Starbucks has shelved plans to sell its owner-operated UK coffee shops and instead committed to opening 100 outlets this year, after a proposal to move to a fully franchised business model angered existing franchise partners.
Duncan Moir, Starbucks president for Europe, the Middle East and Africa (Emea), on Monday said that despite being “cautious about the macroeconomic environment”, the coffee chain planned to have a greater number of smaller, digitally led stores and drive-through sites following a £30mn investment in the UK.
The Seattle-headquartered group last year hired advisers from US bank Houlihan Lokey, which specialises in offloading corporate carve-outs to private equity firms with a valuation of up to $1bn, to advise on a possible sale of its 318 UK managed outlets. Starbucks said at the time it was never in a formal sales process.
But the idea was abandoned after existing licensees expressed opposition to the plan over fears it would decrease investment in the business and harm the brand, said people familiar with the matter. Starbucks did not immediately respond to a request for comment.
In the UK, Starbucks’ fifth-biggest market, there are 1,066 stores, of which 70 per cent are already franchised.
Moir said Starbucks’ UK and Emea businesses had a “very strong year” in 2022. The chain generated £449.3mn in revenues in the year to the start of October, up 37 per cent on the year before and above pre-pandemic levels.
But pre-tax profits at the UK arm fell 24 per cent year on year to £12.6mn because of “investments in staff pay, inflationary pressures and one-off benefits”, the company added.
Costa Coffee, the UK’s biggest coffee chain, on Monday said it was increasing pay for its staff in its 1,520 company-owned stores by between 6.1 and 7.3 per cent from April, as part of its third pay increase in the past 12 months. Costa is investing an extra £12mn in staff pay and benefits, it added.
Starbucks, which has more than 35,000 stores worldwide and is being run in tandem by founder Howard Schultz and incoming chief executive Laxman Narasimhan until Schultz steps back to a non-executive position in April, is primarily focused on its operations in the US and China.
Starbucks’ global management “has a 100 per cent focus on the company-owned businesses in those two markets” with other territories largely being “marginalised”, said a person familiar with the matter.
The company on Monday said it would also renovate 30 company-owned stores as part of its UK investment. The store expansion is expected to be “driven primarily by its licensed partners”, Starbucks said on Monday.
In the US, the coffee chain has been caught up in a tense labour dispute with staff, with 268 of Starbucks’ 9,000 company-operated stores voting to unionise. Earlier this month, National Labor Relations Board judge Michael Rosas ruled Starbucks had committed “hundreds of unfair labour practices” in response to unionisation efforts in Buffalo.
In China, where Starbucks plans to expand from 6,100 stores to 9,000 locations by the end of 2025 and which is expected to overtake the coffee chain’s home market of the US, sales have been hamstrung by Beijing’s zero-Covid policy. When restrictions were lifted in December last year, and infections soared, it led to a “dramatic decline in consumer activity”, Schultz said on an earnings call last month.