Starbucks’ Strategic Move in China: A Game of Retention and Realignment

Starbucks is finalizing plans to sell a controlling stake in its $5 billion China business while retaining a meaningful minority share, possibly up to 49%. Four major investors, including private equity firms Boyu Capital and EQT, are competing for the deal. The move addresses Starbucks’ stagnating revenue and declining market share in China, where competition from budget coffee and milk-tea chains has intensified. The sale aims to secure new capital and strategic partnerships.

For over a year, whispers circulated about Starbucks considering a partial divestment of its China operations. This speculation was finally confirmed in July when the coffee giant announced it was “exploring strategic options.” Now, according to a recent Reuters report, the deal appears to be nearing completion, potentially closing by the end of October. However, insiders caution that the timeline remains fluid.

This is not an exit strategy for Starbucks, but rather a shift in approach. The company plans to bring in new investors while holding on to what it describes as a “meaningful minority stake.” Although the exact figure is undisclosed, reports suggest that Starbucks might sell a controlling interest while retaining up to a 49% share. Other sources speculate the retained stake could dip as low as 30%, though such estimates remain unconfirmed.

The Buyers in Line for Starbucks China

As the sale progresses, four major investors have emerged as frontrunners for taking a slice of Starbucks’ Chinese business, which is reportedly valued at approximately $5 billion. Here’s a look at the key players:

• Boyu Capital: A Hong Kong-based private equity firm with a notable track record. Boyu has been involved in high-profile deals such as Alibaba’s share buyback and investments in China Duty Free and Beijing’s SKP luxury mall.

  
  

• EQT: This Swedish private equity group has been expanding aggressively in Asia and is now turning its attention to China’s growing coffee market.

  
  

• The Carlyle Group: Known in China for its involvement in the 2017 McDonald’s deal, where it helped transfer 80% of the business to a consortium that included Citic and itself.

  
  

• HongShan Capital (formerly Sequoia China): A surprising contender that recently acquired UK audio brand Marshall, signaling its growing interest in consumer-driven global assets.

  
  

Why Sell? Starbucks’ Challenges in China

Starbucks’ decision to restructure its China business stems from financial stagnation and growing competition. Over the past five years, the company’s revenue in China has hovered between $2.6 billion and $3.6 billion. Meanwhile, its market share plummeted from 34% in 2019 to approximately 14% in 2024.

This decline mirrors broader trends in China’s evolving beverage market. Budget-friendly competitors like Luckin Coffee and Cotti Coffee are flooding the market with inexpensive options, while milk-tea chains continue to dominate the affordable luxury niche. In response, Starbucks even made the unprecedented move of lowering its prices—an unusual step for a company that built its brand on selling an aspirational experience.

By selling a stake in its China operations, Starbucks aims to secure fresh funding and local partners, which can help the company better navigate the intensely competitive landscape. Additionally, the move allows Starbucks to sidestep some of the fierce platform battles that define the Chinese market. For Starbucks, this decision is a pragmatic one, ensuring the brand remains relevant in a rapidly shifting environment.

This strategic recalibration is a pivotal moment for Starbucks. Once a trailblazer that introduced the Chinese market to premium coffee culture, the company now finds itself adapting to new realities. The sale will not only inject much-needed capital but also signal a new chapter for Starbucks in a market it helped shape.

As the coffee giant steps back to reassess its role in China, the deal underscores a significant shift in the country’s beverage industry. For consumers and competitors alike, this development marks the beginning of a new era, where Starbucks must work to reclaim its place in line amid an increasingly crowded landscape.