Thursday , May 26 2022

Starbucks are struggling in South Africa



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New Starbucks Store in Sandton City, Johannesburg. (Photo by Timothy Rangongo, Business Insider SA)

  • South Africa will not have more Starbucks stores, its local license holder announced this week.
  • Taste Holdings does not see enough return on its investment in the US coffee brand.
  • The premium pricing costs and the costs of setting up the huge shop contribute to its battles.

Starbucks local license holder in South Africa, Taste Holdings, has suspended any plans to open more US coffee shops as it is difficult to end.

Taste, who also owns the Arthur Kaplan and Domino Pizza Pizza, has suffered operating losses from R87 million in the six months to the end of August, with a sales down 3%.

The group said that while the store network of twelve Starbucks sites is profitable at sales level, it does not produce the required return on its investment.

The establishment of a new Starbucks store in South Africa costs between R5 million to R8 million, the group said previously. This is very expensive, says Simon Brown, the founding website and directorship of JustOneLap.com. Brown estimates that the real cost could be higher than what has already been identified – maybe even reach R20 million.

Hitesh Patel, a new business director in the Starbucks, Vida e Caffè, says that the average cost of setting up one of the shops is just about R1.5 million.

That is less than a third of the new Starbucks minimum.

See also: Starbucks has just opened its 11th store in SA – with quickest WiFi from any retailer & # 39;

Taste has a 25-year license bar to operate the Starbucks stores in SA – and must pay royalties to the US brand, which proves to be expensive, says Michael Treherne, a retail analyst in the Vestact fund manager.

Due to royalties and expensive induction costs, Treherne says Starbucks South Africa had to go to pricing premium – which is not a good strategy during a recession.

How Starbucks prices compare the Seattle & Co and Vida e Caffe competitors:

COFFECT

Sources: Seattle & Co. (Online), Vida e Caffe (Sandton) and Starbucks (Melrose Arch) / Table: Business Insider SA.

The difference between food prices is more noticeable. We could find a muffin in a Vida store in Johannesburg for under R20, while the cheapest muffin is Starbucks in R32.

Ineligible prices are likely to contribute to weak sales and profitability, which would prevent Taster from opening more Starbucks stores. But the other main reason is that it can not afford.

In fact, the company has been blocked for cash. "Building new Starbucks stores cost money they are [Taste Holdings] I do not have, "said Treherne. The group had to issue new shares earlier this year to get almost R400 million to help settle some of their debts.

The Blas battles mean that Cape Town remains without a Starbucks store – so far the brand is only available in Gauteng and KwaZulu-Natal.

Now read: We're tasting 5 Starbucks drinks – and the results were noisy

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Business Insider South Africa also:

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