Starbucks has requested a select group of potential bidders to prepare non-binding bids for a share in its China operations within the next fortnight, according to two sources familiar with the situation.
The American coffeehouse corporation has extended invitations to entities such as private equity firms Carlyle, EQT, Hillhouse Investment, and Primavera Capital to partake in management presentations. During these sessions, financial and operational aspects of its China business will be disclosed. Other potential bidders are said to include Bain Capital, KKR & Co, and technology giant Tencent.
A new partner in China could help revitalize a business that has seen its market share fall by more than half over the last five years. This decline has occurred as cheaper local competitors expand rapidly amidst a slowing economy and increasingly cost-conscious consumers.
Starbucks initiated the sale in May, inviting interested parties to provide details about their businesses by late June. The Seattle-based company clarified that it was not contemplating a complete sale of the business. Potential bidders anticipate the business to be valued at up to US$10 billion.
In July, up to ten interested parties were shortlisted and signed non-disclosure agreements before being granted potential access to financial and operational data. The final structure of the sale and the size of the stake have yet to be determined.
Informal discussions with a variety of prospective buyers have been ongoing since the latter part of last year, and the company aims to reach an agreement by the end of this year. CEO Brian Niccol stated last month that over 20 parties have expressed interest in the business and options are currently being evaluated.
“We remain committed to our China business and want to retain a meaningful stake… We will only enter a transaction if it makes sense for Starbucks,” said Niccol. Primavera, Carlyle, EQT, KKR, and Bain have not provided any comment, while Hillhouse and Tencent have not responded to comment requests.
The sale is being pursued after Starbucks reported robust overall revenue for the three months ending on June 29, a result of a turnaround plan implemented by Niccol following several quarters of declining profits.
In China, Starbucks is grappling with a sluggish economy and stiff competition from local brands, including Luckin Coffee, which has been capturing market share with its cheaper offerings and wider reach in smaller cities.
Last year, Starbucks’ market share in China, which is home to over a fifth of its outlets, was 14 per cent, down from 34 per cent in 2019. In response, the chain has lowered prices for some non-coffee drinks in China and accelerated the development of new, China-centric products.
Sales in comparable stores in China increased by 2 per cent in the quarter ending June 29, up from zero growth in the previous quarter. As of the end of June, Starbucks operated 7,828 stores in China, as stated in its latest quarterly report. The company has not disclosed core earnings for its China operations.
Why is Starbucks selling a stake in its China business?
Starbucks is selling a stake in its China business to potentially inject fresh momentum into the operations, which have seen market share decline in the past five years due to local competition and changing consumer behavior.
Who are the potential bidders for the stake in Starbucks’ China operations?
Potential bidders include private equity firms Carlyle, EQT, Hillhouse Investment, Primavera Capital, Bain Capital, KKR & Co, and technology giant Tencent.
What is Starbucks’ current market position in China?
Starbucks’ market share in China has decreased, from 34% in 2019 to 14% in 2020. The company is facing competition from local brands and a slower economy, but it remains committed to its China business and aims to retain a significant stake.
