By Alexandra Wexler
Starbucks Corp. is joining a flood of international food and
retail chains aiming to use South Africa to generate a craving for
their products among the continent's growing consumer class.
The Seattle-based coffee chain on Tuesday said it has licensed
South African management group Taste Holdings Ltd. to open the
first sub-Saharan Starbucks in Johannesburg next year, with more
locations in South Africa to come.
Starbucks sources much of its coffee from African countries like
Rwanda and Uganda, but has just a handful of stores on the
continent in Cairo and Casablanca, Morocco.
"The coffee market here is vibrant and growing fast--we want to
be part of that growth," Kris Engskov, president of Starbucks for
Europe, the Middle East and Africa, said in a statement on
Tuesday.
Taste is also the franchisee for 45 Domino's Pizza restaurants
that have opened in South Africa since late last year. Rival Pizza
Hut returned to South Africa in 2014 after a six-year absence, and
clothing retailers like Gap Inc. and Zara, owned by Spain's Inditex
SA, also recently opened their first retail outlets on the African
continent in Johannesburg.
Swedish retailer Hennes & Mauritz AB plans to open its first
H&M store in South Africa later this year, and Krispy Kreme
Doughnuts Inc. said in May that it planned to open 31 outlets in
South Africa within five years.
"A lot of these guys are using South Africa as a test market for
Africa in general because of the relative ease of doing business
here," said Meryl Pick, an analyst at Old Mutual Equities.
Africa was home to six of the world's fastest-growing economies
last year, the World Bank said, and the International Monetary Fund
said the region's growth of about 4.5% this year would only be
surpassed by developing Asia, which includes emerging giants China
and India.
But last week the IMF said malaise in South Africa is weighing
on the continent's growth. Frequent blackouts and labor turmoil
have pulled both business and consumer confidence to near 15-year
lows. The government says growth might not reach 2% this year,
nowhere near enough to dent a decade-high unemployment level of
26%.
Carlo Gonzaga, Taste's chief executive, said there are still
plenty of South Africans with a hunger for Domino's pizza and
Starbucks' lattes. For one thing, he said his generator-backed
outlets profit when the electricity fails and people can't cook in
their darkened homes.
"Our sales go up if there's no power," Mr. Gonzaga said. "The
retail space in South Africa is actually doing reasonably
well."
Still, South Africa's coffee scene is relatively saturated, with
sales growth slowing in recent years. Several brands, including
Seattle Coffee Co. and Mugg & Bean, a coffee-themed franchise
restaurant owned by South Africa's Famous Brands Ltd., are already
well-established.
"We will fiercely protect the market share which our existing
brand repertoire has within the South Africa and Africa food
service landscape, " said Kevin Hedderwick, group chief executive
of Famous Brands, a fast-food casual dining franchiser with more
than 2,500 restaurants.
To help win over South African coffee fans, Taste plans to serve
the same Starbucks drinks that made it a juggernaut in the U.S. and
other markets, along with items tailored for local palates such as
rooibos tea, which is made from South Africa's indigenous fynbos
vegetation.
But Starbucks won't lower its prices to weather the weak economy
here, Mr. Gonzaga said: "We think that Starbucks pricing will
compete very well with current local premium pricing."
Saabira Chaudhuri in London contributed to this article.
Write to Alexandra Wexler at alexandra.wexler@wsj.com
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