08 May 2016 Starbucks’ spectacular SA welcome bumps up expansion plans
The astonishing reception for its first two stores appears to have led Starbucks to bump up its SA plans.
IT’S taken nearly three weeks, but queues outside the first Starbucks to open in SA are finally assuming saner levels.
Starbucks CE Howard Schultz, who jetted into town post the launch said: “I have been to many Starbucks openings around the world. I have never seen a line like this after a week of our opening.”
Considering Starbucks is now in 71 countries and that Schultz was visiting eight days after the Rosebank, Johannesburg, store opened, this illustrates SA’s thirst for the Seattle-based company’s brew.
The reception for Starbucks’ first two stores in Rosebank and Mall of Africa (near Midrand) appears to have led Starbucks to bump up its SA plans.
Schultz says the long-term plan is now to open more than 150 stores — far more than its initial plan of between 12 and 15.
Starbucks has licensed its brand to JSE-listed Taste Holdings to expand. CE Carlo Gonzaga says he plans to invest R130m in expanding the brand locally.
Gonzaga says the launch “exceeded our expectations”, but he won’t be going hell-for-leather to open new stores at the expense of the existing stores.
The response appears to have injected caffeine into the veins of Taste Holdings too, as its share price gained 11.6% over the past month. It’s a welcome fillip for a stock that struggled over the past year, losing 13% of its value.
While Taste’s licence is only for SA, Schultz says Starbucks has “no plans at this time to award another partner with anything outside SA”.
Schultz will no doubt be passing on his experiences of building the biggest coffee brand in the world to Gonzaga.
“The thing we tell ourselves when we have long lines is you never want to be a fad … the characteristic of building a great, enduring company — not a fad — is trust. We must build trust with our people, and we must build trust with our customers,” he says.
It seems to be working. Last week, 90m customers bought something from a Starbucks store somewhere in the world.
Schultz says it isn’t just about the coffee: “We’re not in the transaction business.” He says Starbucks is the “third place” between work and home.
Where the company expands, it also tries to localise. In SA, for example, it is offering Rooibos tea and using local store designs.
But the coffee is the same as you’ll get on Broadway in New York. “Most of our customers want an authentic Starbucks experience that they’ve seen or experienced,” says Schultz.
While his language evokes “conscious consumerism”, it’s still a company worth US$83.7bn on the New York Stock Exchange — so it’s keeping an eye on the bottom line.
In SA, that bottom line will include tapping into the growing middle class.
“Now that I think we’re here and understanding the market, and have such a good partner, I’m convinced we will take advantage of the growing middle class and view the continent as a significant market for growth,” he says.
Source: Financial Mail
SA firms bet on coffee and doughnuts despite slowdown
A fortnight after the first Starbucks in South Africa opened in a trendy Johannesburg district, queues still snaked onto the pavement, a sign of the craving for international brands despite an economic slowdown.
South African companies Taste Holdings and Grand Parade Investments are betting that demand for relative luxuries such as coffee to go and doughnuts from international chains will endure, even as disposable incomes are squeezed.
“It’s my first time,” said student Sheldon Sharma, 22, at the Starbucks in Johannesburg’s Rosebank district on Friday, a frappuccino in his hand.
“I’m not saying I’ll be regular, but I’ll come back again when I’m in the area.”
Taste Holdings reckons South Africa can support as many as 150 Starbucks stores and it has opened a second in the new Mall of Africa, one of the largest in Africa’s most advanced economy.
Grand Parade, which has opened 65 Burger King outlets in South Africa, plans to open the first of 250 Dunkin’ Donuts stores across the country in Cape Town within two months.
Queues snaked onto the street too when Krispy Kreme opened its first doughnut store in Johannesburg last year.
At first sight, the rush to launch international fast food chains seems at odds with the prevailing macroeconomic backdrop.
Growth is set to be its weakest since 2009, interest rates have climbed two percentage points since 2014, food prices are on the rise after the worst drought in South Africa on record and unemployment is hovering stubbornly around 25%.
And the lines of poor and elderly South Africans queueing each month for government-sponsored social grants at retailers such as Shoprite are far longer than those for a $2 flavoured latte at Starbucks.
Grab and go
But analysts reckon there a couple of factors which could help the international fast food brands survive, even if the overall retail sector is unlikely to grow anytime soon.
South Africans are flooding to cities with Gauteng, the richest and most urbanised province which includes Johannesburg and Pretoria, becoming 30% more populous in a decade.
Analysts say urbanisation goes hand in hand with a move to convenience as South Africans put in longer hours and forego home cooked meals to eat on their feet, while other cash-strapped consumers opt for takeaways over restaurant dining.
“The hectic urban lifestyle is driving the growth in fast foods over the long term,” First National Bank retail sector analyst John Loos said.
“For the sector as a whole, there is not much room for expansion with low growth and real disposable income going nowhere, but that is not to say a specific brand can’t do well,” he said.
Grab a bite when you can seems to be the plan for Grand Parade’s Dunkin’ Donuts stores.
If they price similar to Krispy Kreme at 50 US cents (ZAR7,50 approx) a doughnut, they will be relatively cheap, but Grand Parade is also hoping to feed a new category of consumption, notwithstanding the economic challenges.
“We are not going for a flagship destination store, more for grab and go stores on every corner,” Grand Parade chief executive Alan Keet told Reuters.
“Our growth and development targets were modelled for this economy.”
At Starbucks in Rosebank, engineering student Shaun van Zyl, who travelled 40 minutes from Pretoria to stand in line for his first Starbucks coffee, is planning to pick up a Krispy Kreme doughnut as well from the nearby outlet.
That is what Taste Holdings chief executive Carlo Gonzaga hopes will happen, that international brands will attract customers and make the cake bigger for everyone.
“Whenever Starbucks enters a country, it grows the coffee market in that country,” said Gonzaga.
Source: www.moneyweb.co.za