Starbucks draws interest for controlling stake in China unit

[HONG KONG] Starbucks has received proposals from prospective investors in its China business, most of whom are eyeing a controlling stake in the operation, said sources familiar with the matter.

The Seattle-based company is now in the process of sifting through proposals and shortlisting a group of potential investors for a next round of bidding, the sources said, asking not to be identified because the matter is private. The company may share financial and operating details with those bidders to help them assess the valuation of its Chinese assets, the sources said.

While Starbucks’s preferred option was to sell a minority stake to a partner that can help return its Chinese operations to growth, it may now consider selling a larger holding based on valuation and other factors, the sources said.

Prospective partners, which include industry players and private equity firms, submitted non-binding proposals in June, and most want a controlling stake as that may give them decision-making powers and is better aligned with their investment strategies, the sources said.

The review of Starbucks’s Chinese business is still at an early stage and no final decisions have been made on the structure, valuation and potential bidders. In a statement, Starbucks said it sees “significant long-term potential in China”.

“We remain committed to China and want to retain a meaningful stake in the business,” Starbucks said.

The coffee giant has grappled with a sales slump in China, though comparable sales were flat last quarter after four periods of declines. In response, it has introduced products that more directly cater to local tastes as consumers, once enticed by the prestige of pricier foreign restaurant chains, pull back in the face of economic uncertainty.

At the same time, cheaper domestic competitors have emerged, including Luckin Coffee, which in 2023 surpassed Starbucks to become the country’s biggest coffee retailer.

Starbucks has tweaked its menu to lure back Chinese customers, including by introducing more sugar-free options and slashing prices on several tea-based beverages. Its first chief growth officer for China will pursue a strategy of tie-ins with entertainment brands and pop culture icons to appeal to younger consumers.

Bloomberg News first reported in May that Starbucks had kicked off a process to review its business in China, its second-biggest market, including a possible stake sale. A transaction could value the assets at several billion US dollars.

The company said last month that it was not considering a full sale of its China arm. BLOOMBERG