Starbucks to Enter Sub-Saharan Africa With Taste Coffee Deal

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Photographer: Drew Angerer/Getty Images

Starbucks Corp. coffee shops will open in sub-Saharan Africa for the first time after the world leader partnered with Taste Holdings Ltd. in a deal that sent shares of the Johannesburg-based franchiser soaring to a record.

The two companies have signed an exclusive agreement to develop Starbucks outlets in South Africa, with openings set to begin in the first half of next year, Taste Chief Executive Officer Carlo Gonzaga said by phone on Tuesday. Taste has the license to operate the shops for as many as 25 years, plus rights to open in some other African countries.

“Starbucks is very excited to sell coffee for the first time in some of the same places in Africa where it sources it,” Gonzaga said in an interview. “It’s very important to figure out how to make the stores locally relevant, and Starbucks has excelled at this in other regions.”

Taste shares rose 20 percent to 5 rand in Johannesburg, the biggest gain since June 2011. That values the company at about 1.5 billion rand ($120 million). Starbucks’ stock was little changed in New York, trading at $55.56 as of 10 a.m.

Restaurant chains, retailers and consumer-goods companies are expanding in sub-Saharan Africa, where the number of middle-class households -- those consuming $15 to $115 a day -- is expected to grow to 40 million by 2030 from 15 million now, according to Johannesburg-based Standard Bank Group Ltd. Yum! Brands Inc.’s Pizza Hut returned to South Africa last year after a seven-year absence to compete with Domino’s Pizza, which is operated locally by Taste Holdings.

Homegrown Industry

Starbucks has about 22,000 locations worldwide and has been focused on expansion abroad in countries including China and India. While much of Africa’s fast-food industry is homegrown, about 34.8 million people are expected to buy meals from such restaurants in South Africa by 2017, up from 31 million now, according to researcher Euromonitor International.

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After starting with Starbucks in South Africa, Taste plans to take the brand to other African countries where it operates its food businesses, Gonzaga said, without specifying which ones. Starbucks currently sources coffee from nine African countries including Ethiopia, Rwanda, Tanzania, Uganda, Zambia, Cameroon, Burundi, Democratic Republic of Congo and Kenya.

Taste said it will incur one-time costs as the result of the partnership, including expenditure on training, travel and marketing.

(Updates with Starbucks shares in fourth paragraph.)
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