Starbucks mulls options for China business, including stake sale – report

Starbucks (NASDAQ:SBUX) is reportedly considering options for its Chinese operations, including the possibility of selling a stake in the business.

Citing people with knowledge of the matter, Bloomberg News reported on Thursday that the coffee chain has been consulting advisers on ways to expand its operations in China, including the potential introduction of a local partner. The company has informally evaluated interest from prospective investors, including domestic private equity firms, the people said.

The people added that a potential stake sale could attract interest from local conglomerates or entities with experience in the industry.

During a recent earnings conference call, Starbucks’ (SBUX) new CEO Brian Niccol said that all indications show that the competitive environment in China is extreme, and the macro environment is tough.

China represents the second-biggest market globally for the coffee chain, but local upstarts such as Luckin Coffee are increasingly challenging its position in the market. The Seattle-based company issued soft preliminary Q4 results last month, with comparable sales down 14% in China amid intensified competition.

The coffee giant has also faced pressure from activist Elliott Investment Management, which wants it to commit to reviewing its Chinese business.

Niccol, the former Chipotle (CMG) boss who joined Starbucks recently, said during the earnings call that the coffee chain’s problems are very fixable and that it has significant strengths to build on.

In previous years, other Western chains, such as McDonald’s (MCD) and Yum! Brands have resorted to local tie-ups in China to better cater to local tastes.

Starbucks (SBUX) is still evaluating its options and hasn’t made a decision about whether to proceed, the people said. The company did not immediately respond to Seeking Alpha’s request for comment.