Starbucks said it will sell control of its operations in China to private equity firm Boyu Capital in a deal valuing the business at $4 billion, as the U.S. coffee giant seeks to reignite growth in its second-largest market amid intensifying competition from local rivals, as reported by Reuters.
The Seattle-based company said funds from Boyu will help it expand in China, where budget chains such as Luckin Coffee and Cotti Coffee have disrupted the market with lattes priced at just 9.9 yuan ($1.4), a fraction of Starbucks’ prices.
Boyu to Hold 60% Stake in New Venture
Under the terms of the agreement, Boyu, whose founders include the grandson of former Chinese President Jiang Zemin, will own up to 60% of a new joint venture, while Starbucks will retain 40% and continue to license its brand and intellectual property to the venture.
According to Reuters, Starbucks said the value of its retail business in mainland China, including proceeds from the sale, the value of its retained stake, and expected licensing income over the next decade, would total more than $13 billion. Shares of Starbucks rose 3% in after-hours trading following the announcement.
Market Share Erosion
Starbucks pioneered China’s café culture after entering the market in 1999, but its market share has fallen to 14% in 2024 from 34% in 2019, according to Euromonitor International.
Analysts expect Starbucks to focus on its premium in-store experience rather than engage in a price war with local chains like Luckin, which now operates over 20,000 outlets across China and recently entered the U.S. market with stores in New York.
Despite growing competition, Starbucks’ comparable-store sales in China rose 2% in the quarter ended June 29, compared with zero growth in the prior quarter, aided by new localised menu offerings and price cuts on select beverages.
Boyu is expected to help Starbucks expand into lower-tier cities and enhance operational efficiency, according to a person familiar with the firm’s plans. Other global companies have taken a similar route: McDonald’s, for instance, sold 80% of its China and Hong Kong operations in 2017 to investors, including CITIC, for $2.1 billion, a partnership widely viewed as successful.