MW Starbucks' China business is struggling. Here's how the company may give it a jolt.
By Ciara Linnane
Coffee-shop chain is exploring selling a stake in its China business, as McDonald's and Yum Brands have done in the past
Starbucks Corp. is seeking ways to boost its Chinese operations and may sell a stake in the business, Bloomberg and Asian news outlets reported Thursday.
The coffee-shop chain has been in talks with advisers on ways to expand its China business, the reports said, citing people familiar with the matter.
Starbucks $(SBUX)$ is grappling with heightened competition from locals such as Luckin Coffee Inc. In its most recent quarter, same-store sales in China fell 14%.
The company is gauging interest from potential investors, including local private-equity firms, Bloomberg reported, although a Chinese conglomerate may also bite at the opportunity given their local knowledge. Starbucks is still mulling its options and has not yet made any decision, the people told Bloomberg.
The news comes as the company is under pressure from activist investor Elliott Investment Management, which has called for a review of the China business.
The company's newly appointed Chief Executive Brian Niccol, former CEO of Chipotle Mexican Grill Inc. $(CMG)$, unveiled a bold turnaround plan in October, that aims to restore the company to its former glory. In the U.S., that means improving service times, bringing back ceramic mugs for people who want to hang out longer and bringing back more comfortable seating, among other measures.
Read also: Starbucks' latest financials sink shares, as CEO says it's 'harder to be a customer than it should be'
Niccol said on the company's recent earnings call that he still needed to spend more time in China to better diagnose Starbucks' problems in that nation. But he said the company continues to "explore strategic partnerships" that could assist with growth there.
Other restaurant groups have carved out parts of their China business. In 2017, McDonald's Corp. $(MCD)$ sold a stake to a group that includes Citic Ltd., its investment-management arm Citic Capital Holdings and U.S. private-equity giant Carlyle Group LP, as the Wall Street Journal reported.
Yum Brands Inc. $(YUM)$, the owner of KFC and Pizza Hut, sold a slice of its China operations to Primavera Capital, run by former Goldman Sachs Group Inc. Greater China Chairman Fred Hu, and Ant Financial Services Group, a unit of Alibaba Group Holding Ltd. $(BABA)$, in 2016.
Starbucks had 7,596 outlets in China as of the end of September, or about 19% of its total.
Starbucks' stock was up 0.5% premarket and has gained 3% in the year to date, while the S&P 500 SPX has gained 24%.
-Ciara Linnane
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November 21, 2024 07:50 ET (12:50 GMT)
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