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WILL A CHINESE PLAYER BUY A STAKE IN STARBUCKS CHINA?
According to Lianshang, China Resources Group and Meituan have joined the bidding for a stake in Starbucks' China business. Allegedly, Starbucks wants to add a strategic partner or start a franchise cooperation before the end of 2025.
Starbucks has over 7,600 stores in China, more than 1/5th of its worldwide. The company has been active in China for 25 years. In fiscal 2024, Starbucks China's revenue decreased by 1.4% to US$2.958 billion, with same-store sales and customer unit prices both falling by 8%. Local brands Luckin Coffee and Cotti are challenging Starbucks, with Luckin overtaking it in sales in 2023. It even forced Starbucks to loosen its 'no discount' policy.
Liansheng wrote about potential local participation: "Meituan (..) can use Starbucks to improve the platform's user structure, strengthen offline touchpoints, provide more scenarios for the "everything delivered to home" strategy, and optimize Starbucks' site selection, precision marketing and membership operations through technology empowerment, consolidating its advantages in the field of local life services."
"China Resources Group can rely on its retail channels and real estate resources to provide Starbucks with high-quality store locations and supply chain support, accelerate the expansion [in lower-tier cities], and use its state-owned background to create a more favourable policy environment for Starbucks."
As for a franchise model, many Western catering giants have successfully implemented similar models in the Chinese market. After introducing local investors, Yum China (KFC/Pizza Hut) and McDonald's more than doubled their store numbers.
Liangshang sees three advantages of franchise cooperation:
1) Local partners will inject more accurate market insights and resource advantages into Starbucks, helping the brand to deeply grasp the diversified needs of local consumers, especially to achieve more precise positioning regarding product innovation and marketing strategies.
2) It will enable Starbucks to shift to a lighter asset operation model, which will not only significantly reduce the high fixed costs and operating risks under the direct operation system but also establish a stable source of income through franchise fees and optimize the overall financial structure.
3) With the help of local partners' channel advantages and market resources, Starbucks can accelerate its expansion in the Chinese market, especially in terms of penetration in third- and fourth-tier cities, thereby building a more complete market coverage network.
Potential risks:
1) weakening of "brand control".
2) short-term operational fluctuations impacting the stability of the existing store system.
Excessively pursuing expansion speed and ignoring quality control may damage the brand image Starbucks has built over the years.
Coffee wars are a case in our research editor Ed Sander’s ChinaTechTrip tours. You can still register for the Spring edition until Saturday.
