China Morning Missive (a bit of a long one)
The China Starbuck’s saga has come to an end. After 25 years operating throughout the Mainland, with more than a decade of that a wholly owned business of the Seattle parent, the coffee chain is selling 60% of the entire local business to a Chinese PE group.
This makes for a fantastic case study in (1) the speed of change in Chinese consumer preferences and (2) how failure is all but assured if corporate is unwilling or unable to delegate decision making to local management.
Just as a bit of background, Starbucks entered China in 1999 via three sperate joint ventures. One in the north, one in the south and one in the Yangtze delta (aka Shanghai).
The local partners bought to the table expertise in logistics and dealing will all sorts of uniquely domestic issues. Starbucks brought IP via training and how best to build a store layout for the greatest efficiency.
It was a massively successful structure for all involved, but by 2011 the Starbuck leadership team decided to exercise its option to buy out the three JV partners for multiple billions of dollars. The China business was now wholly owned by the America parent.
It was at around that time when China’s coffee culture not only witnessed rapid growth, but there also came a dramatic shift as well towards the boutique coffee experience.
Chinese consumer preferences no longer wanted a large venue where you could sit for hours. Starbucks had also become blasé. Each location was the exact same as all others.
Moreover, there was now competition in the convenience factor. Starbucks might have been everywhere, but so too was Manner or Luckin’ and these local rivals offered coffee at half the price of Starbucks.
But what has proven to be the death kneel is Chinese consumers demands for a unique coffee experience. The number of small coffee shops has exploded throughout the major cities all offering different flavors of coffee and experiences.
Starbucks either didn’t see the shift happening or – more likely – was too slow to react. As a wholly owned business, all decision making resided in the hands of layers upon layers of Seattle-based management teams. “We are here from corporate, and we are here to help”.
By the time management recognized the shift in consumer preferences it was too late. The only solution was a return to the previous successful strategy of a local partnership. Selling 60% of the entire business though, no longer providing Starbucks with outright decision making, is a steep price to pay.
My final point of this very long Note is that all of this is not an isolated case study. There have been numerous examples of (primarily) American corporations snatching defeat from the jaws of victory in China. The outcome has nothing to do with China and has everything to do with the speed of change in China and – for me most critically – limiting to authority of local management teams. Still, when these groups do end up “failing”, they will almost always place the blame on the China market.
https://www.cnn.com/2025/11/03/business/starbucks-to-sell-control-of-china-business
