Expensive tastes: The flagship Starbucks in Rosebank cost more than R10m. Picture: Freddy Mavunda
Expensive tastes: The flagship Starbucks in Rosebank cost more than R10m. Picture: Freddy Mavunda

Cleaning up Taste’s kitchen has certainly not come cheap. And the few retail shareholders it has left after a succession of rights offers may have to wait another three years before the company hits "critical mass".

Under the new management of interim CEO Tyrone Moodley and his permanent replacement, Dylan Pienaar, Taste — which owns the local rights to global food giants Starbucks and Domino’s Pizza — posted a R318m loss from continuing operations last week.

Pienaar, who has been in the CEO role since March, tells the FM that Taste will need up to R320m in further funding to get all its brands to start generating positive cash flows.

Analysts have largely stopped covering the once popular small-cap stock; most were flushed out by its rights offers, which have left Protea Asset Management, co-owned by Moodley and US-based investor Sean Riskowitz, with 64% of Taste.

In its last cash call, for example, Taste issued 1.32-billion new shares at 10c each to raise R132m — all of it underwritten by the Riskowitz Value Fund, as well as private US investment vehicle the Rand Group and UK-based private equity firm Eldon Capital.

Less than 5% of Taste is now held by retail investors.

Keith McLachlan, small-caps portfolio manager at AlphaWealth, says he checks in from time to time to see what the company is up to, but his original view — that Taste is in trouble — still holds true.

"They need more money, time and sales, and they need less competition and costs … and [money] is running out fast," he says.

Taste, obviously, has a different view.

After an "arduous" six months identifying problem areas, the company says it has cut costs, honed management and split the company into two clear divisions: jewellery and food.

It says the benefit of its cost cuts will only be felt in the next financial year, though "evidence of an operational turnaround has already emerged".

And despite its parlous finances, Taste has secured the backing of both Domino’s and Starbucks after playing "open cards" on its financial position.

It has also fine-tuned a new store roll-out plan for both brands, which were brought in amid much hype under founder and former CEO Carlo Gonzaga, who stepped down in February 2018 as the wheels began to come off.

Domino’s, says Pienaar, had become "diluted" to "just another pizza brand", partly because Taste had opted to convert its existing Scooters network to Domino’s stores.

"It’s not just a matter of changing the name of the store, the store needs to be relocated to a better place. It needs to be high street, in the right delivery areas."

The plan is to expand the network of outlets, at the same time making sure the existing ones break even. Taste has to make sure it has critical mass: too few stores, and Domino’s will never be a household name. In other words, a catch-22 for a company that seems always to be short of cash.

"Right now an 80-store network is very scattered so [we need] to concentrate on the high catchment areas, the areas where we know people are spending money on pizza," Pienaar says.

The company can buy data from outfits such as Lightstone and Fernridge that give the overall spend in quick-service restaurants for an area. "Then we work out what we should, as a percentage, be capturing of that market," says Pienaar.

One thing’s for sure: Taste’s new Starbucks stores will not carry the same price tag as the first wave did.

Pienaar says each new Starbucks shouldn’t cost more than R4m — a far cry from the more than R10m shelled out for its flagship Rosebank premises.

"Very expensive," says Pienaar. "We should have gone into small, core-format, convenient grab-and-go" stores without the massive seating area in the original version.

Future Starbucks stores are also set to offer a simpler, pared-down menu.

Where the Seattle-based coffee company is now specialising in small-lot, single-origin coffees under its Starbucks Reserve label, coffee tastes in SA, say Moodley and Pienaar, have a long way to go.

They need more money, time and sales, and they need less competition and costs
Keith McLachlan

"The SA coffee market’s not there yet," says Pienaar. "We need to be Starbucks 1986 when it first launched — a very simple core offering. We’ve got to take the SA consumer on the coffee journey and grow into Starbucks 2019."

After an abortive attempt to sell the luxury goods division — there weren’t any buyers — Taste has decided to keep it in-house, although it has outsourced the jewellery manufacturing.

"We got our price points [in NWJ] right, looking at everyday affordable jewellery rather than running promotions and discounts, and Arthur Kaplan, which is driven by high-end watches, is an exceptionally resilient segment of retail. It struggled a little bit but nowhere near our other businesses," says Pienaar.

The market might beg to differ: luxury goods posted a 12% drop in revenue, to R490m, while impairments and one-off costs pushed it to a R43m operating loss.

While Taste has promised that its retail store operations will generate a profit in earnings before interest, taxation, depreciation and amortisation terms this year, the company isn’t anywhere close to sustaining itself.

In its outlook statement, Taste says it "will continue to engage with various capital markets in order to secure further funding".

After so many cash calls, patience must be wearing thinner than a pizza base.