This is an English adaptation of a FoodBud historical article originally published on August 26, 2021.
Image source: Starbucks China official Weibo.
On August 26, 2021, Starbucks announced a series of leadership appointments for China, framing the move as part of its long-term commitment to the market and a new chapter for Starbucks China.
Belinda Wong stepped down as CEO of Starbucks China while continuing as chairwoman. Leo Tsoi, previously chief operating officer of Starbucks China, was named CEO. Tsoi joined Starbucks in 2012 and previously served as vice president for the northern region, vice president of marketing, vice president of store development, and COO.
Molly Liu, previously general manager of digital innovation, was promoted to chief operating officer. In her earlier role, Liu led several major Starbucks China digital initiatives.
The appointments took effect on October 1, 2021. Starbucks positioned the changes as evidence of its commitment to developing local executive talent.
Starbucks said Wong would manage Starbucks China’s Siren Ventures fund, exploring frontier technologies and building a broader ecosystem to support digital business innovation.
China Siren Ventures was launched in 2020 as a cooperation between Starbucks and Sequoia China. Its stated purpose was to identify promising startups in food retail and support Starbucks’ China growth and digital innovation.
Starbucks and Sequoia China also established Xingran (Shanghai) Investment Partnership (Limited Partnership). According to Qichacha, Starbucks held 98% and Sequoia China held 1.98%.
Starbucks had already entered venture investing in 2019, investing US$100 million with Valor Equity Partners to create Valor Siren Ventures in the United States. The fund focused on new products, technology innovation, and solutions in food retail.
Valor Siren Ventures invested in several plant-based food companies, including companies making plant-based milk and plant-based butter, and also invested in cultivated-meat company ARTEMYS FOODS.
The CEO change came as competition in China intensified and China’s contribution to Starbucks’ global performance was showing signs of slowing.
In Starbucks’ fiscal 2021 third quarter, China market growth slowed. Same-store sales in China grew only 19% to US$910 million, or nearly RMB5.9 billion. The previous quarter’s growth was 91%, versus an expected 100%, while the same period in the prior year had declined 19% due to the pandemic.
Although Starbucks China stores were still expanding quickly, revenue over the previous three quarters was RMB5.9 billion, RMB5.6 billion, and RMB5.9 billion, showing limited sequential change.
Starbucks lowered expectations for China and placed more conservative growth hopes on the U.S. market. The article argued that the lower China outlook reflected expected increases in costs and expenses amid intense competition, limiting performance growth.
Whether Wong’s move from CEO into investment-led ecosystem building was intended to drive performance growth or to position Starbucks across the upstream and downstream supply chain still required time to verify.
IT Juzi data showed that from 2020 to July 2021, there were 50 financing deals in China’s coffee sector. Funding amounts repeatedly broke records: in the first half of 2021 alone, coffee-sector financing exceeded RMB6.3 billion, surpassing the full-year 2020 amount.
New coffee brands backed by capital were increasingly targeting Starbucks. Earlier, Luckin Coffee used heavy funding and aggressive spending to expand quickly. By 2021, newer coffee brands receiving large financing rounds were opening stores more steadily.
Manner, for example, was not expanding at extreme speed, but concentrated first on Shanghai, deepening penetration in a mature coffee market. Its small-store model and street-side locations often targeted Starbucks trade areas, competing directly and absorbing traffic.
In first-tier cities, consumer education around coffee was largely complete. New coffee brands priced at RMB15-25, cheaper than Starbucks and competitive on taste, were taking share in the freshly made coffee market where Starbucks had already built a major presence.
Starbucks also adjusted its store model. Its Starbucks Now small-store format strengthened delivery, pickup, and digital capabilities, but product pricing remained high.
The article argued that Starbucks’ third-place positioning and business-social environment could justify a coffee premium. But in office-area Starbucks Now locations, when a Luckin or Manner store operated nearby, local emerging coffee brands could be more attractive for routine daily consumption.
One operational question was whether Starbucks China would need to lower effective prices through coupons in Starbucks Now stores located near Luckin or Manner outlets. That could help capture traffic, but might reduce average ticket. The article noted early signs of this in financial reporting.
In Starbucks’ fiscal 2021 third-quarter data, China average ticket fell 9% year on year. The article attributed this partly to value-added tax and partly to the rising share of mobile orders in Starbucks China, which affected average ticket.
Starbucks had more than 5,200 stores in China at the time. The article raised the question of whether the chain was approaching a store-count ceiling, and argued that if store expansion could no longer grow quickly, Starbucks needed to plan for growth beyond simply opening more units.
The article argued that the rise of new coffee players in China was inevitable once large amounts of capital had entered the sector.
It compared the situation with other sectors where capital competition eventually led to consolidation or structural change. Didi acquired Uber’s China business. In quick service, Yum China was spun off from Yum Brands and listed separately. McDonald’s China was acquired by CITIC and Carlyle, becoming McDonald’s largest franchisee outside the United States.
If competition in China’s coffee market continued to intensify and Starbucks China growth slowed or even turned to losses, the article suggested Starbucks might look for a franchisee in China or, as Uber did, sell the China business outright.
Starbucks originally entered mainland China through local partners and franchised operations.
In 1999, mainland China’s first Starbucks opened in Beijing’s China World Trade Center. The store was operated under a franchise model by Beijing Mei Da Starbucks Coffee Co., authorized by Starbucks. Starbucks later entered east and south China in similar ways: in east China, Starbucks and Uni-President jointly established Shanghai Uni-President Starbucks to expand the brand through a joint venture; in south China, the business was handled by Maxim’s Caterers Starbucks Coffee (South China) Ltd.
From 2005, Starbucks began buying back stakes in its joint ventures, converting franchised stores to directly operated stores. In 2005, Starbucks increased its stake in Shanghai Uni-President Starbucks to 50%. It later raised its stake in Maxim’s Starbucks to 51%. In 2006, Starbucks acquired 90% of Beijing Mei Da Starbucks, bringing more than 60 stores in Beijing and Tianjin back under direct operation.
In 2017, Starbucks acquired the remaining 50% of Shanghai Uni-President Starbucks Coffee Co. for US$1.3 billion, the largest acquisition in Starbucks history at the time. The deal gave Starbucks 100% ownership of about 1,300 stores across 25 cities in Shanghai, Jiangsu, and Zhejiang.
Starbucks also had precedent for selling international operations.
Starbucks Coffee Korea was originally a 50-50 joint venture between Starbucks and E-Mart, South Korea’s largest retailer. In July 2021, Starbucks planned to sell its full 50% stake in Starbucks Korea. E-Mart would buy an additional 17.5%, increasing its holding to 67.5%, while Singapore’s sovereign wealth fund GIC would buy the remaining 32.5%.
The article cited Lianhe Zaobao’s July 2021 report that GIC would acquire 32.5% of Starbucks Coffee Korea. According to Reuters as cited by Zaobao, Starbucks Coffee Korea was valued at US$2.35 billion, or about S$3.1 billion; on that basis, GIC would pay more than US$760 million for the stake.
Starbucks said E-Mart had been its Korean joint-venture partner since 1999. At the time, Starbucks had 1,500 stores across 78 cities in South Korea and employed 18,000 staff. GIC private equity chief investment officer Choo Yong Cheen said GIC, as a long-term investor, believed Starbucks Korea could help lead Korean coffee retail trends and further industry growth, and said GIC was pleased to work with E-Mart as an experienced consumer-retail operator.
At the time of the article, Starbucks’ share price had risen nearly 40% over the previous year, and its market capitalization was US$135.6 billion. The direction of Starbucks China’s next structural shift remained to be seen.
Note: All forward-looking scenarios, IPO/valuation, market capitalization, financing, and transaction figures are historical as of the original August 26, 2021 article.