Starbucks sells 60% stake in China operations in $4 billion deal

Starbucks has announced it is selling a 60% stake in its business in China to investment firm Boyu Capital in a deal worth $4 billion. Under the terms of the agreement, Starbucks will retain a 40% stake in the Chinese retail operation, along with ownership of the Starbucks brand in the country.

The coffee giant entered the Chinese market in 1999, and the country has since become its second-largest market after the United States. However, in recent years, Starbucks has faced increasing competition from local brands like Luckin Coffee, which has been rapidly expanding across China, BBC writes. 

Despite these challenges, Starbucks said the new partnership signals its long-term growth plans in the region. The business, headquartered in Shanghai, operates more than 8,000 outlets in China, with plans to expand to 20,000 locations. The company has put a $13 billion valuation on its retail operations in the country.

"This partnership with Boyu is a significant milestone for Starbucks as we look to drive long-term growth in China," said the company in a statement. "It combines Starbucks' globally recognised brand, coffee expertise, and partner-centered culture with Boyu's depth of understanding of Chinese consumers."

Starbucks also emphasised that the deal will pave the way for new product introductions and digital innovations in China. The agreement is expected to be finalised next year.

Boyu Capital, a private equity firm with offices in Shanghai, Hong Kong, and Singapore, specialises in investing in retail, financial services, and technology sectors.

The move follows comments made by former Starbucks CEO Laxman Narasimhan last year, where he revealed the company was exploring "strategic partnerships" to remain competitive in China. Narasimhan’s statement came amid declining sales in the country, which were affected by the Covid-19 pandemic, slower consumer spending, and intense competition.

Luckin Coffee, a Beijing-based competitor, has now overtaken Starbucks in the number of outlets in China. The local chain has built a loyal following with its lower prices and frequent promotions. In response, Starbucks has lowered its prices in the country, though this has impacted its profit margins.

The agreement also follows a broader trend of global companies facing challenges in China. In 2016, Yum! Brands spun off KFC and Pizza Hut's operations in the country after struggling for years. Similarly, major U.S. brands like Gap and Uber have faced difficulties in the Chinese market.

Under the leadership of Brian Niccol, who became CEO of Starbucks last year, the company is aiming to revitalise its global business. Niccol, previously the CEO of Chipotle, has led a revamp of Starbucks' menu and announced plans to hire more baristas while scaling back on automation efforts.

With more than 40,000 locations worldwide, Starbucks continues to adapt to an ever-changing global market.

By Sabina Mammadli