Starbucks will sell control of its operations in China to Boyu Capital in a deal that values the business at $4bn and use the proceeds to drive growth in the world’s second-largest economy, where local rivals such as Luckin and Cotti now offer lattes for 9.9 yuan ($1.40) — less than a third of Starbucks’ prices.
“We aim to bring the Starbucks experience to more customers in more cities across China. We see a path to grow from today’s 8,000 outlets to more than 20,000,” CEO Brian Niccol said in a statement.
Boyu, whose founders include the grandson of former President Jiang Zemin, will hold as much as 60% of a new joint venture. Starbucks will own 40% and continue to license the brand and intellectual property to the venture.
The US firm said the value of the retail business in China — including proceeds from the sale, the value of its retained stake and likely licensing income over at least the next 10 years — will total more than $13bn. Its shares climbed 3% in after-hours trading.
Starbucks has been credited with creating the market for coffee in China after entering in 1999. Still, its market share there tumbled to 14% last year from 34% in 2019, according to data from Euromonitor International.
The company is expected to focus on its traditional strength of being the coffee chain where people want to meet and spend time. Analysts said it would be a mistake for Starbucks to start a price war with Luckin.
Luckin, which focuses on takeaway and delivery, has more than 20,000 franchise stores in China, and it gained a foothold in Starbucks’ home turf earlier this year when it opened two stores in New York.
Starbucks has cut prices for some non-coffee beverages and accelerated the introduction of new localised products to compete better. Comparable-store sales in China increased 2% in the quarter that ended on June 29, versus zero growth in the previous quarter.
More cost-efficient
Boyu will help open more Starbucks stores in lower-tier cities and make existing stores more cost-efficient, according to a person with knowledge of the investment firm’s plans who declined to be identified.
Other global firms have taken a similar approach with their China businesses. McDonald’s, for example, sold 80% of its China and Hong Kong operations to investors, including Citic, for $2.1 billion in 2017, a tie-up that is mostly seen as successful.
“Boyu is obviously not like Citic, which is a state-owned enterprise with a very strong supply chain advantage in China in terms of real estate, in terms of land,” said Jason Yu, general manager at CTR Market Research.
“Boyu is more of a private equity firm, they are probably going to provide more strategic support to Starbucks and also help them with relationships and digital partnerships,” he said.
Hong Kong-based Boyu, founded in 2010, made its name investing in some of China’s biggest tech firms. More recently it has increased its investments in consumer products, notably backing bubble tea giant Mixue Group and taking a 45% stake in luxury department store operator SKP.
Reuters
