Starbucks Faces Growing Pains in China: Could a Stake Sale to Local Firms Help Revive Growth?

Bloomberg reported on Thursday that Starbucks, the global coffee franchise, is exploring various options, including selling its stake in Chinese operations.

Sources indicate that Starbucks is discussing partnering with a local entity to improve its performance in China. The company has informally gauged interest from potential investors, including local private equity firms.

While the prospect of Starbucks divesting its Chinese business might pique the interest of local enterprises, the coffee chain is still weighing its options and has not made a final decision.

Bloomberg reported that Starbucks’ Chinese operations are being reviewed due to pressure from activist Elliott Investment Management. In recent years, other food and beverage companies, such as McDonald’s and Yum! Brands that own KFC have sold stakes to private equity firms to improve performance and introduced products and services tailored to local preferences, achieving positive results.

China is Starbucks’ largest overseas market outside of the United States. In the 2023 fiscal year, Starbucks increased its number of stores in China by 12%, generating approximately $3 billion in net sales. However, this year, competition has intensified with local startups like Luckin Coffee, leading to a decline in sales.

As of the end of September, Starbucks operated 7,596 stores in China, accounting for about 19% of its global footprint. Despite this significant presence, the company’s sales in China dropped 14% year-over-year in the last quarter. Newly appointed Starbucks CEO Brian Niccol acknowledged in a recent conference call that while he is working to understand the Chinese market better, the company faces extreme competitive pressures and a challenging macroeconomic environment.

Meanwhile, in the U.S., Starbucks has increased the number of stores by several hundred while reducing its workforce. As a result, the number of unionized employees has risen noticeably.

On Wednesday, Starbucks disclosed that its total number of employees in the U.S. (as of September 29) was 211,000, a decrease of 17,000 from 228,000 in 2023.

According to Bloomberg, in an internal survey conducted in April, the most frequently mentioned complaint was staffing shortages. A Starbucks employee highlighted the ongoing issue of being consistently behind on orders due to staff shortages. As a result, union membership among Starbucks employees is on the rise. According to a recent disclosure, the union membership rate at Starbucks reached 5% in 2023, a significant increase from 3.6%. The first Starbucks union was formed in 2021, driven by concerns over poor working conditions.