Starbucks The company agreed to sell a majority stake in its China business to private equity firm Boyu Capital for an enterprise value of $4 billion in a bid to improve the coffee chain’s decline in China.
Boyu Capital will hold up to 60% of Starbucks’ retail business in China through a new joint venture with coffee sellers, the two companies said in a statement. Starbucks will hold the remaining 40% stake and continue to license the brand and intellectual property rights to the joint venture.
The agreement marks the end of Starbucks’ search for a partner to help it start its next chapter in China. Since opening its first store in Beijing in 1999, Starbucks has approximately 8,000 stores in China. However, Starbucks has struggled in recent years and other Western companies have lost ground to local rivals due to rising nationalism and an unwillingness to pay premiums for foreign brands.
Xiamen-based Luckin Coffee Co. overtook Starbucks as China’s largest coffee chain two years ago by selling coffee for less than a third of the price. Although Starbucks stores are expensive to maintain, customers have become less willing to pay higher prices for their drinks since the onset of the coronavirus pandemic and the ongoing economic downturn.
“Starbucks’ store expansion has been limited due to fierce competition from local rivals, and with sufficient capital and Boyu’s retail experience, the deal is expected to accelerate growth,” said Jason Yu, managing director of CTR Market Research in Shanghai. “Boyu needs to balance Starbucks’ brand positioning and engage in price competition, otherwise it will harm its long-term profitability in China.”
Bloomberg previously reported that Boyu has become leaderother companies, including internet companies, can join as limited partners to help co-finance the deal.
The private equity firm also Negotiating with bank According to people familiar with the matter, the company will obtain a loan equivalent to approximately US$1.4 billion to support its investment in Starbucks’ China business.
Real estate expertise
Starbucks is the latest foreign retail company to team up with local partners to reverse its ailing fortunes in China as an ongoing property slump erodes consumer interest in everything from high-end luxury goods to ice cream. general millsHaagen-Dazs, which owns Haagen-Dazs, is also considering selling its more than 250 stores in China. Restaurant Brands International Inc. also allegedly Consider selling Granted a controlling stake in Burger King’s China operations to a local private equity firm.
of McDonald’s Corporation and Yum! Brands, Inc. KFCBringing in local investors for its China operations years ago has helped the fast-food chain successfully remain competitive over the years.
highFrom Starbucks’ perspective, its connection to China could be its winning factor. Its expertise in commercial real estate and property management – recently acquiring a controlling stake in an operator China’s top luxury shopping mall SKP It also controls property management service provider Jinke Intelligent Service Group, which can help the coffee chain improve and expand its store network.
“We see a path to growing from 8,000 Starbucks coffeehouses today to over 20,000 over time,” Starbucks CEO Brian Niccol said in a blog post.
China turns losses into profits
As part of its efforts to attract customers back to China, Starbucks earlier this year Open Some stores there have free “study rooms.” Under new China president Molly Liu, the chain has also expanded its beverage menu to include more sugar-free options and teas catered to local tastes, significantly reduced prices on a range of beverages and added custom order options. This contrasts with recent moves in the United States, which has simplified menus to improve operational efficiency.
The incremental steps have helped the coffee chain stem a sales decline in China since earlier this year, while comparable sales resume growth the past two quarters. Nicol expressed confidence in the brand’s long-term growth potential during an earnings call last month and expected the business to be “fundamentally stronger” next year.
Starbucks expects the total value of its China retail business to exceed US$13 billion, including the value of licenses, the statement said.
Shares of the coffee seller were up less than 1% in after-hours trading in New York as of 6:17 p.m. The stock has fallen about 11% this year, lagging the S&P 500’s nearly 17% gain.