Name: Why Starbucks Is Struggling In South Africa??
Uploaded: 2020-03-22T09:29:31.000Z
Duration: 11 min 23 s
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What do those brands have in common in the U.S.?

Not much. But in South Africa, they're run by the same parent company.

And that company is struggling after opening 12 Starbucks in South Africa,

Taste announced in November 2014 that it would stop the rollout of new

stores. The company said Starbucks just wasn't making enough money to

Taste also stopped opening new Domino's, which it said was the biggest

underperformer. Even though tastes began opening Starbucks stores again in

Its footprint is still far less than what the company expected when it

In 2015, Taste that it's all the potential to open as many as 200 stores

Instead as of 2019, Taste now has just 13 Starbucks locations in South

Africa. Taste hasn't had to close any stores yet.

But with its high operating costs and a big price tag most South Africans

can't afford,can Starbucks survive in South Africa?

Starbucks opened its first location in Seattle in 1971.

It quickly became a global brand with 30000 stores around the world.

But Africa is one continent where you won't find many Starbucks.

The brand is currently in just three African countries Morocco, Egypt and

South Africa. South Africa is the continent's second largest economy and

is now considered a point of entry to the African market for many global

brands. When apartheid ended in the 90s, foreign companies returned to the

country. South African consumers, who'd long been limited to local

players, were curious about these new international brands.

Starbucks expands to a new country in one of two ways through Starbucks

owned and operated stores, or by partnering with a local company to

license stores. In South Africa, Starbucks partnered with Taste Holdings

in 2015, giving the company an exclusive 25 year license to open Starbucks

stores. When Taste opened its first location in Johannesburg in April

2016, it was the first ever Starbucks in sub-Saharan Africa.

Lines of people eager to try its coffee snaked around the block when it

first opened in Rosebank, a shopping suburb of Johannesburg.

Local media reported that some people even waited overnight for their

But soon customer interest dropped as the novelty of Starbucks wore off to

slow the rate at which it opened new stores.

The company reported overall operating losses in the first half of fiscal

At Tastes Food Division, net losses mounted, widening 51 percent from

But in August 2018, he said it wasn't producing the required return on

Operating costs were also high for Starbucks in the first six months of

2013 due to the addition of eight new stores.

In fiscal year 2019, thanks in part to sales from two new stores,

Starbucks South Africa revenue increased 46 percent from the year prior to

But for the nine stores that have been open for at least a year, same

Taste Holdings said the double digit drop in same store sales showed that

the honeymoon period for Starbucks in South Africa was over, despite the

fact that Starbucks products tend to be more expensive than its rivals in

South Africa. It's still ranked number four in the specialty coffee

Local coffee companies open in South Africa.

Long before Starbucks did, and analysts say some chains had already nailed

You know, there was a or there is an established coffee culture and it's

not so easy just to come in and say, hey, you know, you know, we're the

new kids on the block and with better value proposition, I think, of a

You know, 20 years ago would have been very different.

But I think, you know, now a Starbucks coming to South Africa is

definitely a little bit of a sowhat factor.

Other international coffee jeans have tried and failed to expand in South

Africa. Northeast favorite Dunkin Brands open stores there in 2016.

But in February 2019, it's licensors said it would close all Dunkin Donuts

and Baskin Robbins there due to poor performance.

Krispy Kreme opened stores in 2015 with a much more modest goal than

Starbucks to open 31 restaurants by 2020.

McDonald's expanded to South Africa in 1995.

It has two hundred and eighty five restaurants in South Africa, compared

In 2018 McDonald's said it would invest one hundred and five million

dollars in South Africa over the next five years.

Starbucks biggest problem in South Africa is how expensive its products

are. Starbucks in general and this is probably where the problem lies.

They are a bit more expensive than all other competition.

So, a cappuccino, you know, are from 15 to 25 percent more expensive than other chains.

You know, you come with a premium and that's what people are attracted to.

Starbucks is aimed at middle and upper class consumers, a segment which is

The World Bank says South Africa has one of the highest inequality rates

in the world. From 2008 to 2015, a bout 20 percent of the population was

considered middle class, which is considerably smaller than in other

countries. The average salary in South Africa is about 1400 dollars a

You know, I'd say probably a price bracket is between like 22 to 35 rand.

And that would be like a safe zone that can kind of say that's what most

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Why Starbucks Is Struggling In South Africa??

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