Lessons from Starbucks’ first month in SA

Taste Holdings CEO, Carlo Gonzaga on early feedback and why he thinks American franchise  brands enjoy popularity in SA

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When the world’s largest specialty coffee roaster and retailer company hit South Africa it caused quite a stir, following in the tradition of South African consumers’ enthusiastically embracing US food franchise brands and their offerings.

It’s been a month since US coffee chain opened its first two stores in Johannesburg to incredibly long queues in Rosebank and in the Mall of Africa.

Starbuck is operated locally by Taste Holdings, which also owns fast food chains Maxi’s, the Fish and Chip Co, and more recently Domino’s Pizza.

Consumers were eager to sample Starbucks’ range of syrupy lattes but, also its variety of coffees including filter coffee and cappuccinos. Also on the South African menu is Rooibos tea.

Taste has said it will embark on a roll out in the rest of the country which will involve 12 to 15 new stores in 2016 and 20 a year after that until it is in the 150- to 200-store range, at a cost of R108 million.

The coffee market

Despite a challenging economy – the brand is launching in a year when the economy is projected to grow less than 1% – the local coffee market remains strong.

South Africa’s coffee consumption has grown as consumers, particularly in the middle–to–higher income market, with coffee adoption shifting from instant to more premium offerings. The latest data from Statistics SA released in April shows income from restaurants and coffee shops climbed 5.3%year on year in February.

Starbucks hopes to take advantage of this growing coffee culture

CEO, Carlo Gonzaga following the launch was been quoted saying that the coffee market in South Africa is larger than he had anticipated.

Gonzaga has been clear that they will, however, not be relying on the Starbucks name to draw in consumers, but that customer service will be their main focus in country where coffee consumption and coffee expertise is on the rise.

SME South Africa spoke to Gonzaga about what they have had to understand about the SA consumer and what goes into entering a new market.

Q: What early lessons has the brand already learnt about SA’s coffee market?

  • We have seen a big uptake amongst the youth market.
  • Our Reserve Bar has enjoyed instant success – the Reserve Bar offers small-lot coffee from a single origin.
  • Cold beverages are mixing well.
  • Our food offering is performing better than we anticipated.

Q: What do you consider as some of the key differences in how South Africans enjoy their coffee compared to the rest of the world?

South Africa is a growing market and we are seeing a shift in the market – coffee is increasingly becoming part of people’s routine – it’s part of their day. All Euromonitor studies show that coffee consumption in both ground and whole-bean markets is growing

Traditionally we are an instant coffee market but over the last few years, have slowly grown into a more sophisticated market by embracing the coffee shop culture.

Q: Your thoughts on why you think American franchise brands enjoy such popularity in SA.

Our world is more connected than it ever has. South African consumers are savvy and “worldly” – consumers have an appetite for popular, global brands.

Starbucks is widely known for their signature, handcrafted beverages, beautiful stores, great standards, ethical sourcing, years of product development and of course, free high-speed Wi-Fi.

We are really pleased that we are able to bring the full Starbucks experience to a country where coffee consumption and coffee expertise is on the rise.

Q: What do you think foreign brands have to know coming into SA?

Entering a new market requires research and this goes further than economic and statistical data, you need intimate knowledge of the consumer.

There should be big focus on localisation in terms of empowering the local supply chain and elevating employment levels. We have worked extensively with local contractors and artisans for the construction, design and décor.

Our approach at Taste Holdings is to empower and uplift local firms that are involved in the design and crafting of the store interior, including the furniture, to Starbucks’ standards.

Aligned with Starbucks global ‘partner first’ philosophy Taste developed a Partner programme that is built around setting partners up for success, not only in Starbucks, but with knowledge and skills that will serve them well for life.

Our Changing Lanes Programme is a job-readiness training programme positioned to bridge the gap between unemployed youth and work opportunities. We face an imbalance between needed and available skills; Changing Lanes is a program to build entry-level knowledge and skills that allows for preparedness into newly created jobs in the communities we serve.

Having the Starbucks brand does not entitle us to success – we will have to earn our customers trust one cup at a time.

Q: Thoughts on South Africa’s franchise landscape – in terms of potential for growth and the opportunities it offers to international investors.

There is always potential but, South Africa has strong retailers.

Reference: SME South Africa

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