Starbucks will sell more than half of its equity in its China business, which it once declared would surpass the United States as its largest market. It is a $4 billion (about 5.5 trillion won) "big deal" that hands management control to local private equity fund Boyu Capital. Since entering China in 1999, it reigned as a symbol of "premium coffee culture," but now, to survive, it is essentially stepping back by joining hands with a local partner.
U.S. Starbucks headquarters officially announced on the 3rd (local time) that it will establish a new joint venture (JV) with Boyu Capital to operate its mainland China business. Boyu will hold up to 60% equity in the joint venture, and Starbucks will hold 40%. Starbucks will provide the joint venture with intellectual property (IP) such as its brand, menu recipes, and application by license and will receive royalties. The transaction is scheduled to be completed within the second quarter of 2026 (fiscal year).
From Starbucks' perspective, this sale is closer to a strategic retreat for two steps forward. According to the announcement, Starbucks estimated the total value of its China business to exceed $13 billion (about 18 trillion won), combining the sale proceeds, the remaining 40% equity in the joint venture, and license fees to accrue for more than 10 years. The calculation is to set up a $4 billion joint venture to protect and grow a $13 billion value going forward.
Starbucks CEO Brian Niccol said in a statement that "Boyu Capital's deep knowledge and expertise in the China market will accelerate growth," adding that "it will be particularly helpful in entering small and midsize cities and new regions." Starbucks China CEO Molly Liu also said it is "a partnership that will fully unlock the vast remaining opportunities in the China market." Starbucks said it will increase its approximately 8,000 stores in China to 20,000 after the joint venture is established.
Starbucks opened its first store in China in 1999, when tea was mainly consumed. It then created and led China's coffee culture, elevating its stature. Starbucks founder Howard Schultz predicted in 2016 that "China will someday overtake the United States to become Starbucks' largest market." In 2021, President Xi Jinping sent a letter to Schultz, responding that "China will provide ample room for Starbucks to develop for the socialist modernization drive."
However, Starbucks' current standing has been badly shaken by homegrown mainland Chinese brands that were once latecomers. The biggest threat is Luckin Coffee. From the outset, Luckin pursued aggressive subsidies and low prices to break Starbucks' stronghold. Focusing on mobile orders and delivery, it explosively expanded stores, already surpassing Starbucks in both store count (more than 20,000) and sales. Since 2022, Cotti Coffee, founded by former Luckin Coffee executives, has joined the fray. Cotti Coffee now operates more than 7,500 stores in 28 countries worldwide. According to Reuters, Luckin and Cotti Coffee sell a latte for 9.9 yuan (about 1,900 won). That is about one-third of Starbucks' price.
This summer, Starbucks countered by lowering prices on some drinks. But the decision damaged the brand identity of Starbucks, which sold a differentiated experience and a "third place." Profitability also declined. As of September this year, quarterly same-store sales in China rose only 2%. During the same period, traffic (number of consumers) jumped 9%. More consumers came to stores, but because they chose cheaper drinks, the average ticket fell 7%. According to market research firm Euromonitor, Starbucks' China market share was 34% in 2019 but plunged to 14% last year, just four years later.
The New York Times (NYT) said, "Chinese consumers have become cost-sensitive and curious about domestic brands," adding that "they are enthusiastic about cheese cream milk tea and sugar jasmine frappes rolled out by local brands like ChaGee or HeyTea." The Wall Street Journal (WSJ) also reported that "the young generation's tastes are shifting toward cold, sweet drinks that look good on social media." It also stung that in the China market, "mobile orders and delivery," led by Luckin, have become mainstream over Starbucks' strength of "in-store experience."
This decision signals Starbucks shifting its China strategy from 100% direct operation to a licensing model through local partnerships. The strategy is to pass risk on to local partners and secure stable revenue through brand royalties. The NYT, noting that Starbucks recently laid off 900 headquarters employees and closed more than 600 underperforming stores, interpreted the China deal as "a move to stabilize its global business."
Some experts focused on Boyu Capital, the partner Starbucks chose. Boyu Capital is classified as a Hong Kong-based private equity fund headquartered in Hong Kong. One of its co-founders is known to be a grandson of former President Jiang Zemin. This means it is not a simple financial investor (FI), but one that holds guanxi capable of exerting strong influence in China's political and business circles.
Reuters, noting Boyu's investment experience in Mixue Group, the world's largest bubble tea franchise, and luxury department store SKP, said "Boyu will provide strategic support to Starbucks, particularly helping to build local relationships and digital partnerships."