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South Africans Are Queuing Up For Famous Brands. But Can They Afford To?

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Wednesday, June 29th, 2016
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South African Starbucks

A QUEUE snaked through the first Starbucks shop south of the Sahara, winding out of the door and down the block. It greeted the American coffee chain’s boss, Howard Schultz, when he visited the Johannesburg store for the first time recently. “I have been to many, many Starbucks openings around the world,” Howard Schultz marvelled. “I have never seen a line like this after a week of our opening.” Few of the South Africans shuffling in line had ever tasted Starbucks, but felt sure it was worth the hour-long wait. “Celebrities are always drinking it,” said Lebo Nkosi, 26, a shop assistant at a nearby mall, as she waited with her friends.

Two months after opening, this Starbucks still pulls impressive queues on weekends. Famous international brands are a bit of a novelty in South Africa. Similarly enthusiastic crowds met the launches of the first Krispy Kreme Doughnuts and H&M clothing shops in Africa late last year. Burger King, which opened in 2013, had long queues for months. For big global brands, South Africa’s market offers avid consumers and a stepping stone to the rest of Africa.

The appetite for venti lattes and grande frappuccinos is remarkable given the parlous state of South Africa’s economy. It is expected to grow just 0.6% this year, down from 1.3% in 2015. Shoppers have been pinched by rising food prices and a weak rand that makes imports costlier. So far, though, this hasn’t stopped the country’s aspirational middle class from splurging. When the spiffy new Mall of Africa (home to South Africa’s second Starbucks shop), opened in late April (see picture above), it drew more than 120,000 people and snarled up traffic for miles. It also led to a shoot-out between rival taxi fleets, fighting over who would get to pick up shoppers.

Not all who splash out on luxuries are truly well-off. Many of the new middle class are living beyond their means. South Africa has one of lowest savings rates in the world. According to the government, nearly half of South Africans with access to credit are struggling to meet their monthly payments or in arrears. As interest rates and inflation rise, they will find it even harder. Many will stop spending.

Though retail sales beat expectations by rising 4.0% year-on-year in February, they disappointed by growing just 1.5% in April. Burger King opened with a sizzle, but has since scaled back its plans, from 100 stores by the end of June to 75 or 80. With the Mall of Africa’s opening, there may be a glut of retail space. Starbucks is planning to expand slowly. But after seeing the crowds in Johannesburg, a bullish Mr Schultz had second thoughts: “I think this market is going to be larger than we probably thought.”

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