Costa coffee company information sheds light on why Starbucks may sell its UK business

The Times reported on July 16 that Starbucks is weighing a sale of its UK business, its largest market in Europe, the Middle East and Africa, after sustained pressure from Pret A Manger, Tim Hortons and Costa. Starbucks has commissioned investment bank Houlihan Lokey to gauge investor interest, though no formal sale process has started.

UK financial performance has stayed weak. For the period ending October 2021, Starbucks operated 1,000 UK stores, 297 company-operated and 703 franchised, and working from home plus fewer tourists slowed the recovery; analysts said UK coffee chains may need at least four years to rebound. Starbucks previously sold its South Korean business to Emart.

Starbucks is evaluating the possibility of selling its UK business, its largest market in the Europe, Middle East and Africa region. Hit by the pandemic, the normalization of working from home, and a decline in tourists, Starbucks' UK performance has been slow to recover, while it also faces fierce competition from chains such as Pret A Manger, Tim Hortons and Costa. Meanwhile, Starbucks is also facing slowing growth and unionization pressure in the Chinese and US markets. This is not the first time Starbucks has sold a regional business; its South Korean business was previously taken over by Emart. This article examines the market logic and challenges behind Starbucks' global business adjustments. For more specialty coffee bean news, follow Front Street Coffee.

On July 16, a report in The Times of the UK pointed out that, due to sustained competitive pressure from coffee chains such as Pret A Manger, Tim Hortons and Costa, Starbucks is weighing the possibility of selling its UK business.

Citing people familiar with the matter, the report said Starbucks has commissioned international investment bank Houlihan Lokey to assess potential investors' interest in its UK business. A formal sale process has not yet been launched, but the bank will continue to assist the company in evaluating strategic options for its company-operated international business.

For now, the UK is Starbucks' largest market in the Europe, Middle East and Africa region. According to financial statements for the period ending October 2021, Starbucks operates 1,000 stores in the UK, of which 297 are company-operated and the other 703 are franchised.

Affected by the pandemic, the financial performance of Starbucks' UK business remains weak. Although the UK government has relaxed pandemic restrictions and Starbucks' performance in the region has picked up somewhat, it has not yet returned to pre-pandemic levels, mainly because many office workers still choose to work from home and the number of tourists has dropped noticeably.

Earlier this year, market analysts pointed out that stores of UK coffee chains would need at least four years to recover from the downturn caused by the pandemic.

In addition to the UK market, China, Starbucks' second-largest market globally, also saw sales growth fall short of Wall Street expectations due to strict pandemic control measures, and the company has suspended the quarterly earnings guidance it announced in May for the remainder of the fiscal year.

In the US market, employees, dissatisfied with the company's existing benefit policies and work pressure, have continued to push forward with unionization, prompting Starbucks to recall Howard as interim CEO to handle multiple matters affecting brand operations, but this still failed to stop employees from continuing to join unions.

On the 11th of this month, Howard publicly stated that he would reshape Starbucks' corporate culture, redefine the company's relationship with employees, improve benefits for store partners, and bring customers a new in-store experience.

Although Starbucks' first-quarter earnings report this year showed an upward trend in US sales, the above plans suggest that employees' dissatisfaction with working conditions has already affected the overall pace of recovery and the rate of sales growth.

Selling regional businesses is not a first for Starbucks. During fiscal year 2021, Starbucks had planned to sell its South Korean business. In early January this year, South Korea's JoongAng Ilbo reported that Starbucks Korea was officially acquired by Emart, South Korea's largest retailer, and Starbucks Korea was subsequently renamed SCK. Public information shows that South Korea was then Starbucks' fifth-largest market globally.

In July 2021, Emart, on the basis of already holding a 50% stake, further acquired 17.5% of the other half of the equity held by Starbucks, becoming the largest shareholder of Starbucks Korea, while the remaining 32.5% stake held by Starbucks was taken over by GIC, Singapore's sovereign wealth fund.

Affected by the pandemic, coffee bean futures prices have continued to rise in recent years, compounded by multiple inflationary headwinds, and these factors have far exceeded Starbucks' previous expectations.

Image source: Internet

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The above content is compiled by CoffeeHunters, a coffee news website.