Starbucks UK registered EMEA businesses and UK Coffee Company today filed accounts for the financial year ending 27 September 2020, reflecting the peak of the COVID-19 crisis including full store closures and limited operations across the region.
FY20 Operational overview:
- COVID-19 related economic lockdowns resulted in significant decline in performance for UK retail business and EMEA franchising business:
- Sales plummeted to 0 during full store closures; EMEA business suffered a 32% decrease in revenue, as 86% of stores were closed during the peak of the pandemic in April 2020
- UK city centre sales recovered to 34% YOY on initial re-opening, recovering to 56% YOY by September 2020
- Starbucks Corporation prioritised keeping people employed and stores open by managing labour costs and streamlining operations:
- UK business did not furlough any retail employees and post-year end, 400 new roles have been recently announced across the UK
- The UK business did not take any opt-in government support during the crisis
- Retail stores continued to pay rent, but Starbucks UK entered into lease negotiations, as a result of mandatory lockdowns
- Starbucks EMEA accelerated the rollout of convenience store formats and digital infrastructure to meet the new customer need state:
- Stores began partial re-openings in early July, with only the Middle East reporting broadly stable revenues, due to the rapid investment and introduction of delivery in the market (with 185 stores equipped by the end of FY20)
- Ongoing investment into delivery platforms and on-the-go formats: at the end of the period, approx. 700 stores providing delivery, 585 providing mobile order and pay (MOP) and 65 new Drive-Thru stores opened.
FY20 Financial overview:
Starbucks UK Coffee Company (in GBP):
- Total revenues: £243m, down 32.7%; £113m reduction in revenue due to store closures and restrictions as a result of the pandemic
- Gross profit £32m, down 53.7%, impacted by labour costs remaining broadly neutral
- Loss on Ordinary Activities before tax: £41m, increase of 83% from FY19
- Negative tax charge reported of £4.4m, compared with £1.9m tax charge in FY19
Starbucks EMEA (combined overview, in USD):
- Total aggregated Revenues: $168.0m, down 31.6%, driven by COVID-19 related store closures and decrease in royalties revenue
- Aggregated Gross Profit: $80.9m, down 26.5% reflecting restructuring costs and lower service costs
- Aggregated Profit on Ordinary Activities before tax: $104.5m, down 38.8%, decreased as a result of an aggregated operating loss of $76.9m across EMEA Companies
- Total tax expense reported: $3.1m, compared with $11.6m in FY19, due to the increased operating loss
Starbucks UK is a retail business for the trade of gourmet coffee, tea and related products in the UK. The business remains heavily dependent on volume sales and footfall. During the period, it has continued to shift its offering from high street to Drive Thru and delivery formats, to meet the demands of the evolving consumer, while navigating the challenges of COVID-19.
Reported revenues decreased by 33% during the period, to £243.3m (2019: £361.7m), where the impact of Covid-19 was recognised primarily in the second half of the year. The decline was primarily down to COVID-19-related store closures and restrictions for the retail industry, after the eased reopening for UK businesses during 2020.
Gross profit for the period decreased by 54% to £32.3m (2019: £69.9m), because of labour costs staying broadly neutral at £77m, as the Company did not make any redundancies during the period and continued to pay employees in full during store closures. Other key cost drivers include £1.8m of charges, related to the early termination of three leases on stores that were closed permanently; flexible financial and development terms offered to licensees for COVID-19-related store closures, including the waiving royalty payments and; a further £10.4m of impairment charges against 35 underperforming stores.
Starbucks UK reported a loss before tax in the period, of £40.9m (2019: loss before tax of £6.6m). The Company reported a negative UK corporation tax charge of £4.4m (2019 loss: £1.9m), recognising an increase in the deferred tax asset, relating directly to the loss in the period.
During the period, Starbucks UK accelerated its efforts to adapt its business model such that its offering meets the needs of the post-COVID consumer. The business has invested heavily to support the delivery platforms such as Uber Eats, Just Eat and on-the-go formats. At the end of the financial year 2020, 231 stores were a part of the Starbucks® Delivers initiative and active on the Uber Eats platform across various cities in the UK. The mobile order and pay (MOP) model has also been beneficial since the easing of lockdown, to support takeaway offerings, accounting for 6% of total sales during the period. Drive-Thru stores have been introduced across the country, with 200 stores trading at the end of FY20 (of which 87% were licenced).
Starbucks UK also continued to evolve its store portfolio and review its locations and rental agreements, accelerated by COVID-19. The Company has been in discussions with its landlords following the pandemic to seek rent concessions where trade has been impacted and to regear leases where property values have fallen. While no concessions have been reflected during this period, negotiations are expected in FY21 to utilise break clauses in its lease agreements where leases are no longer competitive.
Starbucks EMEA Companies are headquartered in London, consisting 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 aggregated companies reported lower aggregated revenues, down by 32% to $168m (FY19: $245m), driven almost entirely by store closures as a result of COVID. Starbucks EMEA waived royalties due from licensees between 1 April and 30 June 2020 when stores were closed, directly reducing revenue by 25% compared with FY19.
The EMEA companies reported a lower profit on ordinary activities of $104m (FY19: $171m), the decrease due to aggregated operating losses of $77m (FY19: $4.7m). The operating losses were partly offset by lower costs from COVID-19-related closures. There was continued support for Starbucks Italy of $23.3m and ongoing payroll costs of $50m.
The corporate tax expense for the EMEA companies was $3.1m for the period (FY19: $11.5m).
Despite the challenges of COVID-19, Starbucks EMEA has seen continued licensee store growth in the Middle East and Turkey, including the opening of 167 new stores (net of closures). The rapid roll-out of Drive-Thru boosted sales by 24% in the Middle East versus FY19. This performance however was offset by poorer performance in Europe, supressing revenues by 71%.
Post year-end and COVID-19 recovery update
At the date of filing, Starbucks is continuing to assess and respond to government mandated rules on social distancing and operational practicing, navigating local and national lockdown rules in the UK and EMEA. The region continues to be supported by Starbucks Corporation, given the strategic importance of the UK market to trial new initiatives in coffee, food service and point of sale. The business expects a continued shift of consumer behaviour which will drive further evolution of its stores, locations and offerings in the future.
- Iain Dey, [email protected], +44 7976 295906
- Raeesa Chowdhury-King, [email protected], +44 7885 802774
- [email protected]
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.