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Photo credit: Starbucks

Starbucks enters China’s agrifood investment scene with Sequoia Capital partnership

April 29, 2020

Starbucks is set to become an investor in China’s tech startup scene after announcing a partnership with VC firm Sequoia Capital in the country.

Following last week’s launch of meat-free alternative proteins in Starbucks’ Chinese stores, the collaboration signals that the US coffee chain plans further forays into agrifood innovation.

Belinda Wong, chair and CEO, Starbucks China, said the country is “a rich ground for entrepreneurship that has seen the emergence of many local innovators that we hugely admire.”

The alliance will see the coffee chain and Sequoia China make “strategic co-investments” together, in addition to forming partnerships with emerging, tech-driven food and retail businesses “created in China, for China,” she added in a statement.

Starbucks hopes to get “early access” to innovations in the food and retail industry by leaning on Sequoia’s investment expertise, as well as its existing portfolio of startups.

Beyond providing growth capital, Starbucks will also be looking to share its operational resources and consumer retail knowhow with prospective investees.

Neil Shen, founder and managing partner at Sequoia China, said his firm is “thrilled” to collaborate with “one of the leading retailers in China, with unmatched market presence, strong culture of innovation, and deep insights into the Chinese consumer landscape.”

“The partnership presents an exciting platform for our portfolio companies to test, commercialize, and scale new innovations for China,” he continued.

China is Starbucks’ second largest market after the US. As of last September, it had 3,521 directly operated stores in China, compared to 8,575 in its home market, according to Statista.

The chain has recently begun to tout its tech credentials in China as it tries to cement its place in the market amid increasing competition from homegrown, digital-first players like Luckin Coffee, which typically lean on mobile apps to interact with customers.

Now mired in a fraud scandal, Luckin Coffee made headlines for other reasons in 2019. Its $561 billion IPO was one of China’s biggest agrifood deals of the year; read about the others here.

Last month, it revealed its plans to establish a $130 million “coffee innovation park” in China, incorporating a high-tech roasting plant, warehouse, and distribution center. The facility – located in Kunshan, near Shanghai – is slated to commence operations in 2022.

Starbucks’ recently unveiled tie-up with Beyond Meat – which will see it sell the US company’s plant-based protein products in its Chinese outlets – may point to another possible direction for the coffee chain’s investment strategy.

Elsewhere in the world, Starbucks has been fairly quiet on the venturing front of late (two of its highest profile past investments include payments and merchant services company Square – which IPOd in November 2015 – and kitchen products e-tailer, which was acquired by US retail giant Target in March 2015).

In March last year, it committed $100 million to Valor Siren Ventures I, a $400 million agrifood-focused fund managed by Chicago-based Valor Equity Partners.

The partnership with Sequoia China “adds another powerful engine to drive our […] pursuit of digital innovation around the world,” said Kevin Johnson, president and CEO of Starbucks. “Together with Valor Siren Ventures [we] are excited to tap the tremendous energy of technology entrepreneurs from two of the world’s largest and most dynamic markets.”

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