Renowned coffee chain Starbucks Corp. gave the nod to sell a majority stake of its China business to private equity firm Boyu Capital for $4 billion with the aim to improve its business in the country.
Boyu Capital will own a 60% stake in Starbucks’ retail operations in China through a joint venture with the coffee seller, the companies said in a statement. Starbucks will retain the rest 40% stake and will continue to license the brand and intellectual property to the joint venture.
The agreement concludes a search for a partner to guide Starbucks through its next phase in China, where it has approximately 8,000 stores since opening its first location in Beijing in 1999. Recently, Starbucks has faced challenges similar to other Western companies that have lost market share to local competitors due to increasing nationalism and a reluctance to pay higher prices for foreign brands, Bloomberg reported.
Competition from domestic brands
Xiamen-based Luckin Coffee Inc. overtook Starbucks as China’s largest coffee chain two years ago by offering coffee at a third of the price. Although maintaining Starbucks’ store format is costly, customer willingness to pay premium prices has decreased since the COVID-19 pandemic and the ongoing economic downturn.
Boyu had become the leading contender as Starbucks was considering five bids from potential suitors.
Established in 2011 and headquartered in the Cayman Islands, Boyu invests across private equity, public equities, real estate, and infrastructure, as per its website. It also operates a venture capital and renewable energy platform. Its private equity investments focus on sectors such as technology, consumer and retail, and healthcare.
Starbucks China business
“We see a path to grow from today’s 8,000 Starbucks coffeehouses to more than 20,000 over time,” Starbucks Chief Executive Officer Brian Niccol said in a blog post.
In the fourth quarter, comparable store sales in China grew by 2%, marking the company’s first positive same-store sales increase in over a year.
The coffee seller estimates that the total value of its China retail operations will surpass $13 billion, including the value of licenses, according to the statement.
Starbucks shares increased by less than 1% at 6:17 pm (ET) during after-hours trading in New York. The stock has fallen approximately 11% this year, compared to nearly a 17% rise in the S&P 500 Index, Bloomberg reported.
As part to attract customers in China, Starbucks launched free “study rooms” in some stores earlier this year. Under the leadership of Molly Liu, the new China head, the company has expanded its drinks menu to offer more sugar-free options and teas tailored to local preferences, reduced prices on various beverages, and increased customisation options. This approach contrasts with recent US strategies, which have streamlined the menu to improve operational efficiency.