03 Nov 19 Starbucks SA sold as Taste Holdings exits food business
Taste Holdings has been burned by Starbucks coffee. The retailer announced on November 1 that it would be selling the Starbucks franchise for R7-million.
From licencing fees, to recapitalisation and loans, it is estimated that Taste spent over R1.4-billion trying to keep Starbucks afloat. The company said it would cost at least R700-million more to reach positive cash flow, and that Starbucks would need to expand to up to 200 cafes to become profitable.
Taste now says it is exiting the food business completely as it takes a new strategic direction, this includes selling its Domino’s pizza franchises as well.
It is being bought by a consortium of shareholders, including Rand Group, which is owned by Adrian Maizey, a non-executive director of Taste.
There are currently 13 Starbucks stores in Johannesburg, Pretoria and Durban. Taste opened the first Starbucks store to wild excitement in Rosebank, Jo’burg, in 2016.
Taste also plans to sell its other food brands – including Domino’s Pizza, Maxi’s and The Fish & Chips Co – after the company calculated that it would need at least R700m to generate a positive cash flow from these businesses.
According to a statement, the Starbucks network would need to expand to between 150 and 200 cafés and Domino’s to between 220 and 280 restaurants
“After careful consideration, following months of operational reviews and canvassing potential partners and capital providers on this long-term objective, it has become evident that the capital investment required for this expansion strategy cannot be secured, given the current structure of the business and existing market conditions,” Taste said in a statement on Friday.
Following the deals, Taste will focus on its jewellery retailers NWJ, Arthur Kaplan and World’s Finest Watches.
Taste has been battling a large debt burden and cash flow issues over the past few years.
Taste Holdings, which holds the licences in SA for Starbucks and Domino’s Pizza, has annouced it plans to exit its food business after becoming the latest company to realise it had bitten off more than it could chew in trying to make a profit from US franchises in SA.
Taste will join Grand Parade Investments (GPI) in giving up on US franchises, with that group announcing in February it was disposing of Dunkin’ Donuts and Baskin-Robbins to channel capital into Burger King.
Analysts said the disposal highlighted the pressure on food retailers amid a tepid domestic economy and the difficulties of getting new foreign chains off the ground in a market already full of local players.
Taste said on Friday (1 Nov) its board had established it would need about R700m to expand its network of chains sufficiently to reach its profit targets, and intends to dispose of Starbucks, Domino’s, Maxi’s and The Fish & Chips Co.
To achieve positive cash flow, Starbucks would need to expand to between 150 and 200 cafes, while Domino’s would need between 220 and 280 restaurants, the company said. As of the company’s year to end-February, it had 12 Starbucks stores and 81 Domino’s Pizza outlets…..