Starbucks is considering selling its U.K operations as the local economy struggles with rising prices. The coffee giant is currently engaged with advisers to evaluate its business options in the region, The Times reports. At present, the company oversees more than 1,000 coffee shops and employs 4,000 people in Britain. Approximately 300 stores are operated by Starbucks, with the remainder owned and run by franchisees that pay royalties to the parent company.
When asked about the decision to sell its U.K holdings, Starbucks told CNN Business the reports are a little presumptuous. The coffee giant also shared an email sent to British staff denying the company is engaged in a formal sale process. The mail also asserts the chain’s desire to remain in the region. However, the beverage outlet also stated that it will continue to evaluate strategic options for its company-owned international businesses. Its financial advisor, Houlihan Lokey declined to comment on the situation.
The decision to sell is interesting since the United Kingdom is the coffee giant’s largest market in Europe, the Middle East, and Africa. Total revenue was approximately $389 million for the fiscal year, with Starbucks UK Coffee repaying its loan of around $30 million from its parent company in full. The money was used to offset losses from reduced sales during the first months of the Covid-19 pandemic, Business Standard reports. Although the coffee chain experienced a rebound in revenue after lockdown restrictions eased, the financial performance of company-owned stores in the region had not recovered to pre-pandemic levels.
Starbucks’ news comes as the U.K economy sees itself in rough shape, making it difficult for businesses to operate and for people to make ends meet. Inflation in the region hit 9.1% in May which is a 40-year high and the highest rate among the leading G7 economies. And there’s no relief in sight as the inflation rate is expected to climb above 11% later this year, according to CNN Business. Much like its American counterparts, food prices have been soaring, creating a cost of living crisis for many. Disposable incomes are also on track for the second biggest fall since record-keeping began in 1964.
For Starbucks, coffee sales experienced a significant hit when people started working from home. As employees start making their way back to offices, the trend has turned around. During a call with analysts in May, Group President of International and Channel Development, Michael Conway said UK sales improved dramatically in the quarter ended April 3rd. “Traffic continues to come into Central London metro areas, and we are increasing drive-throughs in that market at a significant rate,” he said.
However, Starbucks is also dealing with daily operating cost increases at the same time that competition intensifies. Fast food chains and restaurants which focus on coffee as a secondary discounted offer have been flagged as one of the coffee company’s biggest problems. Since launching operations in the UK in 1998, the beverage giant has been a favorite among fans. Hopefully, find a way to continue doing business in the region.