"The coffee market here is vibrant and growing fast – we want to be part of that growth," Starbucks EMEA president Kris Engskov said in a company press release.
The licensing agreement gives Taste Holdings exclusive rights to open, own and operate Starbucks retail outlets in South Africa.
Taste Holdings' food division already holds South African licensing agreements for a number of fast food companies including Domino's Pizza and The Fish & Chip Co.
Taste shares, which are listed on the Johannesburg Stock Exchange, rose 19.9 percent on news of the deal and are up over 40 percent over the past 12 months.
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"There's a growing category around coffee and within that, around premium coffee," Carlo Gonzaga, CEO of Taste Holdings told CNBC Africa's Power Lunch on Tuesday.
"We see an opportunity now to capitalize on it."
Johannesburg's Chamber of Commerce said they hadn't yet considered the impact Starbucks might have on local business and did not comment further.
The arrival of a global franchise such as Starbucks will be a big change for South Africa's consumers. Port Elizabeth resident Colin Urquhart told CNBC that there weren't many coffee chains in his home town and that pricing will be key to Starbucks' success in a market where a standard latte or cappuccino usually costs 18 to 24 South African Rand ($1.90).
"They're obviously going to have competition."
Starbucks was not able to offer an interview by press time.