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Starbucks Doubles Down On China Expansion, Buys Out 1,300 Stores For $1.3B

Starbucks Doubles Down On China Expansion, Buys Out 1,300 Stores For $1.3B

Starbucks is buying out the remaining 50% share of its East China business from its joint venture partners for approximately $1.3 billion, marking the company’s biggest-ever acquisition and giving it 100% ownership of nearly 1,300 stores in the region. The acquisition aligns with the coffee giant’s target of operating 5,000 stores in China by 2021.

The move coincides with the retailer’s Q3 earnings announcement, which reported:

  • $5.66 billion in revenue, an 8% increase;

  • $0.47 in adjusted earnings per share, down 8.9%; and

  • Its highest U.S. same-store sales increase (5%) in five quarters.

 

Same store sales in China increased 7%, but same store sales in the China/APAC region as a whole only increased 1%, well below Wall Street forecasts of 4.3% growth. With the 2,800 Chinese Starbucks locations clearly buoying the results of the entire region, it makes sense for the coffee brand to up its investment in the country. In Q3, Starbucks opened 250 stores in the China/APAC region, marking it as the region with the most net new stores.

Shanghai alone has nearly 600 Starbucks outlets, the largest number in any city. It will also be the first city outside the U.S. to have a high-end coffee roastery and tasting room, set to open in December 2017.

“The data are clear that our beautiful stores, engaging store partners, new beverage, food, and digital innovations, and our focus on operational excellence are attracting new customers into our stores in China and bringing existing customers in more often,” said Kevin Johnson, CEO of Starbucks during the company earnings call. “And with the transition of East China to a company-operated model, we will meaningfully advance our China agenda by enabling our strong, local leadership team to fully leverage our infrastructure and scale economics in order to maximize the growth opportunities ahead.”

While Starbucks is making a heavy push into corporate ownership in China, the retailer is taking the licensing route for its Taiwan stores. In a separate deal, Starbucks will sell its 50% stake in its Taiwanese joint venture to partners President Chain Store Corp. and Uni-President Enterprises Corp for approximately $175 million. The joint venture operates nearly 410 Starbucks stores in Taiwan, which will now be fully licensed.

The sale is Starbucks’ largest licensing transaction, according to Scott Maw, EVP and CFO of Starbucks. In the conference call, Maw noted that it “is in complete alignment with our strategy to license in markets that we have growth potential, but where returns are better served by a partner with deep local expertise.”

Both deals are expected to close by early 2018.

Starbucks To Shut Down All Teavana Stores

Starbucks is shutting down all 379 of its Teavana cafés after the company concluded the stores would likely continue to underperform, despite efforts to reverse these trends through creative merchandising and new store designs. The company anticipates closing the majority of stores by spring 2018, with the rest shuttering throughout the year.

The approximately 3,300 employees impacted by these closures will receive opportunities to apply for positions at Starbucks stores, according to a company statement.

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