Starbucks Malaysia Operator Sees Business Rebound After Boycotts

The operator of Starbucks in Malaysia says business is gradually recovering after the Gaza conflict-triggered boycotts led to store closures and steep losses.

"The recovery is slow, but we do see that there is a positive sign moving forward," Sydney Lawrance Quays, chief executive officer of Berjaya Food Bhd., said in an interview in Kuala Lumpur on Monday. The company's first-quarter results released late Monday showed net loss more than halved to 14.8 million ringgit ($3.6 million) year-on-year and revenue rose 3.3%.

It's a welcome sign after the company posted a record loss of 292 million ringgit for its latest financial year that ended in June. Despite the bruising boycotts, the company still "believes strongly in the Starbucks brand," Quays said.

Starbucks is among a slew of Western brands with perceived links to Israel subject to a boycott campaign in the Muslim-majority Southeast Asian country since the Gaza conflict broke out two years ago.

Berjaya Food had cut the number of Starbucks stores across Malaysia to 320 from 400, losing its lead to local upstart Zuspresso Sdn. as the nation's largest coffee chain.

Quays attributes the waning boycott to a growing understanding among consumers that Starbucks in Malaysia is operated by a local company and allegations the brand has ties to the conflict are untrue. Virtually all of his employees are Muslims, he added.

The coffee chain is well-positioned to compete with lower-priced competitors and the brand appeals to Malaysia's expanding middle class and tourists as well, Quays said.

The company is also preparing to expand in Nordic countries, where it has the rights to the brand. It is planning its third Starbucks outlet in Iceland following the first store's launch in May.

Berjaya also holds the global franchise of Kenny Rogers Roasters and produces baked goods under the Paris Baguette brand in Malaysia and the Philippines. Starbucks accounts for the biggest chunk of its business, contributing about 80% of group revenue.

Berjaya Food is a unit of Berjaya Corp Bhd., a conglomerate founded by Malaysian tycoon Vincent Tan. Berjaya Food shares climbed 2% on Tuesday, but were still down about 25% this year.

Despite the first-quarter improvement, it may still be difficult for Berjaya to reclaim its lost share in the coffee market, according to Syifaa' Mahsuri Ismail, an analyst at Hong Leong Investment Bank Bhd.

The brand overhang from geopolitical tensions may continue suppressing demand in the near term, delaying a return to pre-boycott performance levels. "The rising competition from fast expanding local and China-based coffee chains is exerting further pressure on the market," she wrote in a note.

Source: Bloomberg Europe