Restaurants

Starbucks' partner in South Africa just sold its 13 stores for less than the cost to build its flagship location

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Starbucks isn't working in South Africa – here's why

The first Starbucks in sub-Saharan Africa opened in 2016 through a partnership between Starbucks and South Africa's Taste Holdings. That partnership ended in November 2019, when Taste sold all 13 of its Starbucks stores for 7 million rand, or about $464,000, to a consortium. 

In November 2018, after opening 12 Starbucks in South Africa, Taste said it would pause the rollout of new stores. It presented investors with a plan to continue expanding Starbucks to between 150 and 200 locations.

However, in its November 2019 statement, Taste said it could not secure the capital investment required for that expansion due to the current structure of the business and existing market conditions. Taste, which also owns Domino's Pizza franchises in South Africa, said it would exit the food business entirely.

Instead, Taste said it would focus on its luxury retail businesses, which includes jewelry and watch brands.

Slow economic growth in South Africa has squeezed consumer's pockets. As Starbucks' products are more expensive in South Africa than similar items at local chains, the brand is out of reach for many consumers.

"They are 15 to 25 percent more expensive than other chains," said Michael Treherne, portfolio manager at Vestact Asset Management. "You come with a premium brand and that's what people are attracted to. But, [as] soon as your pricing is expensive, you limit yourself to the number of customers who can actually afford it."

Those high prices are especially prohibitive in a country like South Africa, where the middle class is small. From 2008 to 2015, about 20% of the population was considered middle class, according to The World Bank.

UPDATE: This story has been updated to reflect that Taste Holdings sold its 13 stores on Nov. 1, 2019 after initial publication.

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