SA: Starbucks run out of steam

With high operating costs and a tight budget, US coffee giant Starbucks had to abandon its plans to expand in South Africa.

However, the influx of customers at the opening of its first store in Johannesburg in April 2016 had led to an economic upswing that exceeded expectations.

Local licensee Taste Holdings has opened 12 Starbucks coffee shops in Johannesburg, Pretoria and Durban. It hopes to open 45 stores by 2020, with a target of 150 stores in the country.

Opening new shops have been cleared off the shelves, as the indebted company is struggling to control its operating costs.

Each new store costs between $350,000 and $550,000 to set up.

With operating costs for its food divisions up by 7% last August, Starbucks is clearly on slippery grounds.

The South African coffee market is also competitive, with Bean There, Father Coffee and many independent companies targeting middle-class consumers in cities.

These brands sell a small cup of coffee between $1.50 and $1.75, unlike Starbucks, which sells it for $2.

Starbucks operates more than 22,000 coffee shops worldwide and is only present in two other African countries: Egypt and Morocco.

But the company is optimistic that after securing long-term financing, it hopes to reconsider its Starbucks spread out plans.

@philemonmbale