24/7 Wall St. Insights
- Starbucks Corp. (NASDAQ: SBUX) reportedly is looking for a joint venture in China.
- Chinese rival Luckin Coffee has been trouncing Starbucks there.
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Starbucks Corp. (NASDAQ: SBUX) reported that same-store sales in its China business fell 14% in the most recently reported quarter. China was supposed to be the company’s big growth market. Over 60% of Starbucks locations are in the United States or China.
Chinese rival Luckin Coffee has over 21,000 locations, while Starbucks has about 7,500. The difference is so large that Starbucks cannot catch up, especially since the number of Luckin locations continues to grow.
Reports from Reuters and Bloomberg say that Starbucks is looking for a “joint venture” in China. It will probably sell part of its operations to a local company. Bloomberg speculates the partner could be a private equity firm, but that would not offer it a partner with experience in local food retail.
Starbucks issued a benign comment when the Bloomberg story appeared. It said it was fully committed to its Chinese business.
New CEO Brian Niccol has enough trouble in Starbucks’s U.S. home market. Same-store sales growth has been a challenge. Customers have become surly because they must wait longer than expected to get their drinks and food. Niccol published a manifesto about how he would fix the U.S. problems. It changes what the company charges for some items. He said, “This is just one of many changes we’ll make to ensure a visit to Starbucks is worth it every time.” How long will investors and customers have to wait?
But Niccol’s U.S. decisions won’t help his China problem, and there is no reason to think a PE deal will change that.
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