Dividends and Starbucks licence holder sells South African outlets for the cheap

One of the easiest methods to success is to copy what successful companies are doing somewhere else. Sometimes that is through franchinsing or owning the rights to a part of the country or entire country. When the franchise is opening many new stores, there is fees from the licence holders; fees from the products and marketing and fees from the land and many fees come in and everyone is contented.

In South Africa, the rising middle income group who could afford to come to a Starbucks on a regular basis was seen as a great opportunity and 3 years ago, Starbucks teamed up with Taste Holdings Ltd which spent $5 million to set up a dozen Starbucks. There was talk of more than 150 more locations. In an article by Geoffrey York of the Globe and Mail, the dream has quickly slipped away.

The long line ups, the crowds, the novelty of the Starbucks brands has gone and Taste Holdings is selling the dozen locations to a shareholder group for $465,000 or about $36,000 per outlet, less than a 10th of the cost to operate them.

South Africa is often the entry point to Africa for many companies because of its industrialized and stable large economy, relatively good infrastructure, a reliable legal system (to sue and receive money if things go wrong), and a significant middle income group. South Africa has attracted many US companies including McDonald’s, Burger King, KFC, Dominno’s Pizza, Krispy Kreme and Dunkin’ Donuts.

In the past years the coffee brand companies were shut down, with the companies focusing on increasing operations of the food brands. Perhaps it will take time for Starbucks to try again for they are successful in Asia and Europe.

Linking to dividend paying stocks, once a company is successful, there will be plenty of imitators. There will be offers to go abroad and some will be successful and some will not, there are remarkably few guarantees. Understand how the company is generating a profit, if it is the franchasing business, it needs the revenues from more stores. What part of the business generates the profits to pay you a dividend?

There are more questions than answers, till the next time – to raising questions.

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