Starbucks Under Pressure: Exploring Options on Chinese Business Amid Activist Elliott Investment Management's Push
Bloomberg News has reported that Starbucks Corp. is exploring options for its Chinese operations, including the possibility of selling a stake in the business, as activist Elliott Investment Management pushes the company to review its Chinese operations.
According to people with knowledge of the matter, Starbucks has been speaking to advisers about ways to grow its operations in China, including the potential introduction of a local partner. The coffee chain has informally gauged interest from prospective investors, including domestic private equity firms.
A stake sale could also attract interest from Chinese conglomerates or other local companies with experience in the industry, some of the people said. Starbucks is still evaluating its options and hasn't made a decision about whether to proceed, the people said.
China is the second-biggest market globally for Starbucks and generated around $3 billion of net revenue in the most recent financial year. However, local upstarts such as Luckin Coffee Inc. are increasingly challenging their position.
New CEO Brian Niccol told analysts last month that he's working to better understand the company's Chinese operations, citing an "extreme" competitive environment and a "tough" macro environment. Starbucks needs to figure out how to expand in the market, Niccol said, without providing further details.
The company is working to find the best path to growth, which includes exploring strategic partnerships, according to its spokesperson. Niccol has vowed to redouble efforts to improve Starbucks' physical locations and speed up service times.
Shares of Starbucks have gained about 2% this year, giving the company a market value of around $111 billion. With competitors struggling to catch up, companies like McDonald's Corp. and Yum! Brands Inc. have already carved out their Chinese operations and sold stakes to private equity firms to tap more growth and better cater to local tastes.
Other Western chains have also sought local tie-ups in China after struggling to keep up with nimble rivals. In 2016, KFC operator Yum sold a stake in its Chinese operations to Primavera Capital, while last year McDonald's sold a controlling stake for $1.7 billion.
As the competition in China intensifies, Starbucks is exploring options to revive its fortunes and better compete with local players like Luckin Coffee Inc.