- Date
- 20 July 2022
Starbucks Mulls Selling Off its UK Business
By Jake Rickman |
What do you need to know this week?
The BBC reports that Starbucks — the Seattle-based international coffee shop chain — is considering a sale of its UK business. Starbucks has since clarified that it has not launched a “formal” sale process, but the fact it has instructed investment bank Houlihan Lokey as its financial adviser suggests this is more than a mere summer daydream.
Why is this important for your interviews?
With nothing formally announced, all we can do is speculate as to why they are considering a sale. However, reasoned speculation is good practice for case studies related to advising a client on a sale of its business or acquisition of another company. Specifically, we should try and identify:
- Why Starbucks might wish to dispose of its UK business; and
- Why another business might have any interest in buying it.
In the company’s directors’ report, it notes that inner-city footfall in the UK has not recovered to pre-pandemic levels, which it identifies as a threat to future profitability. Instead, consumers are opting for digital delivery services and drive-thru options. To counter this, Starbucks partnered with two of the three large delivery aggregates (Uber, Just Eat and Deliveroo) this year. However, the report concludes that it will need to further innovate its digital initiatives to stay competitive. It has likewise opened new locations with a stronger drive-thru market (while closing other locations).
As for other challenges, it notes sustained labour shortages, supply chain issues and cost inflation as additional factors eroding its profitability.
From this perspective, there are clear internal challenges and external threats facing the brand — at least for its UK division. This being the case, why would another company want to acquire Starbucks in the UK?
One answer might be the branding opportunities. Starbucks already derives a substantial amount of its global income from licensing its brand to third parties. Most notably, we can look at its partnership with Nestlé announced in 2018. In exchange for Nestlé using its brand and products, Starbucks received $7.15bn in consideration.
Striking a similar deal with another business to sell all its branding rights could give Starbucks’ global operations a lot of upfront cash, while also minimising its exposure to a market it may not see any long-term viability directly operating in. Alternatively, or in addition, it might sell off its inventory and operational assets to direct competitors like Costa and Café Nero.
Of course, as nothing is formalised, there may not be a willing buyer. Regardless, this could amount to a fascinating deal if it moves ahead beyond the hypothetical stage.
How is this topic relevant to law firms?
While Starbucks has hired a financial advisor, there is no report of them instructing a legal team. This is typical in the early stages of a possible business sale: management first wants to know if there is a business case for selling the business before it initiates a formal sale process.
Separately, Starbucks has instructed Littler Mendelson as part of its efforts to stop employee trade unionisation activities underway on the other side of the Atlantic. Littler Mendelson has an alleged reputation as a “union busting” firm, which Starbucks hopes to use to stop various union drives across the United States. Some potential buyers may see Starbucks’ anti-union activities as a liability, particularly as far as environmental, social, and governance considerations go.
Image Credit: Grand Warszawski/Shutterstock.com
