Starbucks forms joint venture to manage China business

Starbucks announced Monday that it will form a joint venture with Boyu Capital to operate the company’s locations in China.

Under the terms of the deal, valued at $4 billion, Boyu, an alternative asset management firm, will hold up to 60% stake in the joint venture. Starbucks will hold a 40% stake and will continue to have the ability to license the brand and intellectual property to the joint venture.

The announcement came after the coffee giant conducted a months-long review of options that included strategic partnerships. Starbucks values ​​its China business at more than $13 billion, the company said. The valuation includes the sale of the majority interest in the joint venture, combined with the value of both the retained interest and ongoing royalties paid to the company in the future.

The transaction is expected to close in the second quarter of fiscal 2026, subject to regulatory approval.

Starbucks opened its first store in China in 1999. By 2015, Starbucks had become the company’s second-largest market, behind only the United States.

“Building on our positive business momentum, our partnership with Boyu will enable Starbucks China to fully capitalize on the tremendous market opportunity,” Molly Liu, CEO of Starbucks China, said in a statement.

Today the company has about 8,000 locations in China, but Starbucks has big ambitions for the market. CEO Brian Niccol told CNBC’s Kate Rogers in September that the country could one day have 20,000 or even 30,000 locations nationwide.

But in recent years, Starbucks has seen sales decline in China, first due to the pandemic and related government restrictions and later due to increasing competition. Rival Luckin Coffee now has more branches in China than Starbucks and impresses customers with cheaper drinks than the US coffee chain.

On Wednesday, the company reported that same-store sales in China rose 2% in the fiscal fourth quarter, driven by a 9% increase in traffic. However, as Starbucks relies on discounting to compete with local competitors, the average ticket price at its Chinese cafes has fallen, hurting the company’s profits.

While Starbucks executives have consistently expressed optimism about the company’s long-term prospects in China, the company’s weak performance in the country has weighed on Starbucks’ overall financial results.

China’s huge population and fast-growing economy have made it an attractive market for U.S. companies for decades. But in recent years, an economic slowdown and increased competition from homegrown brands have caused some companies to rethink their strategies.

Burger King’s parent company earlier this year Restaurant Brands International bought its struggling China business from TFI Asia Holdings with the aim of selling it to another operator. On the other hand, McDonald’s increased its minority stake in its China business from 20% to 48% two years ago, aiming to capitalize on market growth.