What Does the Boyu Deal Mean for Starbucks Success in China?

Starbucks has agreed to form a China joint venture with Boyu Capital, which will hold up to 60 percent while Starbucks keeps 40 percent and remains the brand and intellectual property licensor. The deal values the enterprise at about US$4 billion, and Starbucks puts the total value of its China retail business above US$13 billion, covering equity proceeds, retained stake and licensing income.

The new venture stays headquartered in Shanghai, running the existing more than 8,000 stores with plans to grow toward 20,000. It marks another turn in the history of coffee in China, from franchising to full direct operation and now back to a joint venture, a structure the company hopes will support faster, more locally tuned expansion.

Rumors about Starbucks China's equity changes that have circulated for nearly a year have finally come to a clear conclusion. Starbucks has reached an agreement with Boyu Capital to establish a joint venture in China to jointly operate the retail business, with Boyu holding up to 60% and Starbucks retaining 40% and continuing as the brand and intellectual property licensor. The deal is based on an enterprise value of approximately US$4 billion, and Starbucks estimates the total value of its China retail business at more than US$13 billion. Looking back at Starbucks' entry into China, from franchising to full direct operation, and now returning to a joint venture model, this shift has sparked widespread attention about its future direction. The new joint venture will continue to be headquartered in Shanghai, operate the existing more than 8,000 stores, and plan to gradually expand to 20,000.

▲

Click to follow | Daily specialty coffee culture magazine Coffee Workshop

This morning, Starbucks officially announced that it has signed a cooperation agreement with well-known domestic alternative asset management company Boyu Capital, and the two parties will jointly form a joint venture in China responsible for operating Starbucks' retail business in the Chinese market.

According to the agreement, Boyu Capital will hold up to 60% of the equity in this joint venture, while Starbucks will retain 40% of the shares and continue to serve as the holder and licensor of the Starbucks brand and intellectual property, providing authorization to the new joint venture. Based on an enterprise value of approximately US$4 billion (about RMB 28.4 billion) (excluding cash and debt), Boyu will acquire the corresponding proportion of equity.

Starbucks expects the total value of its China retail business to exceed US$13 billion. This total value consists of three parts: the proceeds from transferring controlling equity in the joint venture to Boyu, the value of the equity Starbucks retains in the joint venture, and the licensing operating income continuously paid to Starbucks over the next ten years or even longer.

News about the coffee giant selling its China business actually began circulating last November, and it was not until May of this year that so-called "people familiar with the matter" revealed that Starbucks had officially launched the process to sell part of the equity in its China business.

During this period, potential buyers emerged one after another. In addition to Boyu Capital, which ultimately won, names such as Hillhouse Capital, Carlyle, China Resources Holdings, Centurium Capital, Luckin's largest shareholder, Tencent, JD.com, and Meituan all appeared on the widely circulated list of bidders, attracting great attention from all sectors of society.

In reports in mid-October, Boyu and Carlyle became the main bidders for a majority stake in Starbucks' China business. Among them, Carlyle was once more favored by the outside world because it handled the divestiture of McDonald's China business in 2017. The report at the time also mentioned that Starbucks might ultimately retain up to 49% of its China business, and speculated that the bidders might form a consortium.

Now everything has been settled. Boyu, which invested US$40 million this year for a stake in Mixue Bingcheng, successfully secured 60% of Starbucks China, bringing an end to the sale rumors that lasted for a year and also marking a new stage in which Starbucks China has returned to joint venture operation.

Looking back at history, when Starbucks first entered the Chinese market, due to policy restrictions at the time, it adopted a franchising model, handing over store operating rights to Beijing Mei Da (responsible for North China), Taiwan Uni-President (responsible for East China), and Hong Kong Maxim's (responsible for South China). Later, as policies changed, Starbucks gradually took back operating rights in various regions and achieved 100% direct operation in the Chinese mainland market in 2017.

As it shifts from a direct-operation model back to joint venture operation, how Starbucks will develop in the Chinese market next has naturally become the focus of outside attention after the equity sale. It is understood that in this strategic cooperation, the two parties will jointly improve Starbucks' customer experience in the Chinese market, accelerate beverage and digital innovation, expand into new cities and regional markets, and strengthen emotional connections with customers through deeper localization integration.

The newly established joint venture will continue to be headquartered in Shanghai and will manage and operate the more than 8,000 Starbucks stores currently across the Chinese market. The two parties plan to gradually expand Starbucks' store scale in China to 20,000 in the future. In addition, what other measures Starbucks will launch after returning to the joint venture model to fit China's coffee consumption market remains to be seen.

Image source: Internet

Disclaimer: Some images in this article are from the Internet. For some content on the website, such as images, we will respect the original author's copyright and indicate the source. However, due to the large quantity, some images and texts may not have been credited in time. Please forgive us. If the original author has any disputes, they can contact the website for handling. Once verified, we will correct it immediately. Compiled and edited by "Coffee Workshop". Please indicate the source when reprinting. If there is infringement, please inform us for deletion. Thank you ~ !

The above content is compiled by CoffeeHunters, a coffee news website.