Local licence holder for Starbucks in South Africa, Taste Holdings, has halted any plans to open more outlets of the US coffee chain as it struggles to make ends meet.
Taste, which also owns the jeweller Arthur Kaplan and Domino's Pizza, suffered operating losses of R87 million in the six months to end-August, with sales down 3%.
The group said that while the store network of twelve Starbucks outlets is profitable at a sales level, it's not producing the required return on its investment.
Setting up a new Starbucks store in South Africa costs between R5 million to R8 million, the group previously said. This is very expensive, says Simon Brown, founder and director of investment website JustOneLap.com. Brown estimates that the actual cost could now be higher than previously stated - perhaps even reaching R20 million.
Hitesh Patel, director of new business at Starbucks competitor Vida e Caffè, says the average cost of setting up one of its stores is only around R1.5 million.
That is is less than a third of the minimum cost of a new Starbucks outlet.
Taste has a 25-year licence deal to operate Starbucks stores in SA - and have to pay royalties to the US brand, which are proving to be costly, says Michael Treherne, retail analyst at the fund manager Vestact.
Due to the royalties and expensive store set-up costs, Treherne says Starbucks South Africa has had to resort to premium pricing - which is not at all good during a recession.
The difference between food prices is more pronounced. We could find a muffin at a Vida e Caffe outlet in Johannesburg for under R20, while the cheapest muffin at a Starbucks was R32.