Boyu Capital will hold up to a 60% interest in Starbucks’ retail operations in China through a new joint venture with the coffee seller, the companies said in a statement. Starbucks will hold the remaining 40% and continue to license the brand and intellectual property to the joint venture.
The agreement marks the end of a search for a partner to help chart Starbucks’ next chapter in China, where it has about 8,000 stores after opening its first outlet in Beijing in 1999. However, Starbucks has struggled in recent years, along with other Western companies that have lost ground to local rivals amid rising nationalism and reluctance to pay premiums for foreign brands.
Xiamen-based Luckin Coffee Inc. dethroned Starbucks as China’s biggest coffee chain two years ago by selling coffee at one-third of its price. And while Starbucks’ store format is expensive to upkeep, customers have become less willing to pay higher prices for its drinks since the COVID pandemic and ongoing economic downturn.
“Starbucks’ store expansion has been restrained amid fierce competition from local rivals, and the deal is expected to accelerate growth with sufficient funds and Boyu’s retail experience,” said Jason Yu, Shanghai-based managing director of CTR Market Research. “Boyu needs to balance Starbucks’ brand positioning and its participation in price competition, otherwise it will harm its long-term profitability in China.”
“We see a path to grow from today’s 8,000 Starbucks coffeehouses to more than 20,000 over time,” Starbucks Chief Executive Officer Brian Niccol said in a blog post.
Starbucks expects the total value of its China retail business to exceed $13 billion, including the value of licenses, according to the statement.
The coffee seller’s shares rose less than 1% at 6:17 p.m. in after-hours trading in New York. The stock has declined about 11% this year, trailing a nearly 17% advance by the S&P 500 Index.
