Starbucks recovery brewing as group gets back to grind

IT IS more than likely that you have bought a coffee from Darcy Willson-Rymer. As head of Starbucks UK and Ireland, the unassuming Canadian sells nearly 400 million worth of skinny hazelnut lattes and flat whites - and the occasional slice of cake - a year.

Now he's setting about redressing the company's ubiquitous chain and was in Edinburgh's Royal Mile last week to see the first of its outlets in Scotland get Starbucks' new "distinctively local" approach to design.

It is part of a 24m refurbishment programme aimed at changing the perception that Starbucks has plastered every UK high street with American-style sameness.

"The customer is getting more discerning, demanding ever higher quality," says Willson-Rymer.

"That is not just the quality of the coffee, but also the space they are in."

He joined Starbucks two years ago, but that wasn't an easy time to join the company. As the recession loomed, one of the first discretionary spends to go for many was their daily double caramel machiatto. In 2009, gross margins deteriorated, and despite seeing 4 per cent growth in sales, the company slumped to a massive 52 million loss, down even further from 47m to the year before.

Willson-Rymer, 44, points out that the figures are historic - last week, the firm said its most recent quarterly sales figures were up 5 per cent. But he admits part of the problem was that Starbucks - often criticised for its gung-ho American-style international aggression - had expanded too fast in premium locations, paying top dollar for stores that other coffee shops would have baulked at.

In response to the squeeze, Willson-Rymer had to close poorly performing stores, 50 in total including three in Scotland, leading to a 10m write down.

A number went in London where there was a concentration of outlets - about 115 within three miles of the Bank of England - used by workers in the hard-hit banking and financial services industries.

"Not every store was earning its right to be in that portfolio," he says.

"When you have 50 leases ranging between five to 15 years and you need to get out of those, that is a problem."

But the books of foreign-owned firms can be difficult to interpret. The UK group's head of communications points out that part of this loss is due to a 24m annual licence payment to head office in Seattle.

But the upside of loss means that the company took a tax credit - winning 114,000 from the Exchequer. The previous year, despite still making a loss, the company paid HMRC 20m in taxes.

As a result, the firm admitted it was in "discussions" with HMRC about transfer pricing - the way foreign companies account for profits and losses. In its last accounts, Starbucks described its transfer pricing policy as "reasonable" and said it could "defend its position".

But Willson-Rymer hints that he has until 2014 to start making money. He is already one year into a five-year strategic plan.

"Starbucks UK and Ireland will be a highly profitable business for Starbucks," he says. "We have a clear path to do that and to get there. But what is also important is we take a long-term approach and make the right investments in the business at the right time." Cost cutting also saw jobs slashed at the firm's London head office. The company also repriced its filter coffee to retain the cost conscious at 1.50, which Willson-Rymer insists is "pretty good value".

He also attributes the losses to taking an "investment approach", rather than a "slash and burn" approach. Since his arrival, he says most of the 688 Starbucks stores have been refurbished, including 100 last year and 100 again this year.

All the coffee in the UK stores is fairtrade - unlike the US where the American consumer isn't as keen to pay a premium on their lattes to support third world farmers.

The firm also took over 29 franchise outlets in motorway services - Willson-Rymer says these have performed 20 to 40 per cent better than the previous Coffee Primo-branded Welcome Break concessions.