Starbucks UK-registered EMEA businesses and UK Coffee Company today filed accounts for the financial year ending 29 September 2019.
The EMEA businesses, headquartered in London, consists of six companies that service the franchise in the EMEA region: Starbucks EMEA Limited, Starbucks EMEA Holdings Ltd, Starbucks EMEA Investment Limited, Starbucks International Holdings Limited, Holding Company International and Starbucks Card Europe Limited. These businesses are collectively known as "Starbucks EMEA."
The UK Coffee Company is in retail and wholesale trade of gourmet coffee, tea and related products in the UK.
FY19 operational overview:
- Progress against long-term regional growth plan, including:
- Sale of operations in France, Belgium, Luxembourg and Netherlands to Alsea
- Finalised the consolidation of EMEA Support Centre in London
- More than 90% of Starbucks EMEA business is now run by a network of licenced operators
- Opened net 251 stores during the period across EMEA, including new market operations in Serbia and Malta
- Increased diversification of UK store portfolio
- Net closure of 46 company-operated stores, largely café formats on high street locations
- Net increase of 54 licensed stores, with a focus on Drive Thru locations
- Continued investment to support on-the-go formats and delivery
- Starbucks Delivers, in partnership with Uber Eats, was offered in 100 stores across 11 cities in the UK
FY19 Financial overview:
- Aggregated total revenues: $245.8m, up 6.9%
- Aggregated gross profit $110.2m, down 20.9%, driven by one-off restructuring costs
- Total aggregated profit before tax: $0.6m, down from $99.5m, partially attributable to one-off gains from Nestle licensing agreement reported in FY18
- Total tax expense: $11.6m (£9.4m), compared to $26.8m (£21.7m) in FY18
Starbucks UK Coffee Company:
- Total revenues: £361.7m, down 6.7%
- Gross profit £69.9m, up 24.3%, driven by lower costs from shifting to licensed stores
- Loss on ordinary activities of £6.6m, reduced from £17.2m in FY2018, due to difficult trading conditions on the UK high street
- Total tax expense: £1.9m ($2.4m); compared to £4.0m ($5.0m) in FY18
FY19 Business overview:
Starbucks business is changing rapidly across the 43 markets where we operate in Europe, the Middle East and Africa (EMEA). Shifts in consumer behaviour that were already shaping future plans for our business have been accelerated by the macro-economic environment, as well as the response to the Covid-19 pandemic.
During the financial period, we were in the final stages of implementing a multi-year transformation process. This has been accelerated by the Covid-19 pandemic and we are working closely with our licensed partners to ensure that we are well-positioned to sell Starbucks coffee in the right places, at the right times of day, through the most appropriate store formats and operating models.
The transformation process is largely related to shifting towards a licenced model across the EMEA region. During the period, we sold directly-run operations in France, Belgium, Luxembourg and the Netherlands to a long-term strategic partner, Alsea. More than 90% of Starbucks EMEA business is now run by a network of licenced operators, who are responsible for the profitability and growth in their respective markets. The increase of licensees within the region supports Starbucks international growth ambitions with net 251 new stores opened across EMEA during the period and the first steps taken in two new markets, namely Serbia and Malta.
The restructuring of support centre roles and responsibilities in the UK, to better serve our licensees in the region, resulted in significant, one-off costs of $33m, reflected within Starbucks EMEA Limited’s P&L during the period. The final relocation of remaining head office functions from Amsterdam to London also completed in September 2019, reflecting a significant portion of this investment.
Revenue across our EMEA businesses increased 6.9% to $245.8m during the period, driven by underlying growth in the region, particularly in Turkey and Middle Eastern markets. The increase was offset by higher costs due to one-off restructuring costs; the ongoing investment in the brand and new products, specifically the first full year of operation of the Milan Roastery and; capital investment into enterprise technology behind our digital platforms, which will support our new formats and operating model in the EMEA region.
Profits were lower on an aggregated basis due to restructuring costs. The aggregated profit for the EMEA businesses was $0.6m , versus $99.5m in the previous year, due to costs related to Starbucks Italy and the fact that FY18 profits included a $50.5m one-off gain from licensing of our Food Service business to Nestle.
The aggregated corporation tax reported by the EMEA businesses totalled $11.6m (£9.4m) in the period. This includes tax owed in our licensee markets. The EMEA companies recognised dividend income from its regional subsidiaries of $175m.
In the UK, trading conditions remained highly challenging during the financial period. The business continued a series of investments and prioritisation activities to adapt to new consumer behaviours in order to address long-term profitability.
This included the ongoing evaluation of the health of the equity store portfolio. During the period, 52 directly-operated stores were closed and 6 new directly-operated stores were opened – a net company-operated store reduction of 46. Starbucks UK increased the number of licensed stores by a net 54. By the end of the financial year, 68% of Starbucks UK stores were run by licensed operators and 32% were directly operated by Starbucks.
The realignment of our estate to match consumer behaviours also saw an increase in profitable Drive Thru stores – which now make up 18% of our overall estate in the UK, compared to 5% at the end of FY18. By the end of the period, we had also introduced new convenience-focused stores, such as the ‘grab and go’ format trialled at our store by London’s Embankment tube station. Operating with the new format, we saw a double-digit peak transaction growth and an increase in mobile orders.
In February 2019, we launched Starbucks Delivers in the UK, in exclusive partnership with Uber Eats. After a successful pilot in London, the programme was expanded to more than 100 stores in 11 cities across the UK by the end of FY19. This service has brought flexibility and convenience to our customers, meeting them where they are in their day. Starbucks Delivers is central to our growth strategy as we look ahead.
While there have been some positive results from Drive-Thru and Starbucks Delivers, trading in traditional store formats decreased. Starbucks UK’s smaller equity estate and fall in Food Service revenues caused revenues to decrease by 6.7%, to £361.7m.
Cost of sales decreased to £292m, from £331m in the prior period, given the shift from owned stores to licenced stores. Gross profit increased to £69.9m (2018: £56.2m), because of lower than expected costs of exiting leases, including a £4.4m unused lease provision, after early settlement agreements were reached with landlords when exiting leases.
However, the operating performance for the period was impacted by £2.3m of impairments against 14 underperforming stores, and further provisions made for unprofitable stores of £3.5m, resulting in an operating loss of £6.6m in the period.
Starbucks UK reported a UK corporation tax expense of £1.9m.
Post year-end and COVID recovery update
At the date of filing, 92% of Starbucks stores across EMEA have re-opened. Like for like sales are approx. 30-40% below pre-COVID levels with Drive Thru recording exceptional growth, offset by a significant downturn in high street locations and in particular, Central London.
During the financial year, Starbucks EMEA began the process of store portfolio diversification as well as an investment in technology to expand its Mobile Order and Pay and delivery capabilities. The impact of COVID has made expediting this central to the region’s recovery given evolving customer behaviour. As of today, delivery is available in twenty-one EMEA markets and Mobile Order and Pay will be available in all UK stores by December 2020. Additionally, the company is introducing a new loyalty program in the autumn that will make it more convenient, customizable and rewarding for customers.
Starbucks expects a continued shift of consumer behaviour which will drive further evolution of its stores, locations and offerings in the future.
About Starbucks Coffee Company
Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting high-quality arabica coffee. Today, with over 32,000 stores around the globe, the company 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 have 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 3,600+ stores across more than 40 countries, with the UK remaining as the largest market.