Starbucks UK still stuck in the red

Starbucks may have become a byword for coffee shops on the high street, but it has not been able to shake off the tough market conditions as it slumped to full-year losses, hurt by the collapse of one of the largest book store chains in the country.

Starbucks UK made losses of £34m in the 12 months to 3 October 2010, but the results marked an improvement over the previous year when losses hit £52m. Darcy Willson-Rymer, managing director of Starbucks in the UK and Ireland, said: "Our sales are still growing despite tough conditions on the high street and our financial position continues to improve."

Just as in the previous year, the British operation paid a £25m royalty fee to its US parent. The group was also hampered by the collapse of Borders, which called in the administrators in December 2009. The closure of the book store's sites took out 36 of Starbucks' in-store operations, at a cost of around £10m.

Yet Starbucks said the narrowing losses, and a slight rise in sales, showed its "root and branch transformation" was having an effect.

The company has invested heavily this year in overhauling the business, and plans to spend £24m renovating 100 stores a year to adapt them to the needs of their neighbourhoods.

There are now 717 stores spread across the UK, compared with 703 at the end of the group's financial year. The company worked last year on closing the less profitable sites and signed deals for new sites, with Welcome Break and Eurogarages among others.

The company, which came to the UK in the late 1990s, said it had targeted the renovation of 20 more flagship stores before the Olympics and intended to open 12 "drive throughs" by the end of this year.

Mr Willson-Rymer said the figures "show customers like the changes we're making". He said bringing drinks like the flat white coffee into its chains and the frappuccino into supermarkets had "given us extra growth" in a market that is increasingly competitive.

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