Starbucks considers stake sale in China business amid rising competition

[WORLD] Starbucks is evaluating strategic options for its operations in China, a move that comes as the country’s coffee industry experiences both unprecedented growth and rising fragmentation. Coffee consumption in China has nearly doubled over the past five years, propelled by rapid urbanization and an expanding middle class. Yet the market has become increasingly competitive, with domestic players leveraging aggressive pricing tactics and digital platforms to capture consumer attention. This evolving landscape has prompted global operators like Starbucks to reassess their strategies in a region once viewed as a cornerstone of future growth.

The company is reportedly considering a partial stake sale, echoing steps taken by other multinationals seeking to better navigate China’s complex business environment. A notable precedent is Yum China’s 2016 spin-off from its U.S. parent to gain greater operational autonomy. Starbucks could be eyeing a similar path, possibly in the form of a partnership with a local firm to sharpen its supply chain efficiency, optimize retail presence, or accelerate digital integration—areas where domestic competitors have gained significant ground. Such a move could offer the agility Starbucks needs to stay competitive in a market where consumer trends shift rapidly.

According to industry sources, Starbucks’ China unit may attract interest from both strategic investors—such as tech giants Alibaba and Tencent—and private equity firms with experience in consumer retail. A collaboration with a technology partner could enhance Starbucks’ mobile ordering and loyalty platforms, critical tools in China’s predominantly cashless economy. Meanwhile, private equity investors may be drawn to Starbucks’ strong brand recognition and untapped potential in lower-tier cities, where coffee consumption still lags behind major urban centers.

The company has faced headwinds in China recently, with same-store sales growth slowing amid economic challenges and mounting local competition. In its most recent earnings report, Starbucks disclosed an 11% decline in China revenue, highlighting the need for strategic recalibration. Despite these short-term setbacks, analysts remain bullish on the long-term outlook, with some projections suggesting China could surpass the U.S. as the largest global coffee market within the next decade. This contrast between immediate difficulties and future potential appears to be shaping Starbucks’ measured yet forward-looking approach to potential partnerships or divestments.

Any potential transaction would likely be closely scrutinized, given the heightened geopolitical sensitivities surrounding foreign companies operating in China. Regulatory oversight has tightened in recent years, especially for American firms, and Starbucks would need to navigate these dynamics carefully. Nonetheless, its substantial footprint—boasting more than 6,500 locations across the country—and commitments to local employment and sourcing may play in its favor as it explores new avenues for growth.

Sources familiar with the matter said the company has begun quietly reaching out to prospective investors through a financial adviser to gather perspectives on the future of its China business. These discussions, still in early stages, could value the operation at several billion dollars.

Starbucks was reviewing its China strategy, as mounting economic pressures and the rise of homegrown competitors like Luckin Coffee and Cotti Coffee reshape the industry landscape.