Dubai/London, Sept 19 – The AlShaya Group, which operates the Starbucks franchise across the Middle East, North Africa, and Central Asia, has reportedly put the sale of a minority stake in the business on hold. The decision to pause the process stems from the ongoing geopolitical instability and consumer boycotts in the region, which have made it challenging for potential buyers to accurately assess the value of the business, according to sources familiar with the situation.
The Kuwait-based retail giant had initially intended to sell a 30% stake in its Starbucks franchise, a process internally referred to as “Project Emerald.” This move was aimed at bringing in new investors and potentially diversifying the ownership structure of a business that has been under the control of the AlShaya family since 1999. However, given the current market conditions, AlShaya has decided not to rush the sale, choosing instead to wait for a more favorable environment.
Impact of Regional Unrest on Business Valuation
The Middle East and North Africa (MENA) region has been experiencing significant unrest, including the ongoing Israel-Hamas conflict, which has sparked widespread protests and boycotts. These actions have had a direct impact on the operations of multinational companies like Starbucks, which has been caught in the crossfire of regional tensions. Consumer boycotts, in particular, have raised concerns among potential investors about the long-term viability and profitability of the franchise in these volatile markets.
One of the major challenges facing potential bidders is the difficulty in valuing the business amid such uncertainty. The franchise operates approximately 2,000 outlets across 13 countries in the MENA region, as well as in Kazakhstan and Azerbaijan. However, the business environment in these areas has been anything but stable, with economic, political, and social factors all playing a role in the fluctuating fortunes of businesses operating there.
The franchise was valued at between $4 billion and $5 billion in 2022, according to previous reports. However, the valuation took a hit following the company’s decision to exit the Russian market, coupled with the ongoing boycotts and unrest. These factors have made it increasingly challenging for potential buyers to commit to a deal, especially in a market where future prospects are so uncertain.
Potential Buyers and Market Interest
Despite the challenges, the sale of the stake has attracted interest from some significant players in the investment world. Among them is Apollo Global Management Inc., a U.S.-based private equity firm known for its investments in various industries, including retail and hospitality. Additionally, Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), has also shown interest in acquiring a stake in the franchise. The PIF, which manages over $700 billion in assets, has been actively seeking opportunities to expand its portfolio in the retail sector, particularly in businesses with strong regional footprints.
However, both potential buyers and the AlShaya Group are likely wary of proceeding with a deal under the current circumstances. The regional instability not only affects the day-to-day operations of the business but also raises questions about the long-term sustainability of the franchise’s growth in these markets.
AlShaya’s Strategic Decisions Amidst Challenges
The AlShaya Group has been navigating a challenging landscape over the past few years. In addition to the geopolitical unrest, the company has faced internal challenges, including a significant restructuring effort earlier this year. Reports from March indicated that AlShaya planned to lay off over 2,000 employees as part of its efforts to streamline operations and cut costs amid declining revenues. The layoffs were seen as a response to the growing impact of consumer boycotts, particularly those related to the Gaza conflict.
Despite these challenges, the AlShaya Group has remained committed to its partnership with Starbucks, continuing to operate and expand the franchise in various markets. However, the decision to pause the stake sale indicates a cautious approach by the company as it assesses the evolving situation in the region. The group is likely waiting for signs of stabilization before resuming talks, with some sources suggesting that discussions could restart next year if conditions improve.
The Future of the Starbucks Franchise in the Region
The Starbucks franchise, under AlShaya’s management, has become one of the most recognizable and successful retail brands in the MENA region. Its expansion into Central Asia further solidified its presence in emerging markets, where consumer demand for premium coffee products has been on the rise. However, the recent unrest has cast a shadow over the franchise’s future growth prospects, with some analysts questioning whether the brand can maintain its momentum in such a challenging environment.
For now, the AlShaya Group seems to be adopting a wait-and-see approach, focusing on navigating the current difficulties while keeping an eye on future opportunities. The decision to put the stake sale on hold reflects a broader strategy of caution and prudence in the face of uncertainty. Whether the sale process will resume next year or be further delayed will largely depend on how the situation in the region evolves, as well as the willingness of potential investors to take on the risks associated with the market.
The pause in the sale of a stake in the Starbucks franchise operated by the AlShaya Group highlights the complexities of doing business in a region marked by instability and unpredictability. While the interest from major investors indicates confidence in the long-term potential of the franchise, the immediate challenges posed by geopolitical unrest and consumer boycotts cannot be ignored. The coming months will be critical in determining the future of this high-profile stake sale and the broader outlook for Starbucks in the MENA region.