Starbucks has blamed a collapse in UK profits on a list of ills including fewer shoppers visiting the high street and the impact of the Brexit vote.
Pre-tax profits at the US coffee chain slumped to £13.4m in the year to 2 October 2016, down 60% on the £34.2m it made in 2015. Its turnover declined from £405.6m to £379.9m.
“Starbucks in the UK has experienced significant economic and geopolitical headwinds this year which affected sales,” the company said in accounts filed at Companies House. It also pointed to “slowing economic growth” and the “impact of Brexit” as among the factors hitting consumer confidence.
“The general consumer environment was more cautious than the prior year with footfall noticeably down across the store estate leading to lower sales,” the company added. Sales at stores open more than one year were down by 1% over the period.
Starbucks became the poster child for corporate tax avoidance in 2012 after details of its meagre tax contribution emerged. The furore prompted a deal with HMRC to waive tax deductions and pay £20m in voluntary corporation tax over two years, including £11.2m in 2014.
The deterioration in the UK chain’s profitability meant the amount of corporation tax due dropped from last year’s £7m to £2.7m. However, a £2.9m payment “in respect of prior years” meant its total bill was £6.7m compared with 2015’s £8.4m.
Starbucks is in the process of restructuring the UK chain as it moves away from company-run stores and these changes also weighed on the company’s financial performance. It has been renegotiating leases and closing unprofitable stores as well as transferring shops to its licence and franchise partners. Today just over a third of its 894 stores are actually company-run.
“Whilst there are undoubted challenges presented by a more cautious consumer environment, lower high street footfall, and adverse currency impacts, we are investing significantly to drive innovation in our food and coffee offering, and are greatly encouraged by our customers’ response,” said Martin Brok, president of Starbucks Europe, Middle East and Africa (EMEA) region.
“The UK remains one of the most important EMEA markets for us and we will continue to grow where our customers want to find us,” he added.
Over the past decade Starbucks has faced fierce competition in the UK as rival chain Costa Coffee grew rapidly to become the market leader. The battle for lunchtime trade has also intensified, with chains from Pret a Manger to Greggs serving up speciality coffees.
A recent market report by consultancy Allegra Strategies shows that, despite Starbucks recent experiences, the UK’s thirst for coffee is growing with about 23,000 coffee shops contributing an estimated £8.9bn to the economy.
The report said 3.4 new coffee shops opened every day. “The UK has embraced coffee culture in a phenomenal way that has seen the industry grow and thrive to the size it is today – and it’s continuing,” said Jeffrey Young, chief executive of consultancy Allegra Strategies.
