Western Food Chains Turn to Local Private Equity to Accelerate Growth in China

Starbucks and Burger King are increasingly adopting a partnership strategy in China that involves selling controlling stakes to domestic private equity firms as competition for market share intensifies. Foreign food and beverage brands once relied on the inherent appeal of premium Western products, but centralized decision‑making from overseas headquarters no longer suffices in today’s market. Local private equity investors move quickly to refresh menus, adjust pricing and scale operations into lower‑tier cities, enabling businesses to operate at what industry advisers describe as “China speed,” said Kei Hasegawa, a partner at consulting firm YCP.

Starbucks agreed to sell a 60% interest in its China business to Boyu Capital in a transaction valued at $4 billion, projecting that the unit’s value will more than triple over the next decade while the Seattle‑based company continues to receive licensing fees. CPE Capital is investing $350 million for an 83% stake in Burger King’s China operations. Both transactions remain subject to regulatory approval in China and are expected to close next year. This month, IDG Capital acquired a controlling interest in Yoplait’s China business in a deal that valued the unit at roughly $250 million.

Reports indicate additional divestment activity may follow, with General Mills reportedly weighing the sale of its Häagen‑Dazs stores in China and Oatly Group AB said to be exploring options for its China operations. The shift reflects the rise of domestic competitors that combine aggressive pricing, sophisticated digital strategies and a deeper understanding of local consumer preferences; Luckin Coffee surpassed Starbucks in both sales and store count in 2023, and Restaurant Brands International has faced challenges with Burger King in China, where average per‑store sales rank among its weakest markets.

Private equity partners are attractive not only for capital but also for their willingness to overhaul management and their established relationships with suppliers, distributors, landlords and regulators. Local investors bring turnaround experience, sector expertise and leadership talent to accelerate growth, said Hao Zhou, partner and head of Greater China private equity at Bain & Company. He noted that these partners often begin implementing key initiatives even before a deal is finalized.

While joint ventures are not new as a means for multinationals to navigate China’s complex market, recent transactions underscore the urgency for structural change to remain competitive. As speed to market, localization and product innovation become more critical, multinational companies must weigh whether to continue investing heavily to defend market share or to enlist local partners to drive expansion, said Joe Ngai, chairman of McKinsey in Greater China. Frank Tang, chairman of FountainVest Partners, observed that product localization is already extensive in some cases, citing that 90% of Dairy Queen’s ice‑cream offerings in China are unique to that market.

The partnership model often preserves intellectual property and licensing arrangements while transferring operational control to private equity investors. Analysts at PitchBook, Ansel Tan and Melanie Tng, noted that many global firms prefer to retain minority stakes and licensing rights while delegating daily operations to local partners. For Starbucks, royalty streams from Boyu could represent a significant portion of the $13 billion valuation the company projects for its China unit; sources familiar with the bidding process said the royalty terms proposed for Starbucks exceeded those offered by several other bidders. Starbucks declined to comment and Boyu did not respond to requests for comment.

Even modest changes in royalty rates can materially affect returns, given coffee’s relatively high margins compared with the broader food and beverage sector. Higher ongoing royalties can offset a lower upfront payment and signal a growth strategy focused on expanding store counts, while temporary reductions or deferrals of royalties can improve early cash flow to support rapid expansion, Hasegawa said. Boyu’s recent acquisition of a stake in SKP, which operates luxury malls in Beijing, could enable more favorable lease arrangements for Starbucks’ typically large-format stores.

China subsidiaries of multinational brands have become attractive targets for private equity as firms seek to deploy capital into stable, cash‑generating businesses after a period of subdued dealmaking. The Starbucks transaction reportedly drew interest from more than 20 potential buyers, primarily private equity firms. “These businesses come as very attractive,” said Bain’s Zhou, citing strong cash flows, established brand equity and clear upside potential; private equity investors can realize returns by selling to another buyer or pursuing an initial public offering at higher valuations. McDonald’s China is often cited as a successful precedent: in 2023 McDonald’s repurchased its China business from Carlyle after six years, delivering a 6.7‑times return to the private equity firm.

Private equity‑backed carve‑out activity in China has accelerated this year, with combined deal value reaching $39 billion as of Dec. 9, up from $23 billion for the full year of 2024, according to ARC Group’s head of M&A China, Jess Zhou. The resurgence has been supported by several large transactions, including a PAG‑led acquisition of 48 shopping malls from Dalian Wanda for $6.9 billion. The Starbucks sale exemplifies a broader pattern of foreign companies divesting non‑core or underperforming China units as they contend with geopolitical uncertainty, sluggish consumer demand and intense local competition. “Some Western firms face shareholder pressure to exit the slow‑growth China segments,” Jess Zhou said, creating an opening for private equity funds to acquire assets that parent companies no longer prioritize.