US coffee giant Starbucks has reportedly abandoned its expansion plans in South Africa owing to high operating costs and tight customer budgets.
Starbucks opened its first store in the Rosebank district of Johannesburg in April 2016 and then went on to open 12 more cafes across Johannesburg, Pretoria, and Durban in collaboration with local licensee Taste Holdings. The coffee giant even had plans to open 45 more stores by 2020.
But, now, as the company is struggling to control operational costs and debt, it has decided to halt its plans to opening more outlets, reported
Last month, Taste announced it has decided to put a break on the expansion plan, saying “whilst the Starbucks’ store network is profitable (before debt interest and tax), it is not producing the required return on the store investments.”
Notably, in the company’s latest financial report, its food divisions operating costs increased by seven percent in the six months to August, mainly as a result of the operating costs of Starbucks doubling since the comparative period due to the addition of eight stores.
Market analyst at Vestact, Michael Trehene, told AFP that while Starbucks is quite popular in South Africa, the coffee giant’s current business model is simply too expensive to operate. It costs an estimated $350,000 to $550,000 to open each new store.
Despite Taste announcing plans to open a Starbucks in the country’s fashionable tourist hub of Cape Town, there’s still no outlet there.
“Places like Cape Town are affluent enough to sustain a few stores… (but) the coffee is expensive, which makes it unaffordable for a large part of our population,” Trehene added.
Notably, Starbucks is also facing stiff competition in the South African coffee market. There are Bean There, Father Coffee and many independent outfits targeting middle-class consumers in cities.
While a small cup of Starbucks flat white costs 30 rand, a similar order at Father coffee costs 22 rand and 26 rand at the Vida e Caffe chain.