Starbucks, the $3bn question, and the cost of its turnaround

Here is the oddest feature of the deal Starbucks is reported to be weighing: the asset on the block may be the healthiest thing the company owns. Reuters reported on September 16th, citing two people familiar with the matter, that Starbucks has solicited pitches from financial advisers for the sale of a majority stake in its Japan business, in a transaction that could value the operation at around $3bn. Japan is the chain's largest company-operated market outside America, with 1,883 stores, roughly 9% of the global fleet. In the quarter to late June, Starbucks' international comparable sales grew 5.7%, with Japan named a key driver. Firms sell underperformers, not their brightest markets. That Starbucks is weighing the sale of both its healthiest foreign business and its troubled one tells you how this turnaround is being financed.

The last time "Starbucks" and "Japan" appeared in the same sentence was to go the other way. In 2014 the firm paid $914m to buy out its long-time local partner Sazaby League and take full control, valuing the operation at about $1.5bn when it ran roughly 1,050 stores. Twelve years later, about $3bn for 1,883 stores is, on the back of an envelope, little more per café. Japan's value has grown in lockstep with new branches rather than with the worth of each one — the signature of a mature, crowded market that is now convenient to hand to someone else at full price.

But a mature, successful asset is precisely what a turnaround company would normally keep. Compare China. Last year Starbucks sold control of its China business to Boyu Capital in a deal valuing it at $4bn, retreating from a market where cheap local rivals such as Luckin Coffee were eating into its share. That was a sale of trouble. Japan is the opposite: a profitable, growing brand built over thirty years. Trading away both with the same tool suggests the driver is not the quality of either asset but the machine they feed.

Under Brian Niccol, who took over as chief executive in September 2024, the "Back to Starbucks" programme has restored demand: comparable sales have risen for four straight quarters, reaching 7.9% in the latest one after six quarters of decline. Yet the growth has been bought. The operating margin was 12.9% in the fiscal third quarter, against 15.8% two years earlier; in North America the slide is steeper, to 13.6% from 21%. Starbucks has poured at least $500m into labour and is refurbishing thousands of outlets to revive a coffeehouse atmosphere, with Niccol's equity awards tied to cost-cutting through fiscal 2027. A capital-hungry, margin-thin machine has to be fed from somewhere.

The strategic logic follows, along with its cost. Depending on the structure finally agreed, selling a majority of Starbucks Japan could convert a business that now reports all of its revenue and margin into royalties, licensing fees and income from a retained minority stake — higher margin, no capital spending, no barista wage bills. If the Japan deal goes ahead, and alongside the China deal, Starbucks would be migrating from a company that operates a global empire to one that licenses and partners within it, shrinking reported revenue in exchange for cash and focus to spend on its home market. It helps explain why the shares have risen about 30% since Niccol's arrival even as they lag a broader market that has climbed further.

The question for the investor is what the recycling delivers. If the proceeds and the shift to fees fund buybacks and the American renovation, the trade is a rational one: a low-growth floor of foreign cafés, swapped for margin and fewer shares. If the asset sale is instead the only way to afford refurbishments that operating cash flow cannot cover, then the company is being shrunk to finance its repairs, and the very engine of growth being sold is the part of the story investors were invited to believe in.

Above all, a report is a report. The $3bn figure is sourced, not agreed; a formal process may not begin until the fourth quarter. What is real is the revelation of method. A company that once paid $914m to own Japan outright now weighs whether its best foreign market is worth more in cash today than as a compounding business on its books. That, not the headline number, is the story — and the closest the market has to an honest account of what the turnaround actually costs.