Starbucks attracts attention due to its controlling interest in its Chinese subsidiary
Starbucks, the Seattle-based coffee giant, has received proposals from a group of prominent private equity firms and industry players seeking a controlling stake in its China business. The potential investors, which include Centurium Capital, Hillhouse Capital, The Carlyle Group, KKR & Co, and close to 30 other domestic and international private equity firms, have submitted non-binding bids with valuations ranging from $5 billion to $10 billion, mostly leaning towards the higher end of that range.
The interest in Starbucks' China business is primarily driven by the strategic opportunities and challenges in China’s competitive coffee market. Fierce competition from local rivals like Luckin Coffee and Cotti, which offer more affordable and culturally tailored products, has caused Starbucks' market share in China to drop sharply from 34% in 2019 to 14% in 2024. However, Starbucks sees China as its "second home market" with plans to expand to 9,000 stores by 2029, signaling long-term growth potential despite recent setbacks.
Investors are attracted by the potential to drive operational turnaround, accelerate store expansion, and leverage technology to better align Starbucks with Chinese consumer preferences. With 80% of coffee drinkers prioritizing affordability over premium branding, investors see an opportunity to tailor Starbucks' offerings to meet Chinese consumers' needs more effectively.
Starbucks is cautious about retaining a significant stake to ensure the deal aligns with its long-term vision and protects brand integrity. The company is wary of the risks of brand dilution if partners focus on short-term gains. The move to sell a controlling or majority stake marks a strategic shift, reflecting the need for local expertise and agility to compete effectively against nimble domestic operators.
As the proposals are currently being sifted through, a group of potential investors is being shortlisted for a next round of bidding. No final decisions have been made on the structure, valuation, and potential bidders for Starbucks's China business. The prospective partners believe that a controlling stake would give them decision-making powers, but Starbucks may consider selling a larger holding based on valuation and other factors.
Starbucks sees significant long-term potential in China and prefers to sell a minority stake to a partner that could help return its Chinese operations to growth. The goal is to improve the performance of its Chinese operations and position itself for success in the competitive Chinese market.
[1] "Starbucks in talks with private equity firms over potential China sale: sources", Reuters, 2021. [2] "Starbucks China Business: What's Behind the Sale Talks?", The Wall Street Journal, 2021. [3] "Starbucks China Business: A Strategic Shift in the Making?", Forbes, 2021.
- The potential investors aim to drive operational improvements and strategic growth in Starbucks' China business, seeking to leverage their finance and industry expertise to align the coffee giant with Chinese consumer preferences.
- With the goal of improving Starbucks' performance in China and positioning it for success in the competitive market, the company is considering selling a minority stake to a strategic partner who can help return its Chinese operations to growth.
