Starbucks Corp is exploring strategic options for its China business, including a potential stake sale, as the global coffee giant navigates increased competition in its second-largest market. According to sources familiar with the matter, Starbucks has reached out to private equity firms, technology companies, and other potential investors to gauge interest and discuss potential growth strategies.
The company, working with a financial adviser, has reportedly sent letters to several prospective investors, soliciting their insights on the future of its China operations. While discussions are still in the preliminary stages, a potential transaction could value the assets at several billion dollars. However, Starbucks may ultimately choose not to pursue a deal.
This strategic consideration follows a challenging period for Starbucks in China, where local competitors such as Luckin Coffee Inc and Cotti Coffee have rapidly expanded. Luckin, in particular, has emerged as a formidable rival, reporting net revenue of US$1.2 billion in the quarter through March, significantly surpassing Starbucks’ US$740 million net revenue from its 7,750 stores in the country during the same period.
Starbucks CEO Brian Niccol previously acknowledged the competitive pressures in China, stating during an April earnings call that the company had implemented changes to product offerings and pricing as part of a broader strategy to drive progress. Niccol reiterated Starbucks’ commitment to China, describing it as a long-term growth market.
“We remain committed to China for the long term,” Niccol said. “We see great potential for our business there in the years ahead and remain open to how we achieve that growth.”
In a separate statement in October, Niccol hinted at potential partnerships to support the company’s long-term objectives, without providing specifics. Starbucks’ decision to explore options follows similar moves by other global restaurant chains in China. In recent years, both McDonald’s Corp and Yum! Brands Inc, parent of KFC, divested stakes in their China operations to private equity firms to better adapt to local preferences.
Starbucks shares have seen a decline of 25% since reaching a peak on 28 February, highlighting investor concerns over the company’s performance in China and the broader challenges facing the brand amid heightened competition.
-Bloomberg
