The US coffee giant is seeking to reverse falling sales and footfall in the vast East Asian market, where its 7,500-store business is faces fierce competition from fast-growing, value-focused domestic rivals, Luckin Coffee and Cotti Coffee
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A Starbucks store at the Luogang Wanda Plaza in Guangzhou, China | Photo credit: Konging Chen
Starbucks is reportedly considering selling a stake in its China business to revive its fortunes in the world’s largest branded coffee shop market.
The US coffee giant has engaged advisers to analyse several options to grow its business in China, according to Bloomberg, which include partnering with a local master franchisee or private equity firm.
In October 2024, Starbucks CEO Brian Niccol confirmed that the coffee chain was exploring ‘strategic partnerships’ in China to support long-term growth in the market.
“All indications show me the competitive environment is extreme, the macro environment is tough, and we need to figure out how we grow in the [Chinese] market now and into the future,” he said on a fourth quarter earnings call.
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With over 7,500 stores, China is Starbucks’ second largest market after the US, accounting for nearly a fifth of its global 40,200-store footprint.
However, the coffee chain’s like-for-like sales in the market fell 8% in the 12 months ended 29 September 2024 amid the rapid growth of domestic operators Luckin Coffee and Cotti Coffee, and a reluctance to lower its premium prices in an increasingly value-focused market.
Starbucks has also lost market share in China, with Luckin Coffee surpassing it as the largest branded coffee chain by outlets in 2021 and Cotti Coffee overtaking it by stores in the first half of 2024. Luckin and Cotti currently operate more than 20,000 and 10,000 stores in China respectively.
Unlike most of markets globally, 100% of Starbucks’ stores in China are company-operated.
A joint venture partnership could enable Starbucks to onboard local market expertise while sharing financial risks and operational costs.
Speaking to investors in October 2024, Starbucks CEO Niccol said that the coffee chain needed to ‘understand the potential path to capture growth and capitalise on our strengths’ in the ‘dynamic’ Chinese market.
Joint venture strategies have proven successful for other major international coffee chains in China.
In 2017, fast-food giant McDonald’s sold a majority stake in its 2,400-store China business to Beijing-based private equity firm Citic and US investment group Carlyle and now operates over 6,000 outlets in the country, including 4,000 standalone and concession McCafé sites.
Canadian coffee chain Tim Hortons entered China in 2019 via a joint venture partnership between Toronto-based restaurant group Restaurant Brands International (RBI) and New York-based private equity firm Cartesian Capital. Trading as Tims China, the coffee chain currently operates 946 stores in China – Tim Horton’s second largest market globally.
Other international brands operating via partnerships in China include California-based Peet’s Coffee, which entered the market in 2017 via a joint venture with Singapore-headquartered investment firm Hillhouse Capital, and premium Italian coffee roaster Lavazza, which launched in China in April 2020 as part of a joint venture deal with quick-service restaurant group Yum China.
World Coffee Portal’s Project Café East Asia 2024 report forecasts that the total Chinese branded coffee shop market will reach 86,370 outlets in the fourth quarter of 2028, displaying growth of 11.7% CAGR.