Domestic competition forces Starbucks Corporation (SBUX.US) to "let go" as Bo Yu Capital's $4 billion investment breaks the deadlock.

Starbucks Corporation (SBUX.US) has decided to sell the majority of its struggling business in China to BoYu Capital in order to improve the prospects of the world's largest coffee chain in the Chinese market. Since entering the Beijing market in 1999, Starbucks Corporation rapidly expanded in tea-loving China, opening thousands of stores, but its rapid growth was impacted by the rise of domestic brands such as Luckin Coffee, Inc. Sponsored ADR Class A. These emerging Chinese brands achieved faster expansion with lower costs, easier ordering, and customized products. This ultimately led Starbucks Corporation to seek a partner. Starbucks Corporation announced on October 28 that it would sell 60% of its China business to BoYu Capital for an enterprise value of $4 billion. Insiders said that BoYu Capital, as the bidding process that began in May neared its end, promised that the business would continue to be led by Starbucks Corporation China and its management team, and would be committed to implementing its transformation plan, which ultimately made it the winner. Rebuilding the Chinese Market Under the leadership of Molly Liu, Starbucks Corporation has begun launching more localized and customized products, partnering with the movie "Zootopia" and Taiwanese rock band Mayday, and lowering prices on some products to attract customers once again. Shortly after CEO Brian Niccol joined in September 2024, Liu was promoted to CEO of Starbucks Corporation China. Mark Tanner, managing director of Shanghai consulting firm China Skinny, said BoYu Capital may apply greater pressure to take back market share. "Investors may demand the current Chinese leadership team to adjust their strategies to be more localized, and I wouldn't be surprised to see prices lowered across the board." Bidding Process An insider close to the matter revealed that there was resistance to proposals from potential investors to align more closely with Chinese competitors during the bidding process, as management was concerned about sparking a price war that could harm Starbucks Corporation's high-end brand image. The source also said that there were concerns about potential layoffs after the new investors took over. Jason Yu, managing director of CTR Market Research Company in Shanghai, said BoYu Capital's commitment to stability could help alleviate these concerns, and its local expertise could bring potential opportunities for introducing new partners, technologies, and marketing channels. Tanner from China Skinny believes this will help Starbucks Corporation tailor its strategies for the Chinese market. "This may break free from the constraints of the Seattle headquarters, allowing for more localized operations without overly adhering to global brand directives." Reshaping Store Attraction Another goal of the transformation plan is to make Starbucks Corporation's spacious stores more attractive to customers, in contrast to the "grab and go" model preferred by many other brands. BoYu Capital was established in 2011 and has investments in commercial real estate and property management. The company acquired a majority stake in high-end mall operator SKP in May and controls the Golden Key Smart Service Group. Niccol said in a statement about BoYu Capital's investment: "BoYu Capital's deep local knowledge and expertise will help accelerate our growth in China, especially as we expand into smaller cities and new regions." The Starbucks Corporation CEO has stated that the number of stores in China could increase from the current approximately 7,800 to 20,000.