Starbucks New Zealand franchise holder, Fast-food group Restaurant Brands, is giving up the license for $2.9 million (NZ$4.4 million) as it looks forward to focusing on its core business – quick service restaurant brands such as Pizza Hut and KFC, reports Reuters.
According to the report, the two-decade-old Starbucks New Zealand franchise holder is facing several challenges to meet up with expectations marketing the world’s largest coffee chain in the region, which includes entrenched coffee culture and fierce competition.
Restaurant Brands has disclosed it would not renew the Starbucks franchise deal, which expires in October, but Starbucks is keeping their doors open for a new licensee, a 3-year old investment company Tahua Capital, acquiring the license for $2.9 million.
The coffee chain business was becoming of less important to our general goal, said Restaurant Brands in a statement, and that it wants to focus on the company’s primary business of delivering restaurant brands.
The head of Milford Asset Management based in Auckland, Brian Gaynor did not disagree with Restaurant Brands’ frustration in the region. “Starbucks has never delivered its expectation here,” Gaynor said.
“They had aspirations for it a long time ago when they acquired it first, and it’s never been achieved because they’re up against local competition from either individual coffee shops or local chains,” Gaynor added.
Despite opening in New Zealand twenty years ago, Starbucks has been deprived of any form of monopoly in the region, unlike it has enjoyed in some regions like China. Fuel Coffee and Mojo Coffee are ubiquitous, and expanding to other nations, while smaller coffee shops are vibrant selling drip coffee and origin espresso.
It’s a replica of the Australian coffee market for Starbucks
Starbucks is not totally facing this form of resistance for the first time. Gourmet cafes and other coffee rivals are not allowing the US coffee giant to thrive in Australia, a similar condition in New Zealand. Gourmet is flourishing in Australian major cities such as Melbourne and Sydney since after war-displaced Italian immigrants introduced espresso to Australia in the 1950s
Starbucks diminished its presence in the nation 10 years ago, shutting down 61 of its outlets to have just 24 coffee shops spread across Melbourne, Brisbane, Sydney, and the Gold Coast.
Restaurant Brands said it’s expecting a net profit of about $860,000 (NZ$1.3 million) for the year after exiting Starbucks Coffee from its business. The company further disclosed that Starbucks coffee business contributes barely 4% of its yearly profits and sales.
The imminent franchise holder, Tahua Capital, reportedly buying all the Starbucks New Zealand assets would retain all the current Starbucks employees (about 300 staff) and seek to lease the 22 Starbucks stores established by Restaurant Brands.
Starbucks new partnership deal with Tahua Capital is expected to take place in late October.