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Thoughts on Starbucks pricing in South Africa

Premium, sure, but we should not expect R50 cups of coffee!

The first Starbucks store in South Africa (and indeed Sub-Saharan Africa) opens in Rosebank on Thursday with expectations very high. Few overseas chains and brands are capable of capturing attention (and hype) quite like the world’s most well-known coffee company. The conversation has quickly shifted to what South Africans will be paying for their coffee.

And the chatter – particularly on social media – goes something like this: “Last time I was in London/San Francisco/Dubai, I paid £2.60/$4*/AED17 for a Grande (medium) Caffè Latte, which means Starbucks is going to cost R54/R58/R67 here! That’s insane/madness/still worth it!” (The conversions above are actual calculations against real prices at stores in those three cities (London, San Francisco, Dubai)).

The problem with this crude calculation method of course, is that this is not the way prices are set by global chains, with or without local partners/master licensees. Taste Holdings, which has a 25-year licence agreement (including renewals) with the Seattle-based coffee giant has said that “product pricing will be aligned with that of current premium offerings” in the local market.

We know, of course from The Economist’s Big Mac index, that the rand is exceptionally undervalued at this point. In January 2016, with the rand at 15.81 to the dollar, The Economist calculated the “raw index” was undervalued by 64.1%. While the currency has strengthened in the past three months, it still remains at least 50% undervalued by this (unscientific) measure.

bigmacindex_change

According to The Economist’s measure, The Big Mac costs $4.93 (an average across four cities) in the US. Using the same method of conversion South Africans have been obsessing over regarding their cup of Seattle’s finest, you get to an equivalent “price” of over R70 for a Big Mac in South Africa. Of course we know that this is insanity….

Of course, Starbucks pricing will be in line with what it charges globally, as it told the Mail & Guardian, but it will be comparable with our purchasing power (as well as the pricing of offerings from other global food brands in this market). Taste did not price Domino’s Pizza – which it brought to the country in 2014 – at the equivalent of what you’d pay in London – £14.99 for one of its relatively ‘basic’ large pizzas.

So, what can we expect to pay for our Lattes, Mochas, Cappuccinos and Frappuchinos?

A good comparison to my mind would be Woolworths’ W Café pricing…. A ‘Tall’ Latte sets you back R26, while a ‘Grande’ is R30. Cappuccinos are a little cheaper at R24 and R28 for the same sizes. Mochas are a little pricier at R28 and R32. The prices at W Café are not dissimilar from those at Seattle Coffee Co. or Vida e Caffe, although the latter has a more limited coffee menu.

Where Starbucks excels – go stand in any store globally – is in the upsell. Origin Espresso is 20p, an extra shot of espresso is 40p and flavoured syrup and whipped cream are also each 40p.

Woolworths (and most coffee chains, for that matter) has a similar pricing structure, with ‘Fairtrade-certified coffee’ and cream at an extra R4 each (and soya milk at an extra R5). Syrups are a similar price.

We can expect Starbucks’ local pricing to be very similar.

You’ll be able to get a decent, large freshly-brewed Starbucks cappuccino (or similar) for just under R30 on Thursday. I’d be willing to bet on it. But, don’t expect to walk out spending less than double that on your visits… Not only are there those delicious (and often decadent) upsells, but… that bakery.

Far more interesting than pricing is where Starbucks will actually open stores. We know the location of the first two: Rosebank (not quite at the Mall, but more than close enough) and at the Mall of Africa on April 28 . The Rosebank location is smart. It’s on the corner of Tyrwhitt and Cradock, sort of diagonally across from the FNB. That’s right “next door” to both the Mall of Rosebank and the Zone. And, crucially, it’s perfect for the hordes of commuters heading to the various head offices in the mornings (and back home in the afternoons). Take a walk around Rosebank at 7am and you’ll see what I mean.

Next on the list is, surely, Sandton. The V&A Waterfront must also be right up there, but you’d imagine the plan would be to get Gauteng ‘right’ first.

What Starbucks is – thanks to an immensely powerful brand – is a destination in its own right. People will take a detour (often more than slight) to get their fix. And I’m talking about general or typical trading, not the queuing craziness that perpetuates after the opening of one of these brands (remember the never-ending queues at both Burger King and Krispy Kreme?)

Taste has announced plans to open 15 stores in the next two years (at a cost of R120 million), which is an exceptionally modest target. It sees appetite for at least 150 outlets in the country, which is more than the number of Vida outlets in the country (around 100, largely dotted across Johannesburg, Pretoria, Cape Town and Durban).

Some have questioned Taste’s estimate for its Starbucks footprint, but not all of the stores have to be destinations in their own right. Already Fournews has shown that it can operate smaller Krispy Kreme stores, like the one at the Sandton Gautrain station (almost a kiosk), alongside its larger ones (Rosebank and, soon, Mall of Africa).

The other problem Starbucks will face in most South African cities aside from Cape Town (where Vida has done well to capitalise on the pedestrian nature of the CBD) is that we don’t really have a pedestrian culture, aside from the nodes around the Gautrain in Johannesburg and Pretoria. That’s going to be an interesting challenge in itself, but Dubai’s proved that Starbucks does just fine in shopping malls.

 

Update: 

Following Starbucks’ opening on April 21, the pricing is as follows: 

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image (1)

image (2)

* The menu price of a Tall Latte at the Starbucks in Union Square is $3.75, but the sales tax for San Francisco, California needs to be added (8.75%) which means the actual price is $4.08.

** Hilton Tarrant owns shares in Taste Holdings, acquired in October 2010. He works at immedia and can still be contacted at hilton@moneyweb.co.za.

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If they do not price right they may loose me before they even open.

Loose as a goose?

Ja. Time for MW to give a hint to readers that there is a difference between ‘lose’ and ‘loose’. If I lose my trousers, I get to buy another pair. If I loose my trousers, I’ll be arrested for public indecency. 🙂

Fortunately I am not fussed with coffee and having to go out for coffee, drink coffee at home. You can buy very nice coffees at all supermarkets. Yes I am boring…….

I agree with you. It’s as much about being SEEN to be consuming Starbucks as it is about the coffee itself.

I heard (the rumour?) that certain coffee shops in Australia have trained addiction specialists working in their stores, joining you at the table after ordering more than 2 cups of coffee asking you about your coffee addiction problem.

Is this true? If so, is punching someone a bloody nose part of this addiction?

The rumour probably started with our friend “@robertinsydney” who seems to be responsible for everything that comes out of Oz.

the coffee culture of today is more about image and snobbery!! much like the wine industry!! won’t be long before you hear people saying things like – ,y coffee has a great nose!!!lol

I don’t know what the hype around Starbucks is. It is a very average coffee and as far as I am concerned should command a very average price. This “coffee mug” status symbol is the most ridiculous affectation I have ever seen and is one that only Americans would embrace.
There is no way I will be suckered by this product and I am surprised at the media hype being generated. We have a more than adequate selection of coffee houses in South Africa for those interested in buying the stuff, but for me, I will stick with avoiding commercial coffee chains, in favour of the roast I get from a really switched on barista, who has a passion for what he does and where my own espresso machine turns out superb fragrant, organic, fair trade supported coffee, at a fraction of the price.

I agree with the others on this thread ….. starbucks is actually pretty average coffee. mass produced for the masses. before spending your hard earned Rands do some research on heavy and light roasts and flavor vs coffee quantity,

you may be shocked to see that for R30 you are buying a lot of flavor and not much coffee.

but …. SA’ers will queue like lemmings … if its foreign it must be better!

I avoid American food/food vendors like the plague that they are. The cost of a coffee from Starbucks is therefore moot.

It is a matter of time that some young snotkop opens a chain of authentic tasty and cheap coffee varieties that will obliterate the lame expensive tasteless American junk coffees with no known dietary benefits. What do they give you for a R50 cup of American specialised caffeine? Citizenship? More likely indigestion.

Sadly Starbucks is very very average. I would venture to say that the other SA coffee houses will put them to shame. All a bit of a hype I think.

I bought shares in Taste – so hope that the lemmings will flock. I will however stick with my Jacob Kronung as a coffee to drink

Coffee pricing is excessive, but if you are going to spend hard earned cash on the velvety goodness that is freshly brewed coffee, then support your local independent coffee shops. The coffee is always better than any of the large brands. Starbucks is a good example of big budget marketing hype, that is all.

Starbucks” is over rated and average. Stick with the local coffee barista shop. The coffee shop market in Jhb/Cpt is well educated and geared. Just note that the novelty wears off very quickly. Stay local if you into coffee.

Why do most think having Starbucks opening now is something special? They were already here in 2010 in some of Southern Sun resorts, but closed circa 2012. Why? Because their coffee was so darn expensive! People just walked past including myself after seeing the prices.

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