(SBUX) is exploring options for its operations in China, including the possibility of selling a stake in the business, according to sources with knowledge of the matter.
The coffee chain has been talking to consultants about ways to expand its operations in China, including the possible introduction of a local partner, said the sources, who asked not to be identified as the information is private. The company also informally assessed interest from potential investors, including investment funds. private equity locations.
A stake sale could also attract interest from Chinese conglomerates or other local companies with experience in the sector, some of the sources said. Starbucks is still evaluating its options and has not made a decision on whether to proceed with the sale, the sources said.
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Starbucks shares were little changed in early trading before the New York market opened. The stock is down about 5% over the past 12 months through Wednesday’s close.
Starbucks has faced pressure from activist investor Elliott Investment Management, which wants the company to commit to reviewing its business in China, as reported by Bloomberg News. In previous years, McDonald’s and Yum! Brands separated its Chinese operations and sold stakes to investment funds private equity to seek further growth and better meet local tastes.
China is the second-largest global market for Starbucks and generated about $3 billion in net revenue in the last fiscal year, as the company increased its number of stores in the country by 12%. However, new local competitors like Luckin Coffee are increasingly challenging its position.
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Starbucks’ new CEO Brian Niccol told analysts last month that he is working to better understand the company’s operations in China, noting that the competitive environment appears “extreme” and the macroeconomic environment is “difficult.” Starbucks needs to figure out how to expand in the market and continues to explore strategic partnerships that could help it in the long term, Niccol said at the time, without providing further details.
“We are fully committed to our business and partners, and to growing in China,” a Starbucks spokesperson said in response to inquiries from Bloomberg News this week. “We are working to find the best path for growth, which includes exploring strategic partnerships.”
Niccol, former CEO of Chipotle, after his predecessor Laxman Narasimhan failed to revive the company’s declining fortunes and was abruptly ousted. Niccol promised to redouble efforts to improve Starbucks’ physical locations and speed up service times. Starbucks shares have gained about 2% this year, giving the company a market value of approximately $111 billion.
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Starbucks had 7,596 stores in China at the end of September, representing about 19% of the global total. Comparable store sales fell 14% in China last quarter.
Other Western chains have also sought local partnerships in China after struggling to keep up with more nimble competitors. In 2016, KFC operator Yum sold a stake in its Chinese operations to Primavera Capital, a private equity firm led by former Goldman Sachs banker Fred Hu and tech billionaire Jack Ma of Ant Financial Services Group. This set the stage for the company to spin off into a separate listing, which came after pressure from activist investor Corvex Management.
The following year, McDonald’s sold a controlling stake in its China and Hong Kong operations for $1.7 billion to a group of investors including state conglomerate Citic, local buyout fund Citic Capital Holdings and Carlyle Group .
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