Starbucks, the US cafe chain, has denied a report by Chinese financial magazine Caixin suggesting it was considering a full sale of its China operations, according to a Reuters report.
Starbucks stated it is not currently contemplating such a sale. Caixin’s report did not disclose its source of information.
Caixin reported on Monday that Starbucks has engaged in preliminary discussions with over a dozen potential buyers, citing unnamed sources who did not specify the assets for sale.
A company spokesperson said in a statement as per the Reuters report:
I can confirm Starbucks is not currently considering a full sale of its China operations.
Formal sale process initiated in May
According to the report, Starbucks initiated a formal sale process for its China operations in May. Interested buyers were asked to submit responses to a questionnaire by the end of last week.
Goldman Sachs advised the Seattle-based company in its inquiries to prospective buyers of Starbucks China.
The company sought information on corporate culture, management style, sustainability practices, employee treatment, potential deal structure, and business plans.
Starbucks has yet to decide on the specifics of its China business divestment.
Options include selling a controlling or minority stake, and whether to retain certain operations like its supply chain, according to two sources quoted in the report.
Opened in 2023, Starbucks’ 80,000-square-meter Coffee Innovation Park in Kunshan, near Shanghai, is a $209 million (1.5 billion yuan) roasting plant. It possesses the capacity to supply all Starbucks stores in China.
Starbucks received responses from over 20 institutions, including several private equity firms.
Buyout firms such as KKR & Co, Fountainvest Partners, and PAG have expressed interest in acquiring a stake in Starbucks’ China business, Reuters had reported in February.
Domestic competition
Starbucks’ recent divestment reflects a strategic shift in response to its declining market dominance in China.
The company has faced fierce competition from a new wave of domestic coffee chains, primarily Luckin Coffee and Cotti Coffee, which have aggressively cornered the market with significantly lower price points.
This fierce competition has been exacerbated by a broader trend of consumer frugality in China, leading many to question the value proposition of Starbucks’ premium-priced beverages, which typically hover around 30 yuan ($4.20) per cup.
This erosion of market share is not merely a pricing issue; it also signals a deeper challenge to Starbucks’ brand perception in China.
While Starbucks initially capitalised on its “third place” concept and aspirational Western branding, Chinese consumers are now increasingly drawn to local brands that offer both affordability and convenience, often leveraging technology for seamless ordering and delivery.
Luckin Coffee, in particular, pioneered a tech-driven “new retail” model, rapidly expanding its footprint with smaller, pick-up oriented stores and leveraging deep discounts to quickly onboard a massive customer base.
Cotti Coffee has followed a similar trajectory, further intensifying the price war.
The current economic climate in China, characterized by cautious consumer spending, has amplified these competitive pressures.
As disposable incomes tighten, consumers are more inclined to opt for budget-friendly alternatives without compromising on taste or accessibility.
This has created a fertile ground for Luckin and Cotti to flourish, making it increasingly difficult for Starbucks to justify its premium pricing strategy.
Market share falls
According to market research from Euromonitor International, Starbucks’s market share in China decreased from 34% in 2019 to 14% in 2024.
As major e-commerce firms in China boost their food delivery and “instant retail” (deliveries within one hour) businesses through consumer subsidies, price pressures have intensified.
Subsidies and coupons have driven down the price of a delivered cup of coffee to under 5 yuan, a significant reduction for consumers.
Starbucks recently reduced the price of some of its non-coffee iced beverages in China.
This marks the company’s first-ever price drop in the country, with an average reduction of 5 yuan per drink, announced earlier this month.
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