- Starbucks is scrambling to regain ground in China after losing 20% market share since 2019 – 8% in 2024 alone
- With Luckin and Cotti ruling the market, the coffee giant is now looking to sell a stake to stay relevant
- Global investors and Chinese heavyweights Meituan and China Resources Group are circling as Starbucks weighs a franchise model
STARBUCKS has been making headlines left and right recently with its “Return to Starbucks” strategy and associated hard pivots.
The company has announced plans to eliminate 1,100 corporate positions while also optimising operations and enhancing the customer experience in its U.S. stores.
Simultaneously, Starbucks is undertaking significant strategic shifts globally, with the transformation of its Chinese business – now the focus of investment interest – playing a pivotal role in this evolution.
For over two decades, Starbucks has been synonymous with premium coffee in China. With 7,300 stores in over 250 cities in the Chinese mainland, China remains its second-largest market after the U.S.
However, dynamics have dramatically shifted. Starbucks’s market share in China has declined from 34% in 2019 to 14% in 2024. Once the undisputed leader in the premium coffee space, Starbucks is now facing declining sales, intense local competition, and pressure to rethink its expansion strategy.
The company has confirmed ongoing discussions to sell a stake in its China business, with leading investment firms KKR, Fountainvest, and PAG among the interested parties.
Yet, most intriguing is the potential involvement of Chinese companies, such as China Resources Group and Meituan, both of which could provide Starbucks with local expertise, supply chain advantages, and deeper market integration.
As Starbucks grapples with declining same-store sales – down 8% in fiscal 2024 – the proposed stake sale raises important questions.
Is this simply a strategic financial move, or is Starbucks quietly admitting that it can no longer compete with homegrown rivals like Luckin and Cotti? And if a Chinese partner does take a significant stake, will Starbucks maintain control of its brand in a market that has reshaped its global strategy?
“Starbucks was maintaining the same positioning – third place, expensive locations, high coffee prices – in a time that the market was changing,” says Ed Sander, researcher at Tech Buzz China. “Luckin, with its enormous discounts and fresh branding got people to try coffee for the first time. Many consumers were more interested in affordable coffee, in app ordering plus pick-up without waiting and delivery.”
“Starbucks stuck to its own concept and changed too late – for a long time, it refused to deliver. When Cotti came to the market, Luckin had to quickly accelerate its own growth in stores to block this new competition by its original founder. As a result, there are now 4 times more Cotti and Luckin stores than Starbucks, especially in lower tier cities.”
For years, Starbucks defined the premium coffee experience in China. It built a reputation around store ambiance, high-touch service, and an aspirational brand image. Chinese consumers saw Starbucks as a status symbol – a place to be seen, not just to grab a cup of coffee.
But the market has evolved. The rise of Luckin Coffee and Cotti Coffee has changed how consumers interact with coffee, shifting the focus toward convenience, affordability, and digital integration.
Luckin, in particular, has rewritten the playbook. In 2023, Luckin overtook Starbucks in sales, fueled by a business model that prioritises aggressive discounts, delivery integration, and tech-driven loyalty programmes. The brand operates a digital-first model, relying heavily on cashless payments, app-based promotions, and dynamic pricing strategies that appeal to cost-conscious younger consumers.
The result? While Starbucks struggles with declining foot traffic, Luckin reported record sales of RMB 6.2 billion ($860 million) in Q3 2023 alone, a 84.9% year-on-year increase. Meanwhile, Cotti, founded by former Luckin executives, is rapidly expanding, directly challenging Starbucks with a low-cost, high-volume model that offers quality coffee at nearly half the price.
This competitive pressure has forced Starbucks to rethink its long-standing “no discount” policy, a move that underscores just how much the local market dynamics have changed. Starbucks China’s revenue fell 1.4% in fiscal 2024 to $2.958 billion, a clear sign that the old strategy is no longer working.
Why Starbucks is considering a stake sale – And what’s at stake
Starbucks’ decision to explore a strategic partnership or stake sale signals a shift toward a lighter, more flexible business model.
The potential sale could inject fresh capital, reduce operational burdens, and give Starbucks access to local expertise, government connections, and digital innovation.
Several models are being explored, including a franchise-based structure, similar to what McDonald’s and KFC have successfully implemented in China. After transitioning to a franchise-heavy model, McDonald’s doubled its store count in China, while Yum China (KFC and Pizza Hut) saw similar growth.
By partnering with companies like Meituan and China Resources Group, Starbucks could tap into hyper-local consumer data, refining its product offerings and pricing strategies.
A franchise model would shift Starbucks from a capital-intensive ownership model to a revenue-generating franchise model, reducing financial risk while ensuring a steady stream of income through franchise fees.
“The advantage of a local partnership is that it can potentially help Starbucks grow faster, especially in lower tier cities, because local companies have better knowledge and connections,” says Ed.
“Yum China and McDonald’s have also been known to speed up their growth after teaming up with local partners in joint ventures.”
Starbucks has long struggled to expand profitably in third- and fourth-tier cities, where lower purchasing power makes its premium pricing model difficult to sustain. Local partners could facilitate expansion into these markets, leveraging real estate networks and distribution channels.
However, this shift comes with risks. Selling a stake to Chinese investors could result in weakened brand control, diluting Starbucks’ premium image. Excessive focus on rapid expansion at the expense of quality control could erode consumer trust.
If Starbucks compromises too much on its brand identity, it may struggle to differentiate itself in an increasingly crowded market.
The future of Starbucks China – who wins?
Starbucks’ success in China has always been about more than just coffee – it has been about status, experience, and brand prestige. But in a market that now prioritises affordability, digital engagement, and convenience, the company faces a stark choice.
If it partners with a Chinese investor, Starbucks could gain the resources it needs to compete at scale.
Meituan, for example, could integrate Starbucks into its vast delivery and membership ecosystem, while China Resources Group could offer prime store locations and retail network advantages.
But there’s a trade-off. A local partner would have significant influence over Starbucks’ operations, marketing, and strategic direction. If the company shifts too aggressively toward discount-driven growth, it risks losing the premium allure that once set it apart.
The franchise model, while financially appealing, also reduces direct control over store operations, potentially leading to inconsistencies in service, quality, and brand messaging.
“When handing over operations to a third party, there is the danger that this partner finds fast growth and quick pay-back of investments more important than maintaining the positioning and quality level,” says Ed.
“That could damage Starbuck’s branding. On the other hand, it could also help the brand speed up growth in more challenging locations. It will be important to balance these pros and cons. And who knows, maybe a change in positioning is exactly what Starbucks needs. They tried a few years ago with Starbucks Now stores, which were copies of the Luckin concept.”
As Starbucks approaches its 25th anniversary in China, the outcome of this stake sale will determine whether it remains a premium global brand with local appeal or becomes just another mass-market coffee chain in an increasingly commoditised industry.
For investors, the opportunity is clear. Starbucks China remains a valuable asset, but its dominance is no longer guaranteed. The right local partner could be the key to reviving growth, but if Starbucks miscalculates, it could cede control of its most important international market.
One thing is certain: Starbucks can no longer dictate the rules in China’s coffee sector. The next chapter of its expansion will depend on how well it adapts to an industry where local brands are setting the pace.
Coffee Intelligence
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