Starbucks struggles to find a new identity in cut-throat China

Potential investors suggest it copy local rivals — have smaller stores and cut prices

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BEIJING — When a group of private equity investors and Chinese technology companies were asked for ideas on how they would revive Starbucks' fortunes in the world's second-largest economy, the most common advice was: Be a lot more like the local competition that beat you.

Starbucks, they argued, should have smaller stores, employ fewer people and cut prices, according to sources familiar with the sale of a stake in Starbucks' China business that reportedly kicked off in May. These proposals resemble the very model that enabled Luckin Coffee to overtake Starbucks as China's biggest coffee chain two years ago by selling coffee at one-third of its price.

Most of the prospective investors want a controlling stake of Starbucks' Chinese business. And while the US company has said it will partner only with an investor aligned with its vision, the process has put its local Chinese management team on tenterhooks, worried that a brand they have spent decades building will become just another low-price, trend-following chain, said people familiar with the matter.

The stake sale exercise is under-scoring Starbucks' identity crisis in China as it tries to salvage a flagging legacy business amid fierce domestic competition — a problem that has afflicted other foreign brands as China's economy undergoes major shifts. What Starbucks chooses to do in China will decide whether it ends up successful like McDonald's, or faltering like Apple.