This is an English adaptation of a FoodBud historical article originally published on July 18, 2022.
On July 17, reports said Starbucks was studying a possible sale of its UK business, after the combined pressure of pandemic disruption and competition from coffee chains including Pret A Manger, Tim Hortons and Costa.
People familiar with the matter said Starbucks had hired international investment bank Houlihan Lokey in 2022 as an adviser to assess external interest in the UK business. Potential interested parties could include specialist franchise groups or private equity investors.
According to Starbucks' fiscal 2021 annual report, as of October 3, 2021 the company had 298 company-operated stores and 791 licensed stores in the UK.
Within Starbucks' licensed business outside North America, South Korea was the largest international market, followed by Mexico, with the UK ranking third.
Starbucks had already sold its South Korea business in fiscal 2021. The company sold its 50% stake in Starbucks Korea, generating net proceeds of $865 million. Of that stake, 17.5% was sold to its South Korean partner E-Mart Inc., and 32.5% was sold to Singapore sovereign wealth fund GIC Private Limited. The total consideration was $1.175 billion, or about RMB 7.45 billion, implying a valuation of $2.35 billion, or about RMB 14.9 billion, for Starbucks Korea.
In 2022, Starbucks also exited Russia because of the Russia-Ukraine war.
On the UK reports, Starbucks said it had not entered a formal sale process and was still evaluating strategic options for its international business.
The UK business had been dealing with a slower recovery in city-center traffic after the pandemic, rising operating costs and intensified competition. For fiscal 2021, ended October 2021, Starbucks' UK business employed about 4,000 people, generated annual sales of GBP 328 million, and reported pre-tax profit of GBP 13.3 million. In fiscal 2020, it recorded a loss of GBP 40.9 million.
After Starbucks founder Howard Schultz returned as interim CEO, he visited stores and spoke with store employees. Starbucks also frequently published updates on his visits and external communications.
On July 11, Schultz released a new letter saying Starbucks needed to reshape both its store experience and its relationship with employees, and that more detailed implementation plans would follow.
For Starbucks, the immediate issues were not only international portfolio choices but also the strain in North America after the pandemic: employee relations, the need to rebuild the store experience, and the search for a permanent successor.
For large US restaurant and beverage groups, international markets can shift between direct ownership, joint ventures, licensing and sale depending on profitability, competitive intensity and capital priorities.
The FoodBud article drew the comparison with Starbucks' history in China. In earlier years, Starbucks entered mainland China through franchise and joint-venture partners including Maxim's and Uni-President, before later buying back control.
Key China milestones cited in the article include:
The article's operating takeaway was that if market conditions deteriorate sharply, even a strategically important market can become a candidate for a different ownership structure.
In the July 11 letter to Starbucks partners, Schultz said the company was operating in a changing environment shaped by economic, social and operational pressure. He said Starbucks' existing business model was not fully set up to meet evolving partner and customer expectations, and that the company needed to modernize the store experience.
He described a reinvention plan built around five moves:
Schultz said Starbucks would provide more specific programs and initiatives in the following weeks. He also outlined principles for a redesigned partnership model: safer and more welcoming stores, more advancement and opportunity for partners, stronger support for well-being, and a model based on shared power, shared accountability and shared success.
Note: UK sale discussions, Korea transaction figures, China acquisition figures and Schultz's forward-looking reinvention plans are historical references from 2021-2022.