnings from China in terms of things like packaging. Not only is it an automobile delivery, we’re seeing that it’s bicycle delivery as well. So we’re understanding that very well. We’re also understanding what is the offering? Should it be the full menu and what dreams do best when they have to be delivered?
State of the Starbucks Economy
What we’re seeing right now is that something like a Starbucks cup of coffee which some assume is an affordable luxury, we’re really comfortable right now. I will tell you one thing about our holiday season that we’re in right now. We learned a lot from what we did last year and we’re really encouraged by the reusable red cup that we entered this year.
We’re doing marketing campaigns and every time we see the Starbucks name mentioned in media we get a pop in our performance. So we’re really pleased with what we’re seeing and we’re a little bit less concerned with the turndown that everyone’s talking about.
When you look at what Starbucks is doing particularly in China and in the US is that we’re still opening new stores. In China, there is still a lot of addressable market for us to participate in. You’ll see us be pretty bullish on the work that we’re doing with new stores and we’re adding delivery which is all incremental business. At this time there’s opportunity for us to continue to grow but we’re watching carefully some other things that are happening globally.
Beverage Innovation is Our Biggest Driver of Growth
The biggest driver of growth for us going forward will be our beverage innovation. You saw us earlier this year introduce a new espresso. You’ll see us bring more of our learnings from our roasteries in terms of what can happen with our beverage innovation. You’ll see us talk more about our Cold Platform, things like our Nitro Cold Brew, and then some of our other beverages that are really doing well for us right now.
On-demand is an infrastructure for the future of retail says Alibaba CEO, Daniel Zhang. He envisions a world where virtually every product, even pharmaceuticals, will be available to be delivered on-demand 24-hours a day to customers.
Daniel Zhang, Alibaba CEO, discussed the future of retail on CNBC International:
On-Demand Delivery to Power the Future of Retail
On-demand delivery is an infrastructure not only for the food delivery business. This is also an infrastructure for the future of retail. In terms of food delivery, I think today more and more young people need these services and they either don’t have time to cook or they simply don’t don’t cook so the people need this food delivery.
When we look at this on-demand delivery network this also can serve many other product categories. For example, people can order some medicine from some pharmacies at night if they catch a cold. This could be an infrastructure for the future of integrated digital business.
Every Business Will be Powered by Cloud
Cloud computing is our long-term strategy and we strongly believe that every business in the future will be powered by cloud. We are very happy to build this crowd infrastructure in the new digital era and support all the business to go digital. I think cloud will be the main business of Alibaba in the future.
Voice is the Next Entry Point of the Internet
We believe that voice is the next entry point of the Internet. If you look at the history of the Internet we have the PC times and people got into the internet by clicking. Then you have the mobile internet where people go to the internet by scrolling the screen. Now it comes to the voice age where people can go to the virtual world by our voice.
That’s why we started to work on Tmall Genie and we strongly believe this could be an entry point in the living room when people want to go to the virtual world. This is also how people not only enjoy the services by the voice but also can monitor the equipment and the facilities in the home.
