By Saabira Chaudhuri and Alexandra Wexler
LONDON-- Starbucks Corp. has struck a deal to push into
sub-Saharan Africa next year.
The Seattle-based coffee chain has agreed to a licensed
partnership with management group Taste Holdings Ltd. to open its
first store in Johannesburg in the first half of 2016, with more
locations in South Africa to come.
The deal allows Taste to open full-size stores that carry the
full range of Starbucks food and drinks.
"The coffee market here is vibrant and growing fast--we want to
be part of that growth," Kris Engskov, president of Starbucks for
Europe, the Middle East and Africa, said in a statement
Tuesday.
Although Africa is a major sourcing hub for Starbucks--which
gets coffee from Rwanda, Uganda, Tanzania, Ethiopia, Kenya,
Burundi, Zambia, Cameroon, and the Democratic Republic of
Congo--the company has a very small presence on the continent.
Elsewhere in Africa, Starbucks has just a small handful of stores
in Cairo and Casablanca.
Taste will own and operate the Starbucks stores directly. The
model follows one Starbucks has turned through most of Europe, the
Middle East and Africa, where it uses licensees to run all its
stores. The exception is the U.K., where the company stumbled by
opening stores mostly in high-rent shopping areas in big cities.
There, Starbucks has used franchising as a way to make quick
inroads in more remote areas where its executives have little
familiarity.
Last year, Starbucks opened 171 net new stores in EMEA, all of
which were licensed. It closed 10 company-owned stores. The chain
reported net revenue for the EMEA region of $321.8 million for
fiscal 2014, up 9.7% from a year earlier. Starbucks has roughly
21,000 stores in over 65 countries.
In South Africa, the chain will serve the same arabica coffee it
sells elsewhere but will tweak its menu to cater to local tastes,
including Rooibos tea, made from the Fynbos plant grown
locally.
Starbucks is joining a flood of international flood and retail
chains aiming to use South Africa to generate a craving for their
products among the continent's growing consumer class.
Taste Holdings is also the franchisee for 45 Domino's Pizza
restaurants that have opened in South Africa since late last year.
Competitor Pizza Hut returned to South Africa in 2014 after a
six-year absence, and clothing retailers like Gap Inc. and Spain's
Zara, owned by Inditex SA, also opened their first retail outlets
on the African continent in Johannesburg recently.
Swedish retailer Hennes & Mauritz AB plans to open its first
H&M store in South Africa later this year, and Krispy Kreme
Doughnuts Inc. said in May that it plans to open 31 outlets in
South Africa within five years.
"A lot of these guys are using South Africa as a test market for
Africa in general because of the relative ease of doing business
here," said Meryl Pick, an analyst at Old Mutual Equities.
Africa was home to six of the world's fastest growing economies
last year, the World Bank says, and the International Monetary Fund
says the region's growth of about 4.5% this year will only be
surpassed by developing Asia, which includes emerging giants China
and India.
But the IMF last week said malaise in South Africa is actually
weighing on the continent's growth. Frequent blackouts and labor
turmoil have pulled both business and consumer confidence to near
15-year lows. The government says growth might not reach 2% this
year, nowhere near enough to dent a decade-high unemployment level
of 26%.
Carlo Gonzaga, Taste's chief executive, said there are still
plenty of South Africans with a hunger for Domino's pizza and
Starbucks' lattes. For one thing, he said his generator-backed
outlets profit when the electricity fails and people can't cook in
their darkened homes.
"Our sales go up if there's no power," Mr. Gonzaga said. "The
retail space in South Africa is actually doing reasonably
well."
Still, South Africa's coffee scene is relatively saturated.
Several brands, including Seattle Coffee Co. and Mugg & Bean, a
coffee-themed franchise restaurant owned by South Africa's Famous
Brands Ltd., are already well-established.
Growth at South Africa's retail coffee shops has slowed in
recent years. Volumes grew an estimated 5.4% in 2014 according to
most-recent data from Mintel, down from around 10% in 2012. The
amount South Africa's population spends at coffee shops has also
slipped, dropping to an estimated $12.94 per capita in 2014 from
$16.76 in 2011, as the dollar has strengthened against the rand
over this period.
"We will fiercely protect the market share which our existing
brand repertoire has within the South Africa and Africa food
service landscape, " said Kevin Hedderwick, group chief executive
of Famous Brands.
But Starbucks won't lower its prices to weather the weak economy
here, Mr. Gonzaga said. "We think that Starbucks pricing will
compete very well with current local premium pricing," he
added.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and
Alexandra Wexler at alexandra.wexler@wsj.com
Access Investor Kit for Starbucks Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US8552441094
Access Investor Kit for Taste Holdings Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=ZAE000081162
Subscribe to WSJ: http://online.wsj.com?mod=djnwires