The American coffee giant plans to more than double its presence in China with the help of private equity firm Boyu Capital. Under the agreement, Boyu – whose founders include the grandson of former Chinese President Jiang Zemin – will hold up to 60% of the new joint venture. Starbucks will retain a 40% stake.
The Seattle-based coffee chain said the funding from investment firm Boyu will help it accelerate growth in the world’s second-largest economy, where local rivals such as Luckin and Coty now offer lattes for 9.9 yuan ($1.4) – less than a third of Starbucks’ price.
“Our goal is to bring the Starbucks experience to more customers in more cities across China. We see a path to grow from today’s 8,000 Starbucks coffee houses to more than 20,000 over time,” Starbucks CEO Brian Niccol said in a statement.
Under the deal, Boyu – whose founders include the grandson of former Chinese President Jiang Zemin – will own up to 60% of the new joint venture. Starbucks will own 40% and will continue to license the brand and intellectual property to the venture.
The US firm said the value of the retail business in mainland China – including proceeds from the sale, the value of its retained stake, and potential licensing income over at least the next 10 years – would total more than $13 billion. Its shares rose 3% in after-hours trading.
Starbucks is credited with creating the coffee market in China after entering in 1999. But its market share there fell from 34% in 2019 to 14% last year, according to data from Euromonitor International.
While Starbucks is expected to focus on its traditional strengths as a coffee chain where people want to meet and spend time, analysts say it would be a mistake for Starbucks to engage in an aggressive price war with Luckin.
Luckin, a takeaway and delivery company, now has more than 20,000 franchise stores in China and this year entered Starbucks’ home territory by opening two stores in New York.
However, Starbucks has reduced prices on some non-coffee drinks and accelerated the introduction of new local products to better compete. Comparable-store sales in China rose 2% in the quarter ended June 29, following zero growth in the previous quarter.
According to a person familiar with the investment firm’s plans, who spoke on condition of anonymity, Boyu will help Starbucks open more stores in lower-tier cities and make existing stores more cost-effective.
Other global firms have adopted a similar approach to their Chinese businesses. For example, McDonald’s sold 80% of its China and Hong Kong operations to investors, including Citic, for $2.1 billion in 2017, a deal that was largely considered successful.
“Boyu is clearly not like Citic, which is a state-owned enterprise, which has a very strong supply chain advantage in terms of real estate and land in China,” said Jason Yu, general manager of CTR Market Research.
He said, “Boyu is a private equity firm; they will likely provide more strategic support to Starbucks and also help them with relationships and digital partnerships.”
Founded in 2010, Hong Kong-based Boyu made its name by investing in some of China’s largest technology companies, but 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.
