Starbucks has announced it is selling a 60% stake in its China operations to private equity firm Boyu Capital in a deal valued at $4 billion, a strategic overhaul designed to navigate intense local competition and fuel future growth in what has become its second-largest market.
The agreement, which values the coffee giant’s Chinese retail business at $13 billion, marks a significant shift in strategy as Starbucks seeks to reinvigorate its brand and expand its footprint in the face of slowing sales and the rapid rise of domestic rivals.
A strategic partnership for future growth
Under the terms of the deal, Starbucks will retain a 40% stake in its Chinese retail operations and will continue to own the Starbucks brand in the country.
The business will remain headquartered in Shanghai, with ambitious plans to grow its current network of 8,000 outlets to as many as 20,000 locations.
In a statement, Starbucks described the partnership with Boyu as a “significant milestone,” one that combines its “globally recognised brand, coffee expertise, and partner (employee)-centred culture with Boyu’s depth of understanding of Chinese consumers.”
The company plans to introduce new drinks and digital platforms, with the deal expected to be finalized next year.
Navigating a challenging and competitive market
The move comes as Starbucks grapples with years of declining sales in China, a trend exacerbated by the Covid-19 pandemic, slower consumer spending, and fierce competition.
Beijing-based Luckin Coffee, in particular, has emerged as a formidable challenger, now operating more stores in China than Starbucks and winning over customers with lower prices and frequent discounts.
In response, Starbucks has also been forced to cut its prices, a move that has put pressure on its profitability and prompted a strategic rethink.
A well-worn path for global brands in China
Starbucks is not the first global consumer giant to recalibrate its China strategy in the face of local challenges.
The agreement marks one of the largest deals of its kind in recent years and follows a similar path taken by other major US brands.
In 2016, Yum! Brands spun off the Chinese operations of KFC and Pizza Hut after years of struggling in the country.
Other well-known American companies, including fashion chain Gap and ride-hailing platform Uber, have also faced significant hurdles in the world’s second-largest economy.
The decision had been anticipated for months after former CEO Laxman Narasimhan said last year the company was exploring “strategic partnerships” to remain competitive.
The new deal is a key part of the broader global turnaround mission being led by current CEO Brian Niccol.
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