Starbucks expects bids for China business in two weeks

Starbucks has asked a short-listed group of potential bidders to submit non-binding bids for a stake in its China business within the next two weeks, two people with knowledge of the matter said.

The US coffee shop chain invited interested parties including private equity firms Carlyle, EQT, Hillhouse Investment and Primavera Capital to attend management presentations where it would disclose financial and operational details of its China business, said one of the people as well as a third person with knowledge of the presentations.

Other potential bidders include Bain Capital, KKR & Co and technology major Tencent, said one of the first two sources and two other people familiar with the matter.

A new partner in China could add impetus to a business whose market share has more than halved in the past five years, as low-price local rivals grow apace while consumers become increasingly cost-conscious in a stuttering economy.

In May this year, Starbucks began the sale by inviting interested parties to answer questions about their businesses by late June, Reuters previously reported.

The Seattle-based company said at the time it was not considering a full sale of the business – which bidders expect will be valued at up to $10 billion, CNBC reported citing sources.

In July, it selected up to 10 interested parties and signed non-disclosure agreements ahead of granting potential access to financial and operational figures, the sources said.

It has yet to finalise the structure of the sale or size of the stake, said the people, who declined to be identified as the information was not public.

The cafe chain has held informal talks with a range of potential buyers since the second half of last year and aims to reach a deal by year-end, sources previously told Reuters.

CEO Brian Niccol on Starbuck’s quarterly earnings call last month said the cafe chain had received interest from more than 20 parties and was evaluating options.

“We remain committed to our China business and want to retain a meaningful stake. We will only enter a transaction if it makes sense for Starbucks,” said Niccol, CEO since August last year.

Starbucks declined today to comment further.

Starbucks is pursuing the sale after reporting strong overall revenue for the three months to June 29 under a turnaround plan Niccol implemented after several quarters of falling earnings.

Net revenue rose 3.8% to $9.46 billion, slightly exceeding the average analyst estimate, though same-store sales fell for a sixth consecutive quarter, by 2%.

In China, Starbucks faces sluggish economic growth and competition from local brands such as Luckin Coffee, which has gained market share with cheaper products and greater presence in smaller cities.

Starbucks’ market share in the world’s second-largest economy – home to more than a fifth of its cafes – was 14% last year compared to 34% in 2019, showed data from market researcher Euromonitor International.

The chain has since taken the rare step of reducing prices for some non-coffee drinks in China and increased the pace of new and China-centric product innovation.

Comparable-store sales in China increased 2% in the quarter ended June 29 versus zero growth in the previous quarter.

Starbucks operated 7,828 stores in China at the end of June, its latest quarterly report showed. It did not disclose core earnings at its China business.

Reporting by Reuters