- Alshaya Group has paused the sale of a 30% stake in Starbucks MENA
- Political tensions and growing “boycott, divestment, and sanctions” movements may be factors
- Homegrown brands like Barns are expanding fast, aiming for 1,000 outlets globally by 2030
In late 2023, the Alshaya Group, a major franchise operator in the Middle East and North Africa (MENA), reportedly put plans to sell a minority stake in its Starbucks franchise on ice.
The Kuwait-based company, which operates over 1,900 Starbucks outlets in 11 MENA markets and with more than 19,000 employees in the region, had been in talks with potential buyers, including Apollo Global Management and Saudi Arabia’s Public Investment Fund (PIF).
Starbucks, the American coffee giant, has found itself at the epicentre of a public relations storm. Boycotts have proliferated across the MENA region, as well as in parts of East Asia, Europe, and the United States, over the brand’s perceived stance on Israel’s actions in Gaza.
Some are boycotting the company after it sued its labour union last year over a union social media account posting support for Palestinians – allegations Starbucks denies. In fact, in December 2023, Starbucks introduced a new webpage, Starbucks for the Record, aimed at debunking these claims and clarifying its apolitical stance.
Despite these efforts, the boycotts have impacted sales and foot traffic across MENA, a region crucial to Starbucks’ global expansion strategy.The effects of the backlash have been profound. Starbucks’ MENA operations have seen a marked decline in consumer interest – confirmed by Starbucks itself in January of this year.
Compounding these challenges, the company announced significant layoffs (2,000 people) in March 2023, primarily targeting management roles, in a move widely seen as an attempt to cut costs amidst flagging sales – signalling the broader headwinds facing the business.
“There are several factors that potentially contributed to the halting of the minority stake sale in the Middle East franchise of Starbucks,” says Tristan Hawkey, Trade Consultant at OCO Global, a business and foreign investment consultancy. “Certainly, the brand-boycott that began following the events of October 7, 2023, has had an impact, but that was across the board for a variety of famous western brands including Pizza Hut, Coca-Cola and KFC.”
“Saudi Arabia’s PIF, which was a contender for the sale of the stake along with several others including US private equity Firm Apollo Global Management, likely identified several other reasons to not invest or cause the freeze of a sale from Al-Shaya.”
“Saudi Arabia is a major aid donor to Palestine and a leader in peace negotiations, so there are potential political considerations.The region has also experienced growth from other international chains including powerhouse brands such as Tim Hortons, Costa Coffee as well as rapidly scaling home-grown brands such as Barns. This has led to poorer performance from Starbucks, decreasing its share value and overall forecast for the region, and reducing investor confidence in its ability to scale effectively.”
What makes the Alshaya Group’s delay significant is the growing uncertainty in the MENA market. The region, a key revenue driver for Starbucks, is increasingly sensitive to political events, and with the prospect of more widespread unrest – particularly as Israel’s military campaign extends to Lebanon, causing Iran’s retaliation and further escalation of the Israeli offensive – corporate strategies may need to shift.
Can civil movements and boycotts truly reshape market dynamics in such a way that even a global behemoth like Starbucks feels compelled to adapt?
The rise of “boycott, divestment, and sanctions”
The recent Starbucks boycott is part of a broader, global movement known as Boycott, Divestment, and Sanctions (BDS).
Launched in 2005, BDS is a Palestinian-led campaign that calls for economic pressure on Israel to comply with international law and end violations of Palestinian rights.
In 2022, a Pew survey found that around 84 percent of Americans had little to no awareness of the campaign, despite it being around around two decades. Now, people are naming brands with ties to Israel and calling for boycotts using the hashtag #BDSMovement.
McDonald’s has come under fire after an Israel location provided free meals to the Israeli military, with other global fast food chains like Domino’s Pizza and Burger King also facing criticism. Meanwhile, protests led by local BDS-affiliated groups are being held worldwide.
The movement primarily targets companies with perceived or proven connections to Israeli policies, urging consumers to avoid purchasing products or services from these brands. BDS has drawn significant support from civil society groups and activists worldwide.
Brands like Puma, HP, and SodaStream have also faced scrutiny under BDS, but the movement’s influence on the coffee sector, particularly Starbucks, has been more pronounced.
Despite the company’s repeated denials of any financial ties to Israel’s government, Starbucks has been a symbolic target for boycott efforts.
The ability of BDS to mobilise large swaths of the public – especially in politically charged moments like the Gaza offensive – demonstrates the strength of consumer-driven activism in influencing corporate behaviour.
The financial repercussions of these movements, while difficult to quantify globally, have had notable effects on brands like Starbucks. Earlier this year, the company reported a “significant impact on traffic and sales” in the Middle East and the U.S. markets, which it also attributed to “misperceptions” about its brand. This is prompting a reassessment of strategies and partnerships.
Similarly, consumer pressure has played a role in reshaping corporate supply chains in the region, as companies seek to distance themselves from controversial political issues – many local brands like Saudi’s Arabia’s Barns or Half Million are rising to the fore as a result.
“While the MENA region has an affinity for famous international brands, there has been a spur in investment across MENA to develop home grown brands,” says Tristan. “A good example is ‘Barns’ coffee which has opened over 700 stores already with plans for 1,000 outlets across the world by 2030.”
“Regionally, international brands affected by boycotts are slowly recovering. Their ability, however, to tailor their customer experience and products to local tastes is less effective than homegrown brands. Given their domination in marketing, international brands will always retain a market share.”
“However, as consumers look for increasing personalisation – including locally roasted beans – to regional tastes, Starbucks and other international brands will continue to be under pressure.”
Civil movements, conflict, and market shifts
Civil movements, conflicts, and boycotts have long had the power to disrupt markets, and the coffee industry is no exception.
The conflict in Ethiopia’s Tigray region, which began in late 2020, has heavily impacted the country’s coffee sector. As Africa’s largest coffee producer and a global exporter, Ethiopia faced multiple challenges, from economic uncertainty and disrupted exports to shaken investor confidence and struggles for coffee farmers.
Similarly, the frost that devastated Brazil’s coffee crops in the 1970s triggered a temporary boycott by American consumers when prices skyrocketed. In the face of rising costs, demand plummeted, leading to a reshuffling of supply chains and the exploration of alternative markets.
The coffee sector eventually rebounded, but the experience left its mark on the market, prompting both producers and importers to build more resilient, diversified supply chains.
The coffee boycotts in San Francisco in the 1980s and 90s helped cut off funding to El Salvador’s military and death squads by targeting the coffee industry, which was deeply tied to the country’s ruling elite. These efforts played a role in raising awareness, reducing financial support for the war, and pressuring the U.S. to limit its involvement in the conflict.
And in 2002, during the height of the Second Intifada, Starbucks closed its stores in Israel, citing operational difficulties, although many speculated that the move was linked to the escalating militarisation. The company returned to Israel several years later, but the experience underscored the risks faced by global brands in politically volatile regions.
For conglomerates like Starbucks, managing these risks involves a balancing act between maintaining market presence and responding to consumer sentiment.
The company’s response to the current boycott – through public clarifications and website updates – reflects a cautious approach, aiming to mitigate reputational damage without making politically charged statements.
The Russia-Ukraine war has significantly impacted global markets in multiple ways, affecting everything from energy and commodities to financial stability and supply chains. In an era of increasingly globalised supply chains, companies are more exposed than ever to the ripple effects of civil movements and political unrest.
“The MENA region presents great opportunities but has historically been viewed as a turbulent place to conduct business,” says Tristan. “Many of the Gulf Cooperation Council (GCC) nations, however, offer a stable market entry point.”
“In particular, the UAE has established itself as a ‘gateway’ to the MENA region for many firms. OCO has advised many firms considering investing in the region on how to navigate its challenging dynamics.”
“First, establish personal ties with key clients to act as your ‘heroes’ within the region. Secondly, show a willingness to engage regularly, whether that is through travelling or establishing a company within the region, and finally, maintain a transparent and firm stance on your company’s values, including why and whom you choose to do business with.”
The rise of boycotts and sanctions shows that consumer power is real, and can be wielded to shape market dynamics in profound ways. Whether these changes will result in permanent shifts in the coffee industry remains to be seen, but one thing is clear: political tensions and consumer activism are now critical forces in the global economy.
BDS and similar movements have shown that consumer activism is a potent force, capable of influencing corporate decisions and reshaping markets. However, whether these shifts are permanent or merely temporary reactions to political events is still unclear.
In the meantime, the coffee industry, long susceptible to the effects of conflict and civil unrest, will have to brace for further uncertainty. As history has shown, markets may recover, but the scars left by political turbulence can last for years, if not decades.
Coffee Intelligence
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