Starbucks franchisee puts the brakes on South African store growth

Starbucks arrived in South Africa to great fanfare in 2016, but local franchisee Taste Holdings has now halted its rollout of new outlets. There are currently 12 Starbucks cafés in South Africa, up from ten at the beginning of the year.

According to Taste Holdings, although its Starbucks’ store network “is profitable at an EBITDA level, it is not producing the required return on the store investments.” This at least partly reflects the struggling South African economy, which emerged from recession during the third quarter of 2018.

The fact that South African consumers appear reluctant to pay a premium for Starbucks coffee does not bode well for the brand’s prospects in the rest of sub-Saharan African, at least in the medium term. This potentially creates an opening for Kenya-based café chain Java House, which currently has around 60 outlets in East Africa (Kenya, Uganda and Rwanda) and earlier this year revealed plans to more than double that figure and enter such new markets as Ethiopia, Nigeria and even South Africa over the next couple of years.

“We will be entering three or four more African countries in the next 18 months,” CEO Paul Smith told website Jeune Afrique earlier this month. However, Java House is currently facing significant uncertainty itself, with Actis Capital in talks to acquire the investment fund that Java House is part of from its current owner, the financially stricken Abraaj Group, which is based in Dubai.

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