Coffee giant Starbucks is exiting its $2 billion joint venture in the South Korean market to focus more on other fast-growing international markets.
The company is selling its stake to local partners E-Mart Inc and Singapore sovereign wealth fund GIC.
Under the terms of the deal, E-Mart, which is of the largest retailers in South Korea, will acquire an additional 17.5 percent stake in Starbucks Coffee Korea for $411 million and continue to operate the Starbucks stores in the country. Meanwhile, GIC will acquire the remaining 32.5 percent stake in the country, which is estimated to be worth $700 million.
“Part of our success in South Korea – and in many of our international markets – is due to our expertise and judgment in knowing when to rely on local partners to continue to build the business,” Michael Conway, Starbucks’ group president for international and channel development, said in a statement.
South Korea is the fifth-largest market for the Seattle-based company, with over 1,500 stores spread across 78 cities. However, despite the size of its market presence, it represents little growth opportunity for Starbucks due to market saturation and maturity.
“South Korea … would not be a market for major growth in the coming years. It’s better for them to sell their stake use the capital and proceeds to invest in faster growth markets like China,” China Market Research Group analyst Shaun Rein today Reuters.
The company is instead focussing on the Chinese market, especially as it faces stiff competition and market saturation in its home base. As a result, sales in China doubled in the second quarter.
“Using the sale of its South Korean operations will equip it with more cash that it can deploy to China,” Rein added.
E-Mart’s parent company, Shinsegae, plans to maintain its licensing agreement with Starbucks.