Starbucks at a Strategic Crossroads in China

As the RMB 9.9 coffee price war between Luckin and Cotti intensifies, Starbucks—once a defining force in shaping China’s coffee culture—now finds itself at a strategic turning point after 26 years in the mainland market. On June 23, it was reported that Hillhouse Capital had recently participated in a reverse management roadshow for Starbucks China and expressed interest in acquiring the business.

Speculation around the sale of Starbucks China began circulating last year. Recently, the company’s beverage price cuts have again drawn widespread market attention. Against the backdrop of aggressive expansion by domestic competitors such as Luckin Coffee, Cotti Coffee, and Mixue Bingcheng, Starbucks' challenges in China have become increasingly apparent. In response to the acquisition rumor, Starbucks Global simply stated, “We’ll look into it,” while Hillhouse Capital has not yet issued a public comment.

In May, reports revealed that Starbucks was evaluating several options for its China operations, including introducing a local partner or selling part of its equity. It was also noted that Starbucks had extended invitations via financial advisors to several potential buyers. Hillhouse Capital, Carlyle Group, and Citic Capital's Xincheng Capital have since been identified as participants in roadshows. Sources familiar with the matter indicated that the transaction structure is still under discussion and may proceed through 2026.

The investor background may hint at the future direction of Starbucks China’s strategy. Hillhouse Capital has longstanding expertise in consumer investments and previously supported JD.com’s logistics development and Belle International’s digital transformation. Carlyle Group is considered a seasoned investor in Asia’s consumer sector and had previously partnered with Citic Capital in acquiring McDonald’s China. Xincheng Capital is a private equity brand under Citic Capital.

Reports have also suggested that Meituan may be one of the most strategically aligned buyers for Starbucks China. The lifestyle services company has invested in new tea beverage brands such as Mixue Bingcheng, Gu Ming, and Heytea, forming a “tea + coffee” brand portfolio. Analysts have noted that Meituan's substantial active user base could help address Starbucks’ digitalization shortcomings.

There is also speculation that Starbucks is exploring franchise or equity cooperation models, similar to the local strategies adopted by other international food and beverage brands. In 2017, Citic became the controlling shareholder of McDonald’s China, after which McDonald’s expanded from 2,400 to more than 7,000 restaurants by March 2024. Similarly, after Yum China introduced Primavera Capital and Ant Financial, its store count increased significantly. These precedents are being seen as valuable case studies for Starbucks.

If the acquisition is completed, it may become the largest transaction involving an international restaurant brand in China since Citic’s 2017 acquisition of McDonald’s China. Starbucks’ declining performance in China is no longer a secret. For fiscal year 2024, ending in September, revenue in China fell 1.4% year-on-year to USD 2.958 billion (approximately RMB 21 billion). Same-store sales declined by 8%, while the average transaction value also dropped by 8%. This downward trend continued into Q4, with China revenue down 7% year-on-year.

The rise of domestic brands has altered the market structure. According to Luckin Coffee’s financial results, its total net revenue for 2024 rose 38.4% year-on-year to RMB 34.475 billion, with more than 22,000 stores nationwide by year-end. Cotti Coffee, operating on a “convenience store + coffee” model, had surpassed 10,000 stores and aims to reach 50,000 by the end of the year.

Analysts have observed that price competition has become an unavoidable reality, directly affecting Starbucks’ price system, which relies on average spending above RMB 30. In May 2023, a Cotti executive stated that the company was prepared to continue its RMB 9.9 promotion for three years. Luckin’s RMB 9.9 offering has long been a staple for office workers.

Meanwhile, Starbucks’ slow pace of product innovation has exacerbated its challenges. In 2024, Luckin launched 119 new products, averaging one every three days, while Starbucks introduced just 78. When Luckin partnered with popular IPs such as Genshin Impact and Black Myth: Wukong, and its “Moutai Latte” achieved record-breaking single-day sales, Starbucks remained focused on its traditional product lines.

Starbucks has previously restructured its China business. In 2017, it announced with Uni-President that it had acquired the latter’s 50% stake in their East China joint venture for approximately RMB 8.8 billion, enabling Starbucks to fully operate its China mainland business directly—its largest acquisition at the time.

Currently, the estimated valuation for Starbucks China ranges from USD 5 billion to USD 6 billion (about RMB 35.9 to 43.1 billion), significantly exceeding the USD 1 billion valuation reported in February under a potential franchising agreement.

Starbucks opened its first mainland store in Beijing’s China World Trade Center in January 1999. Since then, China has become Starbucks’ fastest-growing and largest overseas market. Over the past 26 years, Starbucks has established more than 7,000 stores across over 1,000 county-level cities in China, representing about 20% of its global store footprint. However, market research shows that Starbucks’ market share in China has dropped from 34% in 2019 to 14% in 2024, suggesting that strategic changes may be urgently required.

Regardless of the final buyer, the rise of local brands is unmistakable. Luckin and Cotti are still expanding rapidly, while Mixue Group, Gu Ming, and Cha Bai Dao have all gone public. The coffee industry in China still holds significant growth potential. According to the 2025 China Urban Coffee Development Report released at the 2025 Shanghai International Coffee Culture Festival, China’s coffee industry reached RMB 313.3 billion in 2024, a year-on-year increase of 18.1%. Average annual per capita coffee consumption rose to 22.24 cups, up from 16.74 cups the year prior. In 2025, the market is expected to grow to RMB 369.3 billion, with per capita consumption approaching 30 cups. Nonetheless, there remains considerable room for growth compared to mature coffee-consuming nations.

Some analysts warn that if the acquisition proceeds, Starbucks may face new risks, such as weakened brand control, which could affect consistency in consumer experience. Excessive focus on rapid expansion might also undermine quality control. The coffee market, once dominated by foreign brands, is now evolving through a dynamic interplay of capital and local entrepreneurship, ushering in a new era for China’s coffee culture.