By Kopano Gumbi, CNBC Africa reporter
South African franchisor Taste has been burned by Starbucks coffee. The retailer announced on Friday that it would be selling the Starbucks franchise for R7 million. According to its 2016 annual results, the flagship Rosebank store cost R8.3 million to build. They went on to build 12 more stores.
From licencing fees, to recapitalisation and loans, it is estimated that Taste spent over R1.4 billion trying to keep Starbucks afloat. The company said it would cost at least R700 million more to reach positive cash flow, and that Starbucks would need to expand to up to 200 cafes to become profitable. Taste now says it is exiting the food business completely as it takes a new strategic direction, this includes selling its Domino’s pizza franchises as well.
It will be sold to a consortium including Rand Group Limited, which is controlled by a non-executive director of Taste Holdings. The separation comes after years of struggling to operationalise the American coffee brand.
Rand Group’s Adrian Maizey that it will work with “Starbucks in this new capacity with a well-funded consortium of investors to help achieve the aggressive growth targets we have for the brand in South Africa”.
In response to the purchase Starbucks said “in partnership with Taste, we have opened 13 successful stores across 3 cities and this new relationship will provide the necessary capital to achieve our ambition of up to 200 stores.”
In 2018, Taste had to suspend the roll-out of stores after financial troubles in the group saw losses grow significantly. They did a rights offer in January 2018, were extended an additional line of credit by their American investor, Sean Riskowitz, and then did another capital raise of R132 million, by floating an additional two million ordinary shares at 10 cents each.