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South Africa : Starbucks aims to become a habit ‘rather than destination’ says CEO Maizey

By Xolisa Phillip, in Johannesburg
Posted on Tuesday, 11 May 2021 19:00

A man walks past a Starbucks shop in Sandton, South Africa, 27 November 2018. REUTERS/Siphiwe Sibeko - RC1F713DF2A0

Starbucks South Africa CEO Adrian Maizey speaks to The Africa Report, revealing what is brewing on the horizon for Southern Africa and the percolating prospects for the rest of the continent.

Technically, though, Maizey is the CEO of Rand Capital Coffee, the licence holder of the Starbucks brand in Southern Africa.

“We have the rights to all of the Southern African Development Community (SADC). There’s eight surrounding countries — all the way to Malawi — for which we have explicit rights. Effectively, if we can perform, I think we will earn the rights to the rest of Africa,” Maizey tells The Africa Report.

Starbucks Corporation, the mother brand, celebrates 50 years of existence this year. In 2021, the brand marks five years of operation in South Africa.

Starbucks Corporation operates 33,000 stores globally, while Starbucks South Africa has grown its portfolio from 16 outlets to 25, in locations including Johannesburg and Cape Town.

Rand Capital swooped on the Starbucks licence towards the end of 2019, when Taste Holdings, the previous holder, lost its appetite for its food business following a disappointing performance.

Right now, Starbucks is a bit of a novelty. You have to convert that destination consumer into a habitual consumer. Who’s driving to a mall to get coffee in the morning? It’s not happening,” -Adrian Maizey, Starbucks South Africa CEO

At that time, the Starbucks brand had been in South Africa for three years and looked set to suffer a similar fate following the entry of Domino’s Pizza.

Taste Holdings also held the master licence agreement to develop the Domino’s brand in Southern Africa. However, it did not meet market expectations, and moved to liquidate Domino’s in South Africa.

Market watchers had anticipated that Starbucks would follow suit but this was not to be. Enter Rand Capital Coffee, the investment outfit headed by Maizey.

The rest is not quite history — yet. There are many market opportunities to exploit, says Maizey, with room to grow and expand the business’s portfolio within South Africa and beyond.

Maizey, who was born and raised in South Africa and is now based in the US, was a non-executive director at Taste Holdings from 2018 until early 2020. The Rand Capital CEO splits his time between Los Angeles and South Africa.

New start, new ways

“We […] walked all the way up to the cliff and didn’t fall off — unlike some of the other brands associated with the prior owners. We’ve made it through Covid-19. Now, we’ve got to lay a foundation for the future, think of ourselves as a start-up, and get to the 50th mark,” he says.

Most importantly, says Maizey: “We have to earn our keep. We have to earn our place in the market.”

The CEO acknowledges that Rand Capital has a long way to go, with its work cut out “to replicate what our parent company has done”.

Rand Capital entered the business with growth in mind saying it is “essential to our existence. If we don’t get to scale, which Taste was not able to do, then we will be faced with challenges.”

“We could have sat and waited,” says Maizey. “But we did not have the luxury of a business that was profitable before we took over. The best way to do that would be to build stores that are profitable.”

Build stores they did, six of which opened at various locations in Cape Town, including Canal Walk, during the course of 2020. The legacy portfolio outlets rolled out in 2016, 2017, 2018 and 2019 were not profitable, according to Maizey.

Maizey cites poor decisions around store sizing and rates “that were not great” among the contributing factors to the legacy portfolio’s underperformance. “We have to outgrow that poor-performing portfolio,” he says.

This explains why at the height of Covid-19, Rand Capital opened nine new stores around the country: six in Cape Town, two in Johannesburg and one in Pretoria.

It all started with Rand Capital reaching an agreement on Canal Walk with Hyprop, a specialist real estate investment trust that has carved out a niche as a developer of shopping centres on the continent and eastern Europe.

That deal “then created a snowball effect. In Cape Town, we needed to open en masse in order to supply that location. By design, we then pursued several opportunities resulting in the six stores, plus two in Johannesburg and we opened one in Pretoria at the time,” says Maizey.

The irony of opening additional stores amid a pandemic and the economic uncertainties which came with it does not escape Maizey. He is, after all, a chartered accountant.

However, “I am not your quintessential accountant. I am not the most conservative person in the world. But I am also not the most aggressive — I am not a gambler,” says Maizey.

Au revoir malls, hello neighbourhoods and more

Rand Capital is shifting focus away from malls, a major component of the legacy portfolio and part of the reason why Taste fell short with Starbucks.

“We’re at malls, and that may not be our strategy going forward,” says Maizey.

Neighbourhoods are the next frontier. Covid-19 has accelerated this approach. The aim is to turn Starbucks into a habit rather “than a destination thing”.

“Right now, Starbucks is a bit of a novelty. You have to convert that destination consumer into a habitual consumer,” says Maizey. “Who’s driving to a mall to get coffee in the morning? It’s not happening.”

In the US, consumers are able to order their brews on mobile phones and collect at the counter. Rand Capital wants to bring that technology to South Africa.

“There’s no one in line waiting for coffee to be served [in the US]. We’ve got to get into neighbourhoods, set up the technology. We’re spending the money on technology now. It should be rolled out by June or July, and move towards the omnichannel. Out of the malls into the neighbourhoods, and then accessible through the digital channel is the strategy going forward,” he says.

Before Covid-19, Rand Capital was in conversation with Airports Company South Africa about prospects at the airports in Johannesburg, Durban and Cape Town.

But “when Covid-19 hit, the wheels came off on that conversation. We would love to be in Durban airport, Cape Town, Johannesburg. We just have to find the right partners. We need tourism to come back,” adds Maizey.

In addition, “drive-throughs and petrol ports [filling stations] are high on our priority list. Globally, drive-throughs have become extremely profitable and popular,” says the Rand Capital CEO.

SADC contenders for expansion

Although South Africa remains the focus, Botswana and Namibia are the next mostly likely prospects in the region. In the case of Botswana, Gaborone, its capital, is in close proximity to Gauteng, making it a leading contender.

In Namibia, “we have relationships with one of the largest property owners there. That may also be a good opportunity for us to expand with them as a partnership,” says Maizey.

Ultimately, though, South Africa is front and centre. But the country has one of the most complex environments in which to do business, according to Maizey.

No love from landlords

In addition to the legacy portfolio issues, Rand Capital has lease trouble on its hands stemming from the 2019 transaction.

In some cases, Rand Capital has made headway. But in others, “[we] don’t know yet,” says Maizey.

Hyprop gets an honourable mention for its transparency, but other landlords do not get a glowing review from Maizey.

He laments the latter category’s radio silence on Starbucks leases. The lease issue has “put us under a lot of pressure,” he says.

  • “As an organisation, we’re sitting here going: we don’t know whether we have a lease with you. We don’t know what those terms look like. We don’t know whether we should just go ahead and close this door. In all cases, these are old leases Taste had entered.”
  • “We don’t even have a lease on the property. We’re paying rent, but blindly, going, well, we think this is what market is. Please will you negotiate with us. Please will you come to the table and let’s reach terms. There’s just no response,” he says.

South Africa: high-risk, high-reward

Maizey says the leases saga is a big risk to the business. At stake are 300 jobs, and 200 more which are due to be created in 2021.

“We simply don’t have a counterparty that is prepared to engage. You don’t know if the next thing you’re going to get is a legal letter or you’re going to get someone reasonable on the other side. It is a bit of a frustration point,” he tells The Africa Report.

But Maizey is undeterred, his core belief being that the South African market requires grit. “For those who have the backbone and the energy to make it work, there’s a lot of opportunity here,” he says.

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