Starbucks has elevated the use of social media to the extent that people ask, is it a technology company or a coffee one? In the US, for instance, 21% of people pay for their Starbucks order online compared to a national average of 7.2% using eCommerce for retail purchasing, according to US Department of Commerce figures.
Carlo Gonzaga, CEO of Taste Holdings, described his two-year courtship of Starbucks to bring a touch of New York dazzle to Johannesburg, and soon the rest of the country. He was addressing the FNB Franchise Leadership Summit 2016, held on September 1 in Fourways, themed ‘Disrupt – the future of franchising’.
Gonzaga, who is credited with bringing Starbucks to South Africa, described the Starbucks style of innovation and disruption at the Franchise Summit. Payments are made through the Starbucks loyalty card, which creates operational efficiency as it reduces credit card costs and rewards the customer. The technology frees up more employees towards production and enables faster execution of orders.
“We pursued Starbucks for two years because we recognised we shared a common value system with it, including a desire for autonomy and professional approach to our people. We were attracted to its model – ‘a third place, a place between home and the office’ – and the fact that it was clearly a successful business. It has more than 24,000 stores globally of which half are owned and half licensed.” Being a licensing agreement, Starbucks in South Africa will all be owned by Taste Holdings rather than franchised.
“I went around the world to various countries in the Far and Middle East, Mexico and Europe, taste-testing. The taste was exactly the same in every country except one. Starbucks in turn believed that with our experience in franchising and hospitality, we would be good students of their model. Given the strength of the Starbucks brand and the number of people invested in its success around the world, this was a big responsibility,” said Gonzaga.
Taste Holdings is well known in the franchising industry, being a locally-owned business that has experience in bringing brands and stores into South Africa, including Scooters and Dominos. “We have learnt how to manage people by building a host of people-focused businesses. This is especially important in American businesses. We were therefore lucky to have had experience with Dominos, from which we learned a great deal. In the US they ask, ‘Who is the VP of the photocopier?’” he joked. “This is symptomatic of how they value people. If you’re going to do things properly, you have to invest in people.”
In the middle of 2015, an exclusive license partnership was signed between Starbucks and Taste Holdings for the opening of stores in South Africa, the first in sub‐Saharan Africa. The first store opened in Rosebank, Johannesburg earlier this year, as a full‐format store bringing to South African consumers the entire range of its food and beverages, including its ethically‐sourced Arabica coffee. This was followed rapidly by one at the Mall of Africa and one being the canteen of its head office. More locations are already underway, starting with Menlyn, Pretoria on 22 September, and in Cape Town in 2017. The price tag for these flagship stores is R10 million in the case of Rosebank and R8 million for the Mall of Africa.
“We have decided to go relatively slow with the roll-out of stores, rather getting the operation right before we accelerate. When you pull into a Starbucks store, it is the atmosphere that first attracts you. It is the sort of place you feel comfortable to just pull up a chair, hang out and enjoy the free WiFi. You don’t even have to buy coffee. There tends to be a constant ebb and flow of people all day.”
Localised production is a key theme, with Starbucks supporting the development of local suppliers. Coffee is a complex business: Starbucks has 84,000 possible combinations of coffee, so training is important. “We spent a week visiting coffee farmers in Rwanda. It takes four years from the time you plant a coffee tree until you harvest, and a single tree gives four different qualities of coffee,” said Gonzaga.
“We recruit people with a deep knowledge of coffee, but also students and unemployed people, as long as they demonstrate youthfulness, attitude and aptitude. The majority of our workforce is aged between 17 and 25, whom we equip with the skills necessary to succeed in today’s economy.”
The demand has been a revelation, said Gonzaga. For instance, demand for Frappuccinos, Starbucks’ range of iced coffee beverages, quickly outstripped the capacity of their single ice-maker in each store. “We had no idea that there would be such a demand for Frappuccinos, which needs ice. We couldn’t simply go buy some ice at the local garage as the coffee machines only use ice that is made by the Starbucks Ice Machine – we had to order two more machines from the US.”
One risk inherent in owning US brands is the exchange rate, which has been particularly volatile of late: while earning rand-denominated income, many expenses such as royalties and equipment are dollar denominated. Despite these issues, South Africans seemingly embraced Starbucks by queuing out the doors and the launch of Starbucks breathed new life into the local coffee market. Consumers are already asking for stores in their own areas and will be waiting for new store openings with much anticipation.