Starbucks launch will require R226m

TASTE Holdings said yesterday that it would raise R226 million to set up Starbucks outlets in South Africa and to expand its local Arthur Kaplan jewellery chain.

The funding will be raised via an issue of shares for cash.

The group, which owns food and luxury good brands, yesterday reported its latest interim earnings for the six months to August. Headline earnings a share declined by 98 percent to 0.1c from 4.3c last year as Taste rebranded the Scooters and St Elmo’s pizza brands to Domino’s Pizza.

Core headline earnings dropped by 98 percent to R0.2m from R8.8m last year.

Taste bought exclusive local licences to Starbucks and the Domino’s pizza this year.

It also has acquired luxury jewellery brand Arthur Kaplan and fast food chicken outlet Zebra’s Chicken.

“These opportunities will, in the next 24 months, require capital, and launching Starbucks and Domino’s within 18 months of each other will negatively impact short-term earnings, as is evident in these results of the food division,” Taste chief executive Carlo Gonzaga said.

Between 150 and 200 Starbucks outlets were expected to be opened in the long term, at a cost of between R3m and R10m a store, the company said.

In the short term, 12 to 15 Starbucks outlets are in the pipeline within the first 24 months from the first store opening, which is scheduled for the first half of next year.

“The capital expenditure and pre-opening expenses for the first 12 to 15 stores is estimated at R108m,” Taste said.

Domino’s has learnt from its mistakes in rolling out rebranding of Scooters and St Elmo’s pizza to Domino’s, Taste said.

The company would invest in training after costs rose in the food division, owing to the establishment of the two dough manufacturing facilities, which are not comparable with the prior period, the move to a new food distribution facility in Midrand and 34 additional corporate stores, 26 of which are Domino’s stores, when compared with the prior period.

“The learnings from the Domino’s rollout to date have been instructive in how we plan to rollout Starbucks. The plan to rollout Starbucks in a measured and considered manner will mitigate much of the execution risk associated with a new brand launch,” Gonzaga said.

He said Starbucks employees would be trained in the UK in December.

Jean Pierre Verster, an analyst with Johannesburg-based 36ONE, said Taste needed to raise capital to aid growth prospects.

“The company needs more capital. Management has been busy with multiple deals, and the fact that they were all concluded in a short space of time is not normal. The opportunities have been so good that the company does not want to miss out due to a lack of capital,” said Verster.

Taste Holdings shares on the JSE fell by 0.54 percent to R3.68, which valued the company at R1.11 billion.