Can't Handle It?! Starbucks Considers Selling Its Largest European Market

On July 16, The Times reported that Starbucks is weighing a sale of its UK business, citing mounting competition from coffee chains such as Pret A Manger, Tim Hortons, and Costa.

According to the report, sources familiar with the matter said Starbucks has hired the investment bank Houlihan Lokey to gauge outside interest in its UK operations. No formal sale process has been launched yet, but the bank will continue to assess strategic options for the company's international business.

The UK is currently Starbucks' largest market in Europe, the Middle East, and Africa. According to financial results for the fiscal year ending October 2021, Starbucks operates 1,000 stores in the UK — 297 company-owned and the remaining 703 licensed.

Pandemic fallout has left Starbucks' UK performance sluggish. Even though the British government has relaxed COVID-19 restrictions and the region has shown some recovery, sales have yet to return to pre-pandemic levels. The main reasons: most office workers are still logging in from home, and tourist traffic remains thin.

Market analysts also stated earlier this year that chain coffee brands in the UK will need at least 4 years to claw back from the pandemic downturn.

Beyond the UK, China — Starbucks' second-largest market globally — has also fallen short of Wall Street's growth targets due to strict pandemic controls. Starbucks has since suspended the quarterly earnings guidance it announced in May for the remainder of the fiscal year.

In the United States, employees have been unionizing one store after another, unhappy with current benefits and mounting work pressure. That prompted Starbucks to bring Howard Schultz back as interim CEO to deal with the issues affecting the brand there — though it hasn't stopped workers from continuing to organize.

On the 11th of this month, Schultz also said he would reshape Starbucks' corporate culture — redefining the company's relationship with its employees, improving store partner benefits, and delivering new store experiences for customers. And while Starbucks reported in its first-quarter results that US sales were trending upward, these plans quietly suggest that unsatisfactory working conditions have been slowing the pace of recovery and sales growth.

This isn't the first time Starbucks has considered selling a regional operation. During the 2021 fiscal year, the company already planned to sell its South Korea business. In early January this year, South Korea's JoongAng Daily reported that Starbucks Korea had been officially acquired by Emart, the country's largest retailer, and would be renamed SCK. Public records at the time showed South Korea was Starbucks' fifth-largest market globally.

In July 2021, Emart — which already held 50% of the shares — acquired an additional 17.5% of the remaining stake to become the largest shareholder of Starbucks Korea, while the remaining 32.5% was taken over by Singapore's sovereign wealth fund GIC.

On top of the pandemic, recent headwinds such as relentlessly climbing coffee futures prices and intensifying inflation have far exceeded what Starbucks anticipated.

Image source: Internet

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