A cup of coffee is not classified as an essential good. And relaxing at a coffee shop still won’t be possible under level 3 of the Covid-19 lockdown.
But that isn’t stopping Starbucks. The owner of the global coffee franchise in SA is throwing caution to the wind with a plan to open 10 new stores within nine months, despite Covid-19 and the restrictions on food outlets.
Until now Starbucks outlets have been opened only in super-regional malls but the new owner of the chain in SA, Rand Capital Coffee, wants to get the brand into neighbourhood shopping centres, petrol stations and possibly even airports.
Adrian Maizey, founder of the Rand Group, says SA has a culture of gathering to enjoy a well-made cup of coffee with friends and Starbucks would like to position itself as a neighbourhood brand even if there is a perception that it is a high-end indulgence.
"The perception is that this is an expensive brand given the depth of selection as well as the design of our stores. But our studies show that a cup of our coffee is about R1 less than Woolworths coffee," he says.
Rand Capital Coffee bought all 13 Starbucks stores and the master franchise licence for SA from Taste Holdings for a pittance last year. It paid just R7m. In 2015, however, when Taste signed a master franchise deal with Starbucks, it was conditional on Taste spending R226m to build new stores.
Maizey is determined that a global pandemic and SA’s worst economic conditions since the Great Depression won’t derail his team’s ambition.
But independent analyst Anthony Clark says Rand Capital Coffee has "a lot of guts" to try to succeed with Starbucks in SA, given the costs associated with the brand.
"Starbucks didn’t work the first time because it’s expensive to establish in a country. The model involved expensive destination stores paying high rent. You need to invest a minimum of R250m to establish it in SA and I would question if the consortium has the funds to take Starbucks to that level."
And Clark says the days of destination coffee stores look to be over, especially given the restrictions around operating while the Covid-19 pandemic persists.
"The social-distancing measures mean queues will be longer. I’m not sure how many people will want to queue for a premium coffee and pay R40 when they can go to competing coffee shops who may serve them quicker and whose branches may be closer to home," says Clark.
The first Starbucks branches opened in Rosebank in Joburg, and the Mall of Africa in Midrand.
But Taste ran into challenges as it tried to make a success of Starbucks while also managing other assets, including Domino’s Pizza.
Eventually Taste’s food arm went into liquidation. A consortium led by Maizey, who was born in SA but now lives in California, snapped it up late last year. Maizey insists that Starbucks deserves a second chance. He is determined not to repeat Taste’s mistakes.
"Taste didn’t get enough scale with Starbucks. It was managing too many brands at the same time and had problems with its balance sheet. We believe Starbucks is a global brand which requires focus to get right in a new developing market like SA."
Maizey sees Starbucks SA as a start-up that will need capital and attention. "I believe Starbucks can succeed and I’m personally invested in its success."
Maizey means that literally. He has put his own money into the business.
But it hasn’t been smooth sailing. The cost of fixing the business has been high.
"To date, we have paid north of R30m for the business. That amount continues to increase as we settle supplier debts incurred prior to our ownership that are coming to light. In good faith, we are paying those prior supplier debts so that those suppliers can continue to best serve us," he says.
Rand Capital Coffee has received some rental relief from its landlords. Hyprop Investments, owner of the Rosebank Mall, says Starbucks is receiving rental relief until it can trade again, which is expected to be only once the lockdown has been eased to level 1.
While some restaurants have been able to deliver coffee under level 4, Starbucks hasn’t done so. The brand’s customer experience in SA is linked to drinking the coffee on the premises, while relaxing with friends or using the free Wi-Fi.
Maizey seeks to allay fears that the pandemic will scupper his plans for Starbucks.
He says existing and future store formats are being adapted to fit a post-Covid world with its expected changes in consumer behaviour. Starbucks Corp in the US is also providing strategic input.
David Shapiro from Sasfin Securities says Starbucks is a well-followed brand, which justifies a renewed attempt to make it work in SA. "I think it depends on how they position the brand in SA. Starbucks is expanding aggressively in China."
Shapiro says Starbucks can do well if it becomes an on-the-go, takeaway coffee brand. However, this will mean changing its strategy in SA.
*This article has been altered from the original. In the original story, we incorrectly stated that Taste Holdings bought its Starbucks license for R226m in 2015. In reality, Taste signed a master franchise agreement with Starbucks, which included a store build liability worth R226m. This obliged Taste to build stores to that value, but it wasn’t a cash purchase amount.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.