Starbucks Egypt outdoing its US counterpart

Sherine El Madany
5 Min Read

CAIRO: While its coffee aroma seems to be waning in its homegrown market on the heels of the US mortgage meltdown, Starbucks is robust on Egyptian market operations.

“As a new market for Starbucks, Egypt’s [sales] figures are better than those of other countries, said Omar Abdelhay, operations manager at Starbucks Egypt. “Our expansion strategy is very aggressive in Egypt, where we opened 11 stores in one year only.

He pointed out that sales figures are on the rise in Egypt. “On average, some 150,000 people enter Starbucks Egypt stores per month.

Recent business reforms, including cuts in taxes and duties, as well as a surging stock market have unleashed consumer optimism among wealthier segments of the Egyptian society. The rise in consumer spending spells record profits and rapid expansion for companies and international food chains, which are swooping on access to the country s large population.

Consumer spending has much farther to run despite the high inflation, Angus Blair, head of research at Beltone Financial, recently told Reuters. There is enormous momentum because of the growth in the economy and the tax cuts.

While Egypt’s figures show that the glass is half full for the internationally renowned coffee-maker, Starbucks Corporation blamed last week hard-hit housing markets of California and Florida for slowing down its sales in the US, asserting it was the latest victim of the US mortgage meltdown.

According to recent US news reports, the coffee shop chain slashed its quarterly and 2008 profit forecast below Wall Street targets and said it faced the weakest economic environment in its history.

Given the continued weakness in the US economy, Starbucks warned that fiscal year 2008 earnings per share would be somewhat lower than the 87 cents it reported in fiscal 2007.

Starbucks reported preliminary second-quarter earnings of 15 cents per share, behind Wall Street analysts average target of 21 cents per share, according to Reuters Estimates.

Starbucks, which long considered itself virtually immune to economic swings, has admitted in recent months that some consumers have avoided its relatively expensive coffee as the economy soared.

The current economic environment is the weakest in our company s history, marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers, Howard Schultz, Starbucks founder and current CEO, said in a press statement.

As a result, Starbucks ratcheted down the number of new stores it initially planned to open this year in the US and confirmed it would close some US locations and open more stores abroad than domestically.

Despite growth slowdown in the US, Starbucks Egypt seems to have successfully established its cachet amid competition from other coffee chains, with Abdelhay expecting 2008’s store growth pace to outperform last year’s.

“We’ve had a very successful start in Egypt, and we plan to open more than 11 new stores this year, he said. “Recent economic and custom reforms have further helped us, since we import everything from abroad. These reforms have enabled us to sell at better prices. Starbucks made its debut into the Egyptian market end of December 2006, when it opened its first outlet in City Center, Nasr City. It later opened 10 more venues across Egypt in Cairo Airport, CityStars, Heliopolis, Maadi, Nile City Mall, Carrefour Alexandria, San Stefano Grand Plaza, and Sharm El-Sheikh.

Under its social corporate responsibility, Starbucks Egypt donated last July 20 percent of its first month’s sales in a bid to promote literacy in Egypt. The coffee house joined forces with 4-OurKidz – an Egyptian NGO – to support educational programs for unprivileged youth by building Knowledge Corners at local school libraries.

So far, two Knowledge Corners have been established, one at El-Giza El-Kawmeya School in Cairo and another at the Mohammed Qurayem School in Alexandria. The initiative entails a full refurbishment of school libraries outfitted with educational equipment including books, furniture, and computer facilities.

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