TOKYO -- Starbucks will sell a majority stake in its China business to Chinese private equity firm Boyu Capital, concluding a lengthy search for a local partner in an increasingly tough market.
The Seattle-based coffee chain announced on Monday in the U.S. that it has agreed to form a joint venture with Boyu to run Starbucks' retail operations in China. According to the statement, Boyu will own 60% of the venture, with Starbucks holding the rest and continuing to own and license the brand and its intellectual property.
Boyu will acquire the stake based on a cash- and debt-free enterprise value of $4 billion, gaining a controlling interest in Starbucks' second-largest global operation after only the U.S.
Starbucks estimated the total value of its China retail business at over $13 billion, taking into account the sale to Boyu, the U.S. company's retained interest and the net present value of licensing over the coming years.
Both parties expect the deal to be finalized by March, after clearing required regulatory approvals.
"Boyu's deep local knowledge and expertise will help accelerate our growth in China, especially as we expand into smaller cities and new regions," Brian Niccol, Starbucks' chairman and CEO, said in the company's statement. "We've found a partner who shares our commitment to a great partner experience and world-class customer service. Together we will write the next chapter of Starbucks' storied history in China."
Alex Wong, partner at Boyu Capital, praised the brand value built in China over the last 26 years, while vowing to expand the business further. "Together, we aim to combine Starbucks' global coffee leadership with Boyu's deep market insights and expertise to accelerate growth and create exceptional experiences for millions of customers," he said.
Boyu was established in 2011, according to its website, and has offices in Hong Kong, Beijing and Shanghai as well as Singapore. Alvin Jiang, a grandson of China's former President Jiang Zemin, was among the founders.
The two partners plan to expand Starbucks' store count in China to around 20,000, without specifying a time frame, while keeping the local headquarters in Shanghai.
As of the end of its financial year ended in September, the U.S. and China comprised 61% of Starbucks' global stores, with 16,864 locations across America and 8,011 in China. However, Starbucks has been struggling in both markets.
While the China business has shown glimmers of improvement recently, as comparable store sales grew by 2% in the company's fourth quarter that ended on Sept. 28, the average ticket continued to decline by 7%, likely reflecting subdued consumer sentiment in the world's No. 2 economy. The chain has also been hit by intense competition from Chinese rivals like Luckin Coffee and price wars that have swept the country.
Catherine Park, vice president of investor relations, had told analysts during an earnings conference call last week that there were three conditions for making a deal in China: "upfront investment by the future partner, Starbucks retaining a meaningful stake and future royalty payments."
Nikkei Asia reached out to Boyu for additional comment.
Correction: This story has been amended to show that $4 billion is the valuation on which the deal is based.
