Pizza and coffee are not a common combination, but in South Africa they are economically linked, particularly if they’re American brands.
After being welcomed into the country with much fanfare just over two years ago, Starbucks’ expansion has been halted over losses incurred by Domino’s pizza, and it could have a knock on effect on Dunkin’ Donuts.
While in the US these three companies may not be associated together, in South Africa, the company that has the rights to license the Starbucks brand also owns the local rights to Domino’s. Taste Holdings’ bet on Domino’s international brand and its efficient delivery, converting its local Scooter’s outlets to the US brand. Forty eight stores later, the company has failed to entice South Africans, dragging Taste’s other brands down with it.
“At present, Domino’s existing corporate store network is producing operating losses and whilst the Starbucks’ store network is profitable at an EBITDA [earnings before interest, tax, depreciation and amortization] level, it is not producing the required return on the store investments,” Taste said in a statement.
Taste Holdings released disappointing interim results for first half of the year, revealing a 3% loss in revenue and 2% dip in profits, while its operating losses increased. The company, which also operates three jewelry brands, said it would spend the remainder of the year trying to salvage its food division. It plans to restructure operations to cut costs and obtained a loan from its anchor shareholder.
Taste’s troubles reflect the South African economy, and so it’s unlikely to recover anytime soon. In a struggling economy, consumers have had to cut spending on items like fast food and jewelry. This was already not the kind of consumer culture that grabbed coffee on the go, and so Starbucks relied on an aspirational experience that many can no longer afford.
Taste’s performance has a knock-on effect one of its minority shareholders, Grand Parade Investments, the group that owns the rights to Burger King, Baskin Robbins and Dunkin’ Donuts. Grand Parade has incurred its own losses after opening over 80 Burger King outlets, and has angered shareholders with how it is executing a recovery strategy to shift from food to gambling.
With 25-year and 30-year licenses for Starbucks and Domino’s respectively, Taste told shareholders that the US companies were happy with their South African partners. While Taste was staking its growth on international prestige, it seems that the neither the company or its consumers can afford to keep up anymore.