SBUX Starbucks Corporation

By Alexandra Wexler 

JOHANNESBURG-- Starbucks Corp. on Thursday joined the deluge of international food and retail chains establishing a presence in South Africa, in an effort to tap the continent's expanding consumer class.

The Seattle-based coffee chain is the latest in a string of big-name franchises and retailers of everything, from pizza to skinny jeans, to open doors in the continent's second-largest economy after Nigeria, long seen as a gateway to African markets.

The company's first retail store in sub-Saharan Africa, where it sources coffee from nine countries, opened in a posh shopping district of Johannesburg on Thursday, where people had been lined up since 6 a.m.

Prince Ndlovu, a 26-year-old music artist manager who heard about the opening on Facebook, waited more than two hours for his Grande cappuccino. "For a beautiful thing, you need to wait," said the Zimbabwean native, who on Thursday tasted a Starbucks coffee for the first time.

"It's more than what I was expecting," said Yahya Madhi, 21, another first-time customer.

The move aims to give the coffee giant a firm foothold in a region replete with opportunity and risk.

Executives see South Africa as a steppingstone into a continent that housed three of the world's five fastest-growing economies in 2015, according to the World Bank.

But Starbucks' move comes at a time when South Africa, like many commodity-rich nations across the continent, is struggling to grow its economy amid myriad issues ranging from government missteps to social unrest and drought. Many retailers, like South Africa-based Massmart Holdings Ltd., which is majority-owned by Wal-Mart Stores Inc., have tried to expand out into the broader continent in recent years, but have run into roadblocks that have significantly slowed their progress.

Some brands have also struggled to recalibrate to a market very different from the U.S. or Europe. In South Africa, Spain's Zara, owned by Inditex SA, opened its first retail outlet in Johannesburg in late 2011, but growth hasn't been too robust.

"In the South African context, it's actually quite expensive," said Unathi Loos, retail analyst at Investec Asset Management in Cape Town. "It's fallen into a completely different category here than it has abroad."

However, Ms. Loos doesn't fear the same fate for Starbucks. "There's quite a coffee culture that is developed in South Africa. People are willing to part with a good amount of money for a good cup of coffee."

South Africa was historically under-penetrated by international brands, which avoided the country due to international sanctions during apartheid rule, which ended in 1994. But recent decades have seen an influx of investment into the country's major cities, which draw well-to-do shoppers from elsewhere on the continent because of well-developed roads and a comparatively wide range of retailers, from mass-discount stores to high-end international brands.

Taste Holdings Ltd., which is the licensee for South Africa's Starbucks stores, also has a licensee deal with Domino's Pizza in Southern Africa, where it now operates more than 75 stores, the first of which opened in late 2014. Swedish retailer Hennes & Mauritz AB opened its first H&M stores in South Africa late last year, and Krispy Kreme Doughnuts, Inc. plans to open more than 30 outlets in South Africa within five years, the first of which arrived in late 2015.

But expanding on the continent has proved difficult for many blue-chip retailers. When Wal-Mart acquired a majority stake worth about $2.4 billion in Massmart in 2011, the former had hoped to rapidly expand Massmart's low-cost, high-volume chains outside of South Africa.

Yet Massmart's planned expansion to the broader continent has been slower than expected; partly because of the amount of time it takes to acquire land and proper licenses, according to Guy Hayward, the company's chief executive. Massive fluctuations in African currencies have also undermined efforts to expand across the region.

In 2011, the company had 313 stores, 26 of which were outside South Africa. At the end of 2015, Massmart's 403 stores included 38 stores outside South Africa.

South Africa itself still presents many challenges. The country grew an anemic 1.3% last year and is expected to grow just 1.4% in 2016, according to the World Bank.

In December, President Jacob Zuma replaced the country's finance minister twice in a four-day period, sending South Africa's rand currency plunging to all-time lows against the U.S. dollar and British pound.

That put additional pressure on businesses, including retailers, which rely heavily on imports. Foreign direct investment in South Africa plummeted from 62.6 billion rand ($4.38 billion) in 2014 to 22.6 billion rand last year. Currency weakness has also sparked higher inflation, which means consumers have less money to spend on things like sweaters and pumpkin-spiced lattes.

Strikes have plagued mines and factories as well as public services like garbage collection, firefighters and the postal service, while a dilapidated power grid prompted nationwide rolling blackouts for months last year. And now, a record-breaking regional drought is threatening agricultural output, food security and water supplies.

Starbucks plans to open just 12 to 15 South African stores in the next two years, despite an estimated capacity of 150 stores, Carlo Gonzaga, chief executive of Taste Holdings, Starbucks' licensee in South Africa, said on Wednesday.

"There's the expectation that consumption per capita will just increase exponentially, but in the short term, it's hard to see why people would be excited about consumer expenditure," said Meryl Pick, an analyst at Old Mutual Equities. "In 15 years' time, these might look like good investments."

Write to Alexandra Wexler at alexandra.wexler@wsj.com

(END) Dow Jones Newswires

April 21, 2016 08:03 ET (12:03 GMT)

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