Starbucks has officially announced its decision to sell a majority stake in its Chinese operations for a substantial $4 billion. This move comes amid ongoing challenges the company faces in maintaining its market share against local competitors in China. The announcement was made on Monday, revealing that Hong Kong-based private equity firm Boyu Capital will acquire a 60 percent stake in Starbucks' retail operations through a strategic joint venture.
Boyu Capital, which has established offices in major cities such as Shanghai, Beijing, and Singapore, is co-founded by Alvin Jiang, the grandson of former Chinese President Jiang Zemin. Following the transaction, Starbucks will retain a 40 percent interest in its Chinese operations, while also maintaining ownership of its brand and intellectual property. This deal signifies a “new chapter” in Starbucks' 26-year history within the Chinese market, as stated by the company.
According to Jason Yu, managing director of CTR Market Research based in Shanghai, this partnership will provide Starbucks with essential funding and logistical support necessary for expanding its business further into China. Currently, Starbucks boasts around 8,000 locations across the country but aims to increase this number to as many as 20,000 via the joint venture.
Starbucks has historically dominated the coffee market in first- and second-tier cities such as Shanghai, Beijing, and Shenzhen. However, the rise of local competitors, particularly Luckin Coffee, has posed significant challenges. Luckin Coffee has expanded rapidly, now operating over 26,000 locations globally, primarily in China. Unlike Starbucks, Luckin has penetrated smaller cities, offering drinks at considerably lower prices, which has drawn customers away from Starbucks.
For instance, a small Americano at Starbucks costs approximately 30 yuan ($4.21), while the same drink at Luckin is priced around 10 yuan ($1.40), according to Yu.
Olivia Plotnick, founder of the Shanghai-based social marketing company Wai Social, noted that Starbucks has struggled to adapt to competitive pricing and evolving consumer preferences. She stated, “Domestic players like Luckin and Cotti Coffee are undercutting Starbucks on price, footprint, and flavor, driven by technology and the rise of milk tea brands.”
Additionally, Plotnick highlighted the impact of delivery platform competition, which has intensified price wars among services that deliver coffee and other beverages, further challenging Starbucks' market position.
Starbucks’ joint venture with Boyu Capital mirrors strategies employed by other international brands in the Chinese market. For instance, in 2016, Yum Brands, the parent company of KFC and Pizza Hut, sold a stake in its China business to Primavera Capital and Alibaba Group following a food safety scandal. Similarly, in 2017, McDonald’s sold a majority stake in its operations in China, Hong Kong, and Macau to CITIC and Carlyle Capital, which later resulted in the doubling of its outlets in China.
As of late 2023, McDonald's aims to reach 10,000 restaurants in China by 2028, following the successful partnership with CITIC.
The sale of a majority stake in its Chinese operations represents a significant shift for Starbucks as it seeks to strengthen its presence in an increasingly competitive market. By leveraging the resources and expertise of Boyu Capital, Starbucks aims to enhance its growth strategy and reclaim its leadership position in the Chinese coffee market.
