Starbucks to sell 60% China business to Boyu Capital for $4 billion amid competition from local brands. Details here
Famous coffee chain Starbucks Corp. has given approval to sell a majority stake of its business in China to private equity firm Boyu Capital for $4 billion in order to expand 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 retailer, the companies said in a statement. Starbucks will retain the remaining 40% and continue to license the brand and intellectual property rights to the joint venture.
The deal concludes Starbucks’ search for a partner to guide its next phase in China, where it has about 8,000 stores since opening its first location in Beijing in 1999. Starbucks has recently faced challenges similar to other Western companies that have lost market share to local rivals due to rising nationalism and reluctance to pay higher prices to foreign brands, Bloomberg reported.
Competition from local brands
Xiamen-based Luckin Coffee Inc. overtook Starbucks as China’s largest coffee chain two years ago by offering coffee at one-third the price. While maintaining Starbucks’ store format is costly, customers’ willingness to pay high prices has diminished since the COVID-19 pandemic and ongoing economic crisis.
Boyu had become a leading contender as Starbucks considered five offers from potential suitors.
Founded in 2011 and headquartered in the Cayman Islands, Boyu invests in private equity, public equity, real estate and infrastructure, according to its website. It also operates a venture capital and renewable energy platform. Private equity investments focus on sectors such as technology, consumer and retail, and healthcare.
Starbucks China business
“We see a path from today’s 8,000 Starbucks coffee shops to over 20,000 over time,” Starbucks Chief Executive Officer Brian Niccol said in a blog post.
In the fourth quarter, comparable store sales in China rose 2%, marking the company’s first positive increase in same-store sales in more than a year.
According to the statement, the coffee retailer estimates the total value of its China retail operations will exceed $13 billion, including the value of the licenses.
Starbucks shares were up less than 1% at 6:17 p.m. ET in after-hours trading in New York. The stock is down about 11% this year, compared with a gain of about 17% for the S&P 500 Index, Bloomberg reported.
Starbucks introduced free “work rooms” in some stores earlier this year as part of attracting customers in China. Under the leadership of new China president Molly Liu, the company has expanded its beverage menu to offer more sugar-free options and teas based on local preferences, lower prices on a variety of beverages, and increase customization options. This approach contrasts with recent US strategies that streamline the menu to increase operational efficiency.
