On Monday, Starbucks announced a significant move to strengthen its presence in the Chinese market by forming a joint venture with Boyu Capital, an alternative asset management firm. As part of this strategic partnership, Boyu Capital will invest approximately $4 billion to acquire up to a 60% interest in the newly formed joint venture. Starbucks will retain a 40% stake in the venture, allowing the company to maintain its brand licensing and intellectual property rights.
This announcement follows a comprehensive review by Starbucks over several months, during which the company explored various strategic partnerships. Starbucks has valued its China business at over $13 billion, a figure that reflects both the sale of the controlling stake in the joint venture and the potential income from licensing fees. The deal is anticipated to close in the second quarter of fiscal 2026, pending necessary regulatory approvals.
Starbucks opened its first store in China in 1999, and by 2015, it had become the company's second-largest market, trailing only behind the United States. Today, Starbucks operates around 8,000 locations in China, but the company has ambitious plans for expansion. Molly Liu, CEO of Starbucks China, stated that this partnership will enable the company to fully capitalize on the substantial market opportunities in the country.
Starbucks CEO, Brian Niccol, shared his vision for the future during an interview with CNBC, suggesting that China could potentially host up to 20,000 or even 30,000 locations nationwide. Despite these aspirations, Starbucks has faced challenges in recent years, including a decline in sales attributed to the pandemic and the resulting government restrictions, as well as increased competition from local coffee chains.
Rival Luckin Coffee has surged ahead, boasting more stores than Starbucks in China and attracting customers with lower-priced drinks. In a recent report, Starbucks revealed a 2% increase in same-store sales for its fiscal fourth quarter in China, driven by a 9% rise in customer traffic. However, the company has resorted to discounting strategies to compete, which has subsequently led to a decrease in the average ticket price at its Chinese cafes, impacting profitability.
While Starbucks executives remain optimistic about the company’s long-term prospects in China, the recent underperformance has affected Starbucks' overall financial results. China’s large population and rapidly growing economy have traditionally made it a lucrative market for U.S. corporations. However, the recent economic slowdown and intensified competition from local brands have compelled many companies, including Starbucks, to reevaluate their strategies in this challenging landscape.
