When Starbucks opened its first store in Beijing in 1999, it wasn’t just selling coffee; it was selling Western aspirations to China's rising middle class. The Seattle-based giant expanded rapidly to dominate China’s premium coffee scene.

That early-mover advantage has, however, since eroded. Chinese competitors like Luckin Coffee and Manner have overtaken Starbucks in store count and captured market share, thanks to aggressive pricing, mobile integration and a sharper understanding of Chinese consumer habits. Luckin drives more than 90% of sales via its app, while Starbucks still relies on in-store traffic.

The Financial Times reported recently that Starbucks' China revenues plunged nearly 19% from 2021 to 2024 to $3 billion (€2.58 billion). The coffee retailer's market share over the past five years has fallen to 14% (2024) from 34%, according to Euromonitor International.

With such headwinds affecting its second-biggest market, Starbucks announced this month it would sell a stake in its China operations to a Hong Kong-based private equity firm. The $4 billion deal with Boyu Capital creates a joint venture (JV) in which Starbucks retains 40%.

In a parallel move, Burger King announced a new JV with a Beijing-based private equity partner this week, selling a majority stake for $350 million in investment to expand from 1,250 to over 4,000 stores by 2035.

It's not just US multinationals. French sports retailer Decathlon is planning to sell about 30% of its China business, a stake valued at €1 billion ($1.16 billion) to €1.5 billion, as it faces pressure from local rivals.

Chinese brands speed ahead

For retailers from the United States, the problem is not only slowing demand but the speed and sophistication of local rivals, who launch new products faster and price more aggressively. They also integrate seamlessly into China’s digital ecosystem through mobile platforms like WeChat and Alipay.

"A lot of these global names have started to lose their brand power within China," Chenyi Lin, an affiliate professor specializing in digital transformation at Insead business school, told DW. "The new name of the game is agility and adaptability."

Clues to the hyper‑competitive nature of China’s consumer market include its 129 electric-vehicle brands, more than 50,000 coffee chains and over 450,000 bubble tea outlets nationwide.

Local champions have not only saturated the mass market but are now moving upmarket, offering premium products at competitive prices. Even the extent of competition is fierce, with domestic players challenging foreign firms across food, fashion, electronics and mobility.

Jason Yu, Managing Director of CTR Market Research, says Chinese players used to copy from the big multinationals but are now sometimes surpassing them.

"In the coffee market, for example, local chains are launching new products much faster, sometimes in a matter of weeks, while Starbucks has to wait months for global approval," Yu told DW.

Analysts like Yu and Lin expect the JV trend to intensify, as Chinese brands expand globally while continuing to erode the dominance of Western names at home.

US firms cut China dependence as tariff woes linger

JVs are just one derisking strategy. Several US manufacturers recalibrated their global supply chains after the COVID-19 pandemic to cut reliance on China due to an over‑reliance on a single source for manufacturing and parts. Apple shifted some of its iPhone production to India, while Nike expanded manufacturing in lower-cost markets in Southeast Asia.

Amid uneven growth, US business confidence in China has also hit a historic low, with only 41% of firms optimistic about the next five years, according to industry lobby group AmCham Shanghai's September 2025 survey.

Yet rather than exit, Starbucks and Burger King's JVs with private-equity partners should enable them to gain speed, capital and digital integration in a market where local brands now set the pace.

"[Chinese JV partners] have the local knowledge, connections and resources to help the multinational brand to be more interconnected with the local ecosystem rather than compete on their own," said Yu.

Could this phase of joint ventures be different?

Historically, JVs were the standard way for foreign companies to enter China, mandated by law in the 1990s. However, these arrangements can be risky due to uneven regulatory enforcement, limited control over operations and potential intellectual property exposure.

Many US firms have had bitter experiences, facing diluted control, slower decision‑making and conflicts with local partners. By the 2000s, many foreign brands in China abandoned them, preferring wholly owned operations. Full foreign ownership in retail has only been allowed since 2022.

According to AmCham China, US corporations remain skeptical of JVs. Trade tensions and geopolitics add another layer of uncertainty, the business body said in a recent report. US–China tariffs remain in place on billions of dollars of goods, while rising frictions over Taiwan and other regional issues have also heightened boardroom anxiety.

Can US brands retain a competitive edge?

Yu told DW that joint ventures used to be seen as a necessary evil in China, but the latest deals are "very different" as they are less about legal necessity and more about strategic advantage.

"In a market where Chinese competitors launch new products in weeks and integrate seamlessly into digital platforms, agility is everything. Without these partnerships, many US retailers would struggle to keep pace," he said.

The greatest risk for US retailers is not competition but leaving China altogether. Walking away from the world’s largest consumer market would mean surrendering long‑term growth. Exiting may look like derisking, but it also risks irrelevance.

“If you leave China, you don’t just lose sales today — you lose the ability to shape the habits of tomorrow’s consumers," Lin told DW. "Once those habits are set by local brands, it is almost impossible for foreign companies to win them back."

Edited by: Uwe Hessler