Why Starbucks Is Making the Right Move Selling Its China Business

Starbucks has long been a dominant player in the global coffee market, but the landscape is changing rapidly—especially in China. While the coffee giant continues to increase its store count in the region, sales are declining, creating a challenging situation. Reports suggest Starbucks may be considering selling its China business, a move that might surprise some but could make strategic sense. With rising competition and shrinking profits, Starbucks faces a critical decision: stay in China and implement a bold turnaround strategy or exit the market and sell its business. Let’s take a closer look at the factors driving this dilemma.

Increasing Competition Discount Chains

The Chinese coffee market has evolved significantly over the past few years, and Starbucks is no longer the only big name in town. Local competitors like Luckin Coffee are making waves, particularly in the more affordable segment of the market. These local brands have developed a loyal customer base by offering lower prices and leveraging advanced digital platforms, which resonate well with Chinese consumers. At last, they’re collaborating with next generation celebrities, such as Yang Bi Guo, Li Xue Qin, and Zhang Miao Yi, which highly resonate with a younger audience.

Additionally, convenience stores like Family Mart and 7-Eleven are also now selling coffee at competitive prices, making it harder for Starbucks to maintain its foothold.

The Battle for Authentic Coffee

At the higher end of the market, Starbucks faces stiff competition from globally recognized brands like Illy and Lavazza, whose image revolves around selling authentic, classic coffee experiences. These brands appeal to consumers seeking a more refined coffee culture, leaving Starbucks squeezed between the authentic and budget segments.

The Rise of SAANCI Premium Coffee Chain

Perhaps the biggest treat comes from the rise of SAANCI, a premium coffee chain that has quickly gained incredible popularity. Known for its packed stores and high traffic flows, SAANCI has invested heavily in creating a luxurious in-store experience, offering an ambiance that resonates with modern consumers.

In contrast, Starbucks has been slower to renovate its existing stores, which may feel outdated by comparison. Additionally, SAANCI offers an extensive variety of coffee drinks that seem to better capture the attention and preferences of Chinese customers, further solidifying its position as a strong competitor in the premium coffee market.

Western Chains Are Expanding

The influx of other Western coffee chains into China is also adding pressure on Starbucks. Brands like Tim Hortons, Costa Coffee, and Pacific Coffee are expanding their footprint in the country, creating a crowded market and eroding Starbucks’ once-dominant presence.

Coffee Is Becoming a Commodity

As coffee consumption grows in China, it’s becoming more of a commodity. Fast-food chains like McDonald’s and KFC are now selling coffee and specialty coffee drinks at significantly lower price points. This shift makes it tough for Starbucks to justify its premium pricing strategy. Meanwhile, home coffee consumption is also on the rise. With the availability of brands like Nespresso and a growing market for coffee machines, more Chinese consumers are brewing their own coffee at home.

Delivery Challenges

While Starbucks offers coffee delivery services, it’s no longer a unique competitive advantage. Virtually every coffee outlet in China has embraced delivery, thanks to the popularity of platforms like Meituan and Ele.me. This has further leveled the playing field, making it harder for Starbucks to stand out.

Why Selling Makes Sense

Given these challenges, selling its China business allows Starbucks to refocus its efforts on markets where it still holds a competitive edge. Instead of struggling in an increasingly saturated and price-sensitive market, Starbucks could use the proceeds from a sale to invest in innovation and strengthen its presence in other regions. This move would also protect the brand from dilution caused by competing in a market where coffee is becoming a low-margin, commodity-driven product.

Additionally, Starbucks may choose to hold a stake in its Chinese business after the sale. Local owners would be better positioned to react quickly to changing consumer demands and make strategic adjustments to reinvigorate the brand. For example, KFC was once hugely successful in China but saw its sales decline as consumer tastes shifted. However, in recent years, KFC has tailored its menu to local preferences, introducing items like Sichuan-style chicken and hot pot-inspired dishes, which have made the brand popular again. Being a ‘foreign’ brand is no longer enough to succeed—adjusting the menu to meet evolving local tastes can lead to renewed success.

Conclusion

Considering the intense competition in China across all segments of the coffee market, selling its China business is not just a smart move—it’s almost inevitable. Starbucks has proven its ability to adapt and thrive globally, and this decision would align with its strategy of maintaining profitability and brand integrity. While nothing is finalized yet, we believe the sale of its China business is highly likely and simply a matter of time.