What do those brands have in common in the U.S.?

Not much. But in South Africa, they're run by the same parent company.

Taste Holdings.

And that company is struggling after opening 12 Starbucks in South Africa,

Taste announced in November 2014 that it would stop the rollout of new

stores. The company said Starbucks just wasn't making enough money to

continue opening new locations.

Taste also stopped opening new Domino's, which it said was the biggest

underperformer. Even though tastes began opening Starbucks stores again in

August 2019.

Its footprint is still far less than what the company expected when it

first entered the market.

In 2015, Taste that it's all the potential to open as many as 200 stores

there by 2020.

Instead as of 2019, Taste now has just 13 Starbucks locations in South

Africa. Taste hasn't had to close any stores yet.

But with its high operating costs and a big price tag most South Africans

can't afford,can Starbucks survive in South Africa?

Starbucks opened its first location in Seattle in 1971.

It quickly became a global brand with 30000 stores around the world.

But Africa is one continent where you won't find many Starbucks.

The brand is currently in just three African countries Morocco, Egypt and

South Africa. South Africa is the continent's second largest economy and

is now considered a point of entry to the African market for many global

brands. When apartheid ended in the 90s, foreign companies returned to the

country. South African consumers, who'd long been limited to local

players, were curious about these new international brands.

Starbucks expands to a new country in one of two ways through Starbucks

owned and operated stores, or by partnering with a local company to

license stores. In South Africa, Starbucks partnered with Taste Holdings

in 2015, giving the company an exclusive 25 year license to open Starbucks

stores. When Taste opened its first location in Johannesburg in April

2016, it was the first ever Starbucks in sub-Saharan Africa.

Lines of people eager to try its coffee snaked around the block when it

first opened in Rosebank, a shopping suburb of Johannesburg.

Local media reported that some people even waited overnight for their

Frappuccino fix.

But soon customer interest dropped as the novelty of Starbucks wore off to

slow the rate at which it opened new stores.

The company reported overall operating losses in the first half of fiscal

year 2018.

At Tastes Food Division, net losses mounted, widening 51 percent from

fiscal year 2017 to 2018.

Starbucks revenue in South Africa grew.

But in August 2018, he said it wasn't producing the required return on

investments to keep opening new stores.

Operating costs were also high for Starbucks in the first six months of

2013 due to the addition of eight new stores.

In fiscal year 2019, thanks in part to sales from two new stores,

Starbucks South Africa revenue increased 46 percent from the year prior to

108 million rand, or about $7 million.

But for the nine stores that have been open for at least a year, same

store sales declined by 19 percent.

Taste Holdings said the double digit drop in same store sales showed that

the honeymoon period for Starbucks in South Africa was over, despite the

fact that Starbucks products tend to be more expensive than its rivals in

South Africa. It's still ranked number four in the specialty coffee

market, which is valued at 77.6

dollars in South Africa.

Local coffee companies open in South Africa.

Long before Starbucks did, and analysts say some chains had already nailed

Starbucks casual European style.

You know, there was a or there is an established coffee culture and it's

not so easy just to come in and say, hey, you know, you know, we're the

new kids on the block and with better value proposition, I think, of a

Starbucks coming to South Africa.

You know, 20 years ago would have been very different.

But I think, you know, now a Starbucks coming to South Africa is

definitely a little bit of a sowhat factor.

Other international coffee jeans have tried and failed to expand in South

Africa. Northeast favorite Dunkin Brands open stores there in 2016.

But in February 2019, it's licensors said it would close all Dunkin Donuts

and Baskin Robbins there due to poor performance.

Krispy Kreme opened stores in 2015 with a much more modest goal than

Starbucks to open 31 restaurants by 2020.

McDonald's expanded to South Africa in 1995.

It has two hundred and eighty five restaurants in South Africa, compared

to 13 Starbucks.

In 2018 McDonald's said it would invest one hundred and five million

dollars in South Africa over the next five years.

Starbucks biggest problem in South Africa is how expensive its products

are. Starbucks in general and this is probably where the problem lies.

They are a bit more expensive than all other competition.

So, a cappuccino, you know, are from 15 to 25 percent more expensive than other chains.

So all just good coffee.

And that's the problem.

You know, you come with a premium and that's what people are attracted to.

That scene is your pricing is expensive.

You saw customers actually afford it.

Starbucks is aimed at middle and upper class consumers, a segment which is

small in South Africa.

The World Bank says South Africa has one of the highest inequality rates

in the world. From 2008 to 2015, a bout 20 percent of the population was

considered middle class, which is considerably smaller than in other

countries. The average salary in South Africa is about 1400 dollars a

month or about 17,000 dollars a year.

You know, I'd say probably a price bracket is between like 22 to 35 rand.

And that would be like a safe zone that can kind of say that's what most

people pay for a coffee or something.

Starbucks is well above that.

And so I think that for for the majority of people, that's like a great

once every now and then.

But it's not something they're going to purchase every day.

A small latte at Starbucks costs about 60 percent, more than the same item

at McDonald's. South African consumers were also strapped for cash when

Starbucks started expanding into the country.

South Africa entered a recession for the first time since 2009, and the

recession didn't just hit consumers.

The costs of doing business also went up.

Unfavorable exchange rates meant it was more expensive to buy the

equipment and supplies needed to run a Starbucks.

Taste also blamed higher fuel prices and increased taxes for its poor

financial results in the first half 2018.

That meant customers in South Africa weren't spending as much on

non-essentials like upscale coffee.

And remember, Domino's and Starbucks, South Africa Connection Taste

Holdings by Angelos were a huge problem for Starbucks.

The company has seen big losses and carried high debt, which became clear

when shares took a nosedive in 2017.

Taste chairman called 2018 one of the most trying and disappointing years

in tastes history.

While Starbucks stores are profitable, Taste just couldn't justify the

expense of opening any new ones.

Taste spent 10 million rand or just over 650 thousand dollars to open its

flagship store in Johannesburg.

Analysts say local competitors typically open stores for much less or just

about 100 thousand dollars per store.

Starbucks has the reputation of being a luxury brand, so customers

expected a lot. The cost of perks like free Wi-Fi, lots of beverage

options and large clean spaces with room to hang out added up.

Plenty of coffee chains in South Africa offer similar amenities.

But analysts say opening such expensive stores in a short time period puts

too big of a financial strain on taste.

If another more stable company had allowed Starbucks expansion in South

Africa, it may have gone differently.

If Starbucks was part of a bigger group, I don't think we would be having

this conversation. The local stores have opened already and the finance

issues will be easier to growing the brand.

Taste holdings refused requests for an interview for this story.

Starbucks spokesperson Reggie Borges has said in a statement that

Starbucks and Taste are optimistic about the brand's opportunity in South

Africa. Borges noted that taste opened its 13th Starbucks in 2019.

But that's still a ways off from its full market opportunity of up to 200

stores. There are a lot of forces where he and Starbucks in South Africa,

but taste seems confident it can succeed there.

Remember those lines around the block When Starbucks first opened?

Taste, it recognized Starbucks was in a honeymoon period.

Once stores have been open for a year, Taste got a realistic sense of how

much consumers would spend at Starbucks, and the numbers didn't look good.

With same store sales dropping 19 percent in fiscal year of 2019.

But Taste has a plan to get Starbucks back on track.

In 2018, Tastes went through a huge executive restructuring.

The company appointed new executives with experience operating global

brands in South Africa, including a new CEO and COO.

And if anything, the old management team might be being a bit

lax on their spending on new stores.

So if it cost them between 5 and 8 million rand stores or half a million

dollars per store. A lot of money considering its competitors

stores for about one and a half million.

. The new leadership team has been open with Starbucks about their

financial problems in South Africa.

Taste has even gotten positive feedback from Starbucks about its new

business model. Taste plans to keep building new stores in South Africa in

2020. It says it will.

Stores better suited to the local market.

That means stores will be smaller and more visible.

They'll also be concentrated in four major cities Johannesburg, Pretoria,

Durban and Cape Town.

And this time around, Taste will consider drive to store formats that

cater to the country's huge car culture.

Competitors have already capitalize on this trend by selling coffee at gas

stations or near office complexes.

But many of the Starbucks open now are in malls.

I think there's some things like, for example, not being in a mall I think

that's a great start. So location is important because at the end of the

day, like the South African driving terminal, to get coffee is probably

not an hardiness.

We drive every we like to walk some way is very like horrid intensifies.

Even if it's played by it's still a thing we'll drive up.

Taste got a huge cash injection from a multimillion dollar loan in 2018,

but the company says it will need more cash than that to keep opening

stores. Taste said it will open six new Starbucks in fiscal year 2020 and

in the long term, its goals are still high.

It wants to build 200 to 300 Starbucks in South Africa in 10 years.

Experts say Starbucks needs more revenue and lower operating costs to work

in South Africa. Can Starbucks South Africa survive or will it follow

Dunkin's path and become another casualty in the international coffee

wars?