Taste to roll out Starbucks in April
Analysts critical of growth goals
JSE-LISTED Taste Holdings would spend R120 million to open about 15 Starbucks outlets in the next two years, Taste Holdings chief executive Carlo Gonzaga said on Friday.
The money will come from the proceeds of Taste Holdings’ oversubscribed rights offer. In October, the company set out to raise R226m through a rights offer in order to fund the expansion of the Starbucks and Arthur Kaplan brands.
Taste Holdings and Starbucks on Thursday announced that Rosebank and the Mall of Africa in Midrand would be the locations of the first and second Starbucks stores in the country. Both stores would open in late April 2016, according to Taste Holdings.
In July 2015, Taste Holdings signed a licence agreement with the coffee chain, giving them exclusive rights to develop all Starbucks outlets in South Africa. The company has said that the South African market can take between 150 and 200 outlets.
Gonzaga said the roll-out of the Starbucks outlets would be “measured and considered”.
But Chris Gilmour, an analyst at Barclays Wealth & Investment Management, has his doubts about Taste Holdings’ ambitions.
“The target of 150 stores appears ambitious. Starbucks will do well in Rosebank, Sandton, Hyde Park and near Gautrain stations. But will that be enough to get to 150 outlets?” Gilmour said on Friday.
Doubt
Since the news broke that Starbucks was coming to South Africa, the cost of the Starbucks’ coffee triggers doubt about the anticipated growth of the brand in South Africa. Gilmour said the Starbucks coffee was expensive. “In the US a Starbucks coffee costs about $2 a cup (about R30.63 a cup) and usually a lot more. Are South African consumers prepared to pay this?” he asked.
But Gonzaga brushed aside speculation that the cost of the Starbucks coffee could put breaks to the Starbucks brand’s growth. He also saw no problem with the introduction of a premium coffee brand in a low economic growth environment. “We are building a brand for the future,” he said.
Starbucks enters a competitive South African market amid weak consumer sentiment, low disposable income growth and rising inflation.
In its interim results for August 31, Taste Holdings described the unfavourable conditions as “ever-present economic headwinds”.
The launch of Starbucks follows that of Domino’s Pizza, the world’s largest pizza delivery chain. In 2014, Taste Holdings announced a 30-year master licence agreement with Domino’s Pizza, which would see Taste Holdings develop the Domino’s Pizza brand in several countries in southern Africa.
Pressure
The company has previously said that launching two major brands, within 18 months of each other, will put pressure on the short-term earnings of the company’s food division.
As a listed entity, Taste Holdings is launching international food outlets under the glare of public scrutiny and, as expected, there is growing expectation that the inclusion of “mega” brands, such as Domino’s Pizza, will translate into earnings growth.
“We build brands for the long-term. We cannot run a business for the sentiment of the JSE. What we know is that we have great global brands in two categories,” he said, referring to Domino’s and Starbucks.
Taste Holdings shares on Friday closed 0.89 percent higher at R2.27 a share.