Starbucks sells majority stake in China business as it eyes expansion

After years of losing market share to local rivals in China, Starbucks has announced it will sell the majority stake in its Chinese business to a Hong Kong-based private equity firm for $4 billion.

Boyu Capital will acquire a 60% stake in Starbucks’ Chinese retail operations through a joint venture, according to the announcement made on Monday.

According to the Reuters news agency, Alvin Jiang, the grandson of former Chinese President Jiang Zemin, is one of the cofounders of Boyu Capital, which has offices in Shanghai, Beijing, and Singapore.

The US coffee giant will keep its 40% stake in its China operations while maintaining its intellectual property and brand rights, according to the company.

The deal establishes Starbucks’ 26-year history in China, the company stated in a statement.

According to Jason Yu, the managing director of CTR Market Research in Shanghai, it will also provide Starbucks with much-needed financial and logistical support as it tries to expand its business further into China.

Starbucks currently has 8, 000 locations in China, but the company wants to start 20 000 through its joint venture, according to a statement from the company.

According to Yu, “Starbucks was a pioneer in coffee in China, where it was probably the first coffee chain in a lot of cities,” but this is no longer the case because local competition has already outpaced Starbucks in expansion.”

Homegrown Luckin Coffee, which has more than 26, 000 locations worldwide, most of which are in China, is one of its main rivals.

While Luckin has grown to much smaller cities, Starbucks has historically concentrated in first- and second-tier cities like Shanghai, Beijing, and Shenzhen.

Through its loyalty program and in-app discounts, Luckin has also established itself as a provider of customers much less expensive beverages than Starbucks.

According to Yu, a small Americano coffee at Starbucks costs 30 yuan ($4.21), but a similar cup of coffee can be purchased for about 10 yuan ($1.40) at Luckin.

Starbucks has struggled to keep up with consumer preferences and competitive pricing, according to Olivia Plotnick, the founder of Wai Social, a social marketing firm based in Shanghai.

Starbucks has lost its once very competitive edge as a result of domestic players like Luckin and later Cotti Coffee undermining it on price, footprint, and flavor, according to Plotnick, who is credited with this. Plotnick referred to the fierce competition between apps for delivery services, which lower prices like coffee, as a term used in “delivery platform wars.”

As more storefronts are built in regional cities, Yu said, the joint venture between Starbucks and Boyu Capital will not only give the company more money for investment, but also provide assistance with logistics, infrastructure, and managing commercial property.

He claimed that the business is following a well-known blueprint used by other global brands in China.

Yum Brands, the owner of KFC and Pizza Hut, sold a stake in their China business to Primavera Capital, an affiliate of the e-commerce giant Alibaba Group, in 2016, according to Reuters. The China business was later transformed into a single entity.

McDonald’s acquired a majority stake in its businesses in China, Hong Kong, and Macau from the state-backed Chinese conglomerate CITIC and Carlyle Capital in 2017, but it later acquired some of its shares of the business, according to CNBC.

Source: Aljazeera