Starbucks Scales Down Ownership in China for Major Growth Strategy

Starbucks has announced a significant shift in its strategy for its second-largest market, China. The world’s leading coffee retailer is selling a 60% majority stake in its Chinese operations to the investment firm Boyu Capital in a deal valued at $4 billion (£3.04 billion). Following the transaction, Starbucks will retain a 40% stake and maintain full ownership of the Starbucks brand within China.

Valuing its China retail business at $13 billion, the company stated this partnership is a “significant milestone” aimed at long-term expansion. 

Despite recent struggles with rising domestic competitors like Luckin Coffee, slower consumer spending, and the pandemic’s impact, Starbucks plans to grow its current 8,000 outlets to as many as 20,000 locations.

The new partnership, headquartered in Shanghai, aims to merge Starbucks’ globally recognized brand and coffee expertise with Boyu Capital’s deep understanding of Chinese consumers. Starbucks intends to roll out new beverages and digital platforms to boost competitiveness.

This deal follows months of uncertainty and exploration of “strategic partnerships” under former CEO Laxman Narasimhan, and marks one of the largest transactions involving the Chinese assets of a global consumer brand in recent years. Other major US brands, including KFC, Pizza Hut, Gap, and Uber, have previously faced significant challenges in China’s competitive market.

Since becoming CEO last year, Brian Niccol (former Chipotle boss) has been aggressively working to revitalize the global business through menu revamps and a focus on hiring baristas over automation. The company hopes this new structure will stabilize its profits, which have been affected by necessary price cuts to compete with lower-cost rivals like Luckin Coffee, which now operates more outlets in China.

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Source: Osmond Chia, BBC