Starbucks, the world's largest coffee chain, is cutting costs across the board, including through overseas asset sales, as it pursues its "Back to Starbucks" strategy of returning to its roots after a prolonged slump. The company is reviewing a sale of its majority stake in Japan, one of its biggest markets, shifting its Asian operations away from directly run stores toward a licensing model, while also closing about 250 underperforming coffee shops in North America.
Starbucks has filed documents with regulators to close 250 underperforming stores in North America, Reuters reported on the 24th. The closures would affect about 1% of the roughly 18,000 stores in the region.
Another profitable business Starbucks is scaling back to cut costs is its Japan operation. Reuters reported on the 16th that Starbucks is considering selling a majority stake in its Japanese unit, valued at about $3 billion (4 trillion won). The move follows the company's sale of its entire 50% stake in its Korean unit in 2021 and the completion in April of this year of a sale of a 60% stake in its Chinese unit to Hong Kong-based private equity firm Boyu Capital, converting it into a joint venture.
Behind the successive restructuring of its Asian businesses is a collapse in North American sales that followed a post-pandemic push for efficiency through mobile ordering and drive-throughs. As Starbucks strayed from its principle of providing a "third place" — a refuge that is neither home nor office — the company fell into a prolonged slump, including six consecutive quarters of declining sales. Under former CEO Laxman Narasimhan, a PepsiCo veteran, the crisis deepened amid labor disputes and margin erosion from rising costs.
That was when Brian Niccol, who took the helm in 2024, stepped in. Niccol, previously CEO of Chipotle, launched the "Back to Starbucks" strategy to revive the "third place" value the chain had long stood for, and set out to restore sales. The approach has paid off to some extent, with sales rising for four consecutive quarters as of the third quarter of this year. The problem is the astronomical cost that comes with it. Starbucks plans to invest about $1 billion (1.3 trillion won) to remodel as many as 9,000 company-operated stores in North America, according to the Financial Times. The company has also spent at least $500 million on restructuring. The heavy spending pushed its operating margin down to 12.9% from 15.8% in two years. In North America, its largest market, the operating margin fell sharply to 13.6% from 21% a year earlier.
Against this backdrop, Starbucks is seen as trying to raise cash by selling profitable businesses such as its Japanese unit. The move recalls its 2021 sale of the Korean stake as it sought to expand into China. Niccol has set a target of cutting Starbucks' annual costs by $2 billion by 2028.
Some analysts say Starbucks, which had run wholly owned subsidiaries abroad and emphasized tight control over store experience and product quality, has pivoted to an "asset-light strategy" that improves profitability by bringing in outside operators. The Japan sale would be significant. The company's first store in Japan, in Tokyo's Ginza district, was Starbucks' first outside North America when it opened in 1996, and Japan has since consistently ranked among the strongest performers in its international business. In its third-quarter results for April through June, Starbucks said sales at international stores rose 5.7% from a year earlier, led by revenue growth in Japan and Britain.
Chinese venture capital publication ChinaVenture said that Starbucks' willingness to consider even a sale of its Japan business shows it has effectively taken the position that "anything can be let go" in markets outside North America. It added that Starbucks' current strategy is to concentrate resources and capital on the "Back to Starbucks" effort in its core North American market, while aiming to shift its international business toward a royalty-driven model that delivers reliable returns.
