Thursday, May 17, 2012

Starbucks M&A in China: from Forbidden to Far and Wide

Starbucks entered China in 1999 and quickly opened a café within the Forbidden City. Chinese were horrified at the image of a U.S. coffee capitalist encroaching on traditional Chinese culture. The site became a lightning rod for controversy and eventually closed.

But Starbucks was sharpening its China vision, focusing on the development of goodwill, brand awareness and strong government relations. Consider a couple of recent moves. In February 2012, Starbucks established a joint venture with the Ai Ni Group, one of Yunnan Province’s most established agricultural companies and coffee operators. The goal is to support local farmers and help them enhance the quality of coffee that can be served within China. And in April, China Starbucks University was created, aiming to “elevate” the company’s China employees, with the noble goal of making Starbucks an employer of choice.
Starbucks intends to make China its second largest market (after the U.S.) by 2014 and plans over 1500 cafés in the country by 2015. There are at present about 600 Starbucks stores in China. The company is currently adding a store about every four days and plans to accelerate this pace.
Given this growth goal, corporate business development is changing in China. Originally, Starbucks entered China largely through minority share licensing agreements or joint ventures with quality corporate partners. Now the company is buying out partners such as Maxim Caterers in areas where Starbucks wants to accelerate growth. Starbucks will have full ownership of cafés in the provinces of Guangdong, Hainan, Sichuan, Shaanxi and Hubei, as well as the province-level municipality of Chongqing. Central, South and Western China is coming under full control of the company.
Starbucks intends to move from forbidden to far and wide.
Research assistance provided by Gaurav Vij

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