Taste declines as Starbucks entry troubles market

© kritchanut – 123RF.com

Its share price fell as much as 8.37% to R2.08, before recovering to close 0.88% lower at R2.25. Taste’s share price has nearly halved from the R4.47 it was trading at six months ago.

"The headlines of new Domino’s and Starbucks opening may be great, but we have yet to see this translate into meaningful earnings growth," said Vunani Private Clients analyst Anthony Clark on Thursday.

Last year, Taste, owner of fast food chains Maxi’s, the Fish and Chip Co, and more recently Domino’s Pizza, signed a 25-year exclusive partnership with Starbucks to bring the coffee brand to SA and the rest of Southern Africa. Taste signed a similar franchise deal with global pizza company Domino’s in 2014.

To fund the Domino’s rollout in SA and the more recent Starbucks opening, Taste raised a cumulative R500m from shareholders through three rights issues. Proceeds from the rights issue were also injected into its luxury jewellery franchise Arthur Kaplan.

Taste reported a 23% drop in operating profit to R30.38m in 2014, as costs associated with establishing Domino’s in the country weighed.

"I’ve been selling the stock since it traded at R4 a share (in September), because the reality is Taste, like Pioneer Foods and Famous Brands, is operating in extremely competitive and difficult markets," Clark said.

Slow wage growth, rising interest rates and skyrocketing food costs have left many households squeezed for cash, while the drought has further pressured profits of food firms.

The Starbucks stores will open in Rosebank and Midrand next month. The group plans to introduce rooibos cappuccinos and other variants.

Asked if it was the right time to introduce the premium brand into an economy projected to grow less than 1% this year, Taste CEO Carlo Gonzaga said: "Business is a long-term game. Economies will fluctuate. (But), if you give customers a good experience, the sales will follow."