Starbucks’ decision, announced Monday, to sell up to 60% of its China business to local private equity firm Boyu Capital could help the struggling brand regain ground in one of the world’s fastest-growing coffee markets.
By partnering with Boyu, the American coffee chain is incorporating local capital and operational experience into its Chinese subsidiary, where it plans to triple its presence to reach 20,000 stores, according to industry analysts.
However, Starbucks continues to face increasing pressure from low-cost local rivals, including Luckin Coffee, as well as changes in consumer preferences.
Boyu, already an investor in Chinese budget bubble tea leader Mixue Group, is no stranger to the lower end of the coffee price spectrum. The company operates Lucky Cup, a rapidly expanding coffee chain that aims to open 10,000 stores by the end of 2025. Prices start at just 6 RMB (0.84 USD), below competitors like Luckin.
Boyu bets on the entire spectrum
By supporting both Mixue and Starbucks, Boyu positions itself to capture both cost-conscious consumers and those seeking a premium experience.
Starbucks’ market share in China fell to 14% last year from 34% in 2019, according to data from Euromonitor International.
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“Boyu’s practical experience in these markets matches Starbucks’ strategy,” said food and beverage analyst Zhu Danpeng. “Boyu’s participation will make that momentum stronger.”
Real estate risks are also significant. In smaller cities, rapid mall development may leave Starbucks stores in underperforming locations, although Bernstein analysts wrote in a note to investors that Boyu’s deep connections could help him secure “some of China’s most important real estate assets.” Starbucks CEO Brian Niccol said Boyu would be especially helpful in helping the roaster enter small towns.
The company did not immediately respond to a request for comment.
Niccol is driving a recovery in the United States focused on revamping store operations. His predecessor, Laxman Narasimhan, bet heavily on China, increasing the number of stores by more than a quarter to almost 7,600 during the two years he led the company.
Analysts say the China deal will allow Starbucks to focus more fully on the United States.
Shares have lost 20% over the past year, compared with a 19% gain in the S&P 500. They fell more than 3% on the Nasdaq Tuesday afternoon.
Jessica Gleeson, a former Starbucks China executive, said the deal could be a game-changer.
“Boyu’s injection of capital and expertise into China is exactly the catalyst Starbucks China needs to move from defense to attack,” he said.
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Starbucks in a difficult position
Still, challenges remain. Ben Cavender, CEO of Shanghai-based market research group China Market Research Group, said the Starbucks brand is in a “really awkward position” in China.
Budget-conscious consumers are flocking to Luckin or Yum China’s KCOFFEE, while younger, more sophisticated drinkers are gravitating toward boutique coffee shops that offer better ambiance and quality at similar prices.
“Starbucks competes with an offering that, by definition, is a little more unique, fun and interesting to the consumer,” Cavender said.
Starbucks’ China division generated about $3.1 billion in net sales last year, according to quarterly reports, compared with nearly $3 billion in 2024. Luckin reported just over $3.6 billion in sales for the fiscal year that ended in February.
Starbucks did not disclose the licensing terms of the deal. Yum China, which launched KCOFFEE in 2022, pays licensing fees to Yum equal to 3% of the system’s net sales, according to reports.
With information from Reuters.
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