The future of Starbucks in South Africa

On Friday (1 November) Taste Holdings announced that it has entered into an agreement to sell the Starbucks master franchise licence for South Africa for R7 million.

With questions now being raised about the future of the franchise in South Africa, Starbucks said that it has no plans to leave the country and will keep expanding its store footprint with new partners.

Speaking to the Sunday Times, the coffee franchise said it would continue to grow Starbucks in the country from the 13 outlets to the 200 stores Taste initially planned.

“I am very excited about the opportunity to work with Starbucks in this new capacity with a well-funded consortium of investors to help achieve the aggressive growth targets we have for the brand in South Africa,” said Adrian Maizey, a non-executive director at Taste Holdings and owner of the Rand Group which bought the franchising licence.

“I feel confident that by being our primary retail investment, we will build Starbucks stores at pace, bringing the Starbucks experience to thousands of customers.”

Starbucks had a strong launch in South Africa in 2016 but has since struggled to gain a foothold in the market.

Taste previously said that it would require at least R700 million to reach positive free cash flow and that the Starbucks network will need to expand to between 150 and 200 cafés.

Taste moving out of food business

Taste’s decision to sell Starbucks follows a strategy shift by the group to exit the food business in South Africa.

“The company has, following detailed operational reviews and canvassing potential partners and capital providers, reached the conclusion that Taste should change its strategic direction and exit the food business,” it said.

“It has become evident that capital investment required for the previous expansion strategy cannot be secured, given the current structure of the business and existing market conditions. In line with the company’s change in strategic direction, Taste Food has entered into the agreement to dispose of the Starbucks business.”

It is currently anticipated that the closing date for the transaction will occur on 2 December 2019.

Taste currently has a portfolio of food brands – including Starbucks, Domino’s Pizza, Maxis and the Fish & Chip Co – and luxury goods brands, including jewellers Arthur Kaplan, NJW and World’s Finest Watches.

The decision by Taste to exit the food business means that its other food brands are also possibly up for sale.

Read: A look at KFC’s new ‘high-tech’ concept store in Sandton

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The future of Starbucks in South Africa