Taste Holdings’ over-ambitious plans for Starbucks

I am not much of a coffee drinker (it gives me anxiety) however I love its aroma and I also like the idea of needing a morning cup of coffee. Nevertheless, I do have a cup every now and then, just not enough for me to pass as a coffee drinker. Even so, I am not particularly picky about the brand I drink. I buy Jacobs Kronung instant coffee for home (real coffee connoisseurs can’t stand instant coffee) and I drink a cafe latte or cappuccino when I’m at work.

Unlike me though, there are many coffee drinkers in South Africa who have helped keep the coffee industry strong, but even they couldn’t save Starbucks.

Taste Holdings acquired a license to own and operate Starbucks in South Africa back in 2015. In 2016, it opened its first store in Rosebank, Johannesburg. I remember standing outside the store contemplating whether or not to join the insanely long queue. This was when bloggers/vloggers/ Instagrammers were getting real recognition in South Africa, and because every other image on Tumblr had a Starbucks cup, the hype around the brand was big. Everyone wanted a picture of the famous cup with their name on it.

As expected, this did not last very long. Taste Holdings had initially planned on opening 200 Starbucks stores by 2020. Today, it only has 13 stores and would need R700 million to open up more stores in order to reach positive free cash flow. This is money the group cannot secure and has thus opted to rather sell the franchise for R7 million. Not only that, but they have also decided to exit the food business completely (I honestly thought Maxi’s restaurants closed down years ago and don’t even get me started on the Domino’s pizza franchise).

Capex aside, are 200 Starbucks stores by 2020 even viable in South Africa? I think it could be, but not using the current business model and definitely not by 2020. The main attraction for Starbucks is their premium coffee and variety of beverages, but given our current economic crisis, that is a luxury most South Africans are simply not willing to spend on.

It cost R8.3 million to build the 485 m2 Rosebank branch. Considering the fact that people usually get coffee on their way to work in the mornings, how many would go through the hassle of parking and walking through a mall just to purchase overpriced coffee. Competitors such as Seattle coffee have benefitted from placing express stores in fuel stations, which makes it more convenient for consumers. In order to continue offering their premium beverages, Starbucks would have to reduce the costs of establishing a new store and look into the strategical placement of their stores.

I do think there is still a market for Starbuck in South Africa, however, it might not be as big as previously anticipated and it might also take a few tweaks and tricks to make it work.

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1 Comment

  1. Iam also not a avid coffee drinker although I do agree that 200 stores in SA is overly ambitious especially if its harder to acess it for those who drink cofee “on the go”. I feel that these days convienience sells more than branding although both are important.

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