Starbucks exceeded pre-pandemic revenues in UK and EMEA
We plan to open over 100 new stores in the UK and 300 in EMEA in the next year
Starbucks UK registered EMEA business and UK Coffee Company today filed accounts for the financial year ending 2 October 2022.
Starbucks UK Coffee Company (in GBP):
- Total revenues: £449.3m, up 37% as the Company continued its recovery from the impact of COVID-19
- Gross profit: £129.1m, up from £95.1m in FY21
- Operating Profit: £12.6m reduced from £16.5m, due to investments in staff pay, inflationary pressures and one-off benefits in FY21
- Profit before tax: £10.4m, decreased from £13.3m in FY21
- Total UK corporation tax charge: £4.6m (FY21: £5.4m)
Starbucks EMEA (in USD):
- Total Revenues: $324.0m, up 36%, continued recovery from COVID-19 and store growth across EMEA
- Gross profit: $234.9m, up from $166.0m in FY21
- Operating Profit: $72.9m, increased from $40.5m in FY21
- Profit before tax: $75.9m
- Total UK corporation tax charge: $19.5m compared with $13.2m in FY21 due to increased operating profit
FY22 Operational overview:
- Strong growth in revenues despite some residual headwinds from COVID-19 with impact from Omicron. The Company exceeded pre-pandemic levels for the first time in both the UK and EMEA.
- Investment into Drive Thru and digital channels has continued as these platforms go from strength to strength.
- Good footfall in suburban and retail park locations and recovery in London as commuters returned to the City at the end of the year.
- The operating environment continues to have challenges, with inflationary pressures on input costs and the Company remains cautious about the macro environment.
- Continue to focus on being an employer of choice through training, increased wages and free food on shifts. Paid a “share of success” bonus, with £4.3m shared across UK partners (employees) in company-operated stores.
- In March 2022, the Company took the decision to suspend all business activity in Russia. All 126 stores in Russia were closed during the year.
- The company will continue to invest for growth in the region during FY23:
- Plans to invest over £30m in the UK on a number of initiatives, including opening over 100 new stores and renovating existing company-operated stores
- Expect continued growth from our licensee partners in EMEA, targeting 300 new stores
Duncan Moir, President Starbucks Europe, Middle East and Africa, commented:
“We have had a very strong year of revenue growth in the UK and EMEA and I’m pleased to report that we have exceeded our pre-pandemic revenue levels. This is all thanks to the hard work of our fantastic team of partners who are dedicated to delivering a positive experience for every customer.
"Innovation remains key to Starbucks ability to meet our customers’ changing needs and we’re investing in our digital channels and developing new store formats such as digitally-forward smaller stores and Drive Thrus.
“Whilst we are cautious about the macro-economic environment, we will continue to invest to grow the region this year. We plan to open over 100 new stores in the UK and 300 new stores in EMEA, to continue this growth momentum.”
The UK continues to be Starbucks largest market in EMEA. UK operations are captured in the accounts of Starbucks UK Coffee Company.
At the year end, Starbucks had a total of 1066 stores in the UK, of which 318 were company-owned and 748 were run by licensees. This represents a 30/70 split which is flat on last year.
Starbucks experienced strong demand for its products and delivered strong sales growth as it transitioned out of the pandemic. The first half of the year saw some residual adverse impacts of COVID-19 as government guidance reverted to work from home in response to the Omicron variant. Despite this, revenues were up 37% and for the first time, the Company saw annual sales exceed pre pandemic levels.
The UK experienced a challenging inflationary environment during the year, with UK inflation rising to its highest rate in 40 years at the end of the period. We saw operating costs increase across all areas of the business including higher energy costs, wage increases and supplier costs, which reduced margins. As a result, operating profit decreased slightly to £12.6M (2021: £16.5M). It is worth noting, 2021 also had a number of one-off benefits which positively affected operating profit, including automatically applied government business rates exemptions and the reversal of impairment provisions of £2.4m (2022: £2.9m impairment charge).
UK market trends
This year represented the final stages of the Company’s recovery of transactions to a post pandemic baseline.
Changes in consumer behaviour developed during the pandemic continue to influence sales trends. The Company’s performance was improved by investments made to adapt its operating model to help the business meet customers where they are. This included investments in digital, evolving the estate towards more Drive Thrus and the positive incremental impact of delivery sales. The Company now has 285 Drive Thru stores, of which 26 are company-operated stores, and 259 are licensed/franchised stores.
Drive Thru and Delivery channels continue to go from strength to strength. We also saw strong footfall recovery in suburban and retail park locations thanks to the prevalence of flexible working policies. Office, travel and inner-city location footfall has been slower to recover, however it started to strengthen towards the end of the year with a particularly good recovery in London as commuters returned to the city.
We saw average basket size go up thanks to increased food sales and reusable merchandise such as cups. Our Hickory Ham & Cheese Toasties and Beyond Meat Breakfast Rolls were amongst our best sellers this year. Innovation has always been a core part of the Starbucks brand and this year we launched a range of Pizettas and Egg Bites. The Company continued to expand its cold beverage range, which remains a strong driver of growth. The new Refresha® and iced espresso ranges also sold well during the year.
Investment into delivery channels, the mobile platform and Starbucks® Rewards programme continues to be a pivotal part of our strategy. We onboarded a further 58 stores onto delivery platforms and launched updated our rewards programme to allow customers to earn stars on their purchases regardless of payment method. The business has seen consumer trends move towards digital payments and looks to launch further digital initiatives to streamline customers’ online experience.
As with last year, we saw competition intensify with takeaway food chains and restaurants focusing on coffee as a secondary discounted offer. Starbucks remains focused on providing quality, consumer-focused product and service to retain and grow our market share.
Like many other businesses, we have experienced challenges in our supply chain with shortages of HGV drivers, packaging material shortages, rising supplier costs and shipping delays, although the situation continues to improve in FY23.
We remain cautious about the macro environment. Inflation is leading to significant increases in input costs including coffee, milk, food ingredients and packaging. We continue to look for ways to optimise our margins and ensure that price increases are mitigated as far as possible through efficiencies and savings. Although the Company has navigated recessionary environments before with significantly less impact versus its competitors and other consumer market segments, it seeks to ensure that its strategy and product ranges are optimized for a recessionary environment.
We believe that our partners are integral to the success of the business, and we are committed to supporting them to have a rewarding and meaningful career at Starbucks. We want to be an employer of choice and we regularly review our pay and benefits structures to remain competitive. With the range of benefits that Starbucks offers its partners in the UK, we are confident that we will be able to attract and retain talent in our stores. Key initiatives launched in the year include pay increases, maintaining a premium to national living wage, free food on shift and an extra day’s holiday. We also wanted to ensure that partners were recognised for their contribution to the Company and we paid a “share of success” bonus of £4.3m across partners in stores.
We opened 30 company-operated stores and closed 9 stores in the year. New store openings were targeted in key Drive Thru locations with high traffic counts. The Company also increased the number of licensed stores and franchised stores by 45.
Starbucks continues to invest in the growth of the UK business and is targeting over 100 new stores in FY23 as part of its strategy to grow sales across all of its channels. Growth in the company-operated estate will be targeted on key city and Drive Thru locations, with a focus on store format innovation such as smaller, digitally-forward stores, and high traffic count Drive Thru locations. Starbucks also plans to renovate 30 company-operated stores over the course of the year, as part of a 3 year plan.
We have been very encouraged by the performance of licensed stores and franchised stores and we expect more of them to open in FY23 as part of our targeted strategy for growth. The Company expects store growth to be driven primarily by its licensed partners.
UK Corporation Tax
The Company reported a UK corporation tax charge of £4.6m (2021: £5.4m), reflecting the lower operating profit due to investments in staff pay, inflationary pressures and one-off benefits in FY21.
Starbucks EMEA Limited is the main reporting entity for all Starbucks activities in EMEA – excluding the UK business, which is reported separately as outlined above. At the year end, there were 4,176 Starbucks stores in 42 markets across Europe, the Middle East and Africa (EMEA).
The Company opened 200 net new stores in FY22 (400 store openings and 200 closures). The majority of these closures were a result of the decision to exit all business activities in Russia as a result of Russia's invasion of Ukraine. All 126 stores in Russia were closed during the year.
Starbucks operates in EMEA mostly on a licensed and franchised business model, rather than through direct ownership of stores, meaning most of its revenues come from royalty payments. Revenues increased in the period by 36% to $324.0m (2021: $237.4m), driven by further recovery post COVID-19. As a result, operating profit increased during the year to $72.9M (2021: $40.5m).
EMEA market trends
We have seen continued growth in the EMEA region, especially within Turkey and Middle Eastern markets, where we see strong growth in new stores. As with last year, Drive Thrus continue to be the best performing store format in the region.
We rolled out our digital platform to more licensees to improve the in-store Starbucks Experience for customers . At the year end c.31% of our stores in EMEA were equipped to handle mobile order and pay – up from 23%. c.43% of our stores in EMEA are now handling deliveries – up from 22% a year earlier. These platforms provide our customers with greater convenience and a better in-store experience. We are proud of our current platform but will continue to focus on improving our digital offering.
EMEA corporation tax
Starbucks EMEA Limited reported a UK corporation tax charge of $19.5m for the year, compared to $13.2m for the same period last year. The payment increased owing to the improved trading performance and profitability of the business.
Profit after tax for the period was $56.4m (2021: $177.1m). This consists of an operating profit of $72.9m (2021: $40.5m) from its operating and other activities, a UK corporation tax charge of $19.5m (2021: $13.2m) and a reduced dividend of $1.4m (2021: $150.0m). The dividend comprises income from other Starbucks group subsidiaries that can pass through the Company as part of the consolidation of the group accounts, in accordance with standard accounting practices.
We are deeply saddened by the mass tragedy that unfolds in Türkiye (Turkey) and Syria, and we have committed donating to non-profit organisations focused on providing immediate relief and aid. We operate over 600 stores in Türkiye (Turkey) and are working closely with our licensee and local leadership team to ensure our partners, their families and the communities they serve are cared for in the wake of this tragedy.
Partners in affected areas are being provided with catastrophe pay, mental health and welfare support and paid leave allowing them to look after family members. Food and shelter are also being provided to partners who have been displaced by the earthquake.
Recovery for these communities will take time. We will continue to monitor the situation to support our partners and the communities we serve in Türkiye (Turkey), along with contributing to relief efforts throughout the affected areas.
Latika Shah, email@example.com, 07950 671948
Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting high-quality arabica coffee. Today, with stores around the globe, Starbucks is the premier roaster and retailer of specialty coffee in the world. Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup.
Starbucks EMEA headquarters has been in the UK since 2015, servicing the Europe, Middle East and
Africa and driving Starbucks growth strategy in the region. Starbucks opened its first stores in Europe
in 1998 and has since grown to 4,176 stores across 42 markets, with the UK remaining as the largest