Starbucks licensee could exit onerous rentals

The South African company licensed to operate Starbucks in Southern Africa is ramping up expansion of the brand here with deals for a further 15 new outlets brewing this year, but warns its growth targets don’t preclude it from exiting unfavourable legacy leases.

Adrian Maizey, who heads Rand Capital Coffee, which owns the Starbucks licence for Southern Africa, says these lease agreements are those that carry high, escalating rentals “where landlords are not open to finding a mutually beneficial path forward”.

Maizey says it has the support of Starbucks head office to exit onerous rental agreements entered into when Taste Holdings launched the brand in SA in 2016.

Rand Capital Coffee was granted the licence to operate Starbucks in Southern Africa in November 2019 and acquired the 16 original larger-format Starbucks outlets from Taste Holdings in December 2019. Taste Holdings has since disposed of its food businesses and been renamed as JSE-listed Luxe Holdings, which focuses on luxury brands in sectors such as jewellery.

“When reasonable lease terms cannot be achieved, it is generally prudent to cut one’s losses and invest one’s capital with likeminded partners,” says Maizey.

Rand Capital Coffee will rather close down a store and expand its store footprint with new landlords who are “prepared to come to the table”, says Maizey, than expend “finite resources on stores that do not have a path to profitability”.

“The sad thing is that these are good stores, but the rent terms were entered into by the prior owners when the macro picture was materially better than it is today.”

He says Rand Capital Coffee has made progress with most landlords in renegotiating historical leases but that some, which he declines to name, are refusing to budge.

Maizey thinks the “problem is that they view us as this big global brand” and that the landlords therefore believe Rand Capital Coffee can afford to pay above-market rents.

“The reality is we represent a global brand that is funded by South Africans, which employs South Africans. We benefit tremendously from the know-how and experience of what Starbucks has produced over 50 years but it is our own capital that allows for our venture to be realised in South Africa.”

California-based Maizey, who was born and raised in SA, has voiced his frustration previously about the traditional fixed leases prevalent in SA, which have an above-inflation escalation structure, saying he would prefer rentals linked to turnover and inflationary escalations.

He says Rand Capital Coffee will “realistically” open at least 15 new stores this year in SA, and that the “outer limits” for expansion would be 25 shops. He says SA is the fastestgrowing segment in the Europe, Middle East and Africa region for Starbucks and is seen as “strategic and a springboard into the rest of Africa”.

“We [SA] were one of the slowest-growing regions before we took over in December 2019 as between 2016 and December 2019, when we took over, there had only been 16 stores built. From December 2019 until now we’ve increased the store footprint 56% and we are now the fastest-growing region.”

Two weeks ago the group opened a 130m² coffee shop at Woodlands Mall in Pretoria, which is smaller than the original standalone flagship outlets Taste Holdings opened in Rosebank, Gateway, Melrose Arch and Mall of Africa.

Maizey says most of the group’s expansion will be through smaller format stores of 20m² to 80m², many in partnership with Shoprite Checkers, with a “store-within-astore” concept at the grocery group’s new high-end FreshX stores. The first two of these outlets were launched late last year in Stellenbosch in the Western Cape and Rosebank in Johannesburg.

Maizey says drive-through formats are also on the cards, subject to finding sites.

He says the plan is to keep the original flagship properties, which offer experiences such as “Reserve Bar coffee tasting” for patrons and are popular.

Maizey says smaller formats such as the store-within-a-store in Rosebank near to the larger stand-alone outlet in the same precinct are complementary, allowing both premises to share staff and expertise as well as attract different kinds of customers.

[If] reasonable lease terms can’t be achieved, it is generally prudent to cut losses Adrian Maizey Head of Rand Capital Coffee, which owns the Starbucks licence for Southern Africa