Rents grind down Starbucks

Starbucks UK has blamed high rents and a hefty royalty payment to its US parent for its fifth consecutive year of losses.

But Kris Engskov, the UK managing director, said it was making strides to improve its bottom line, such as by closing less profitable outlets or relocating them to adjacent locations as it plans to do this year with three on London's Oxford Street.

The coffee chain, which closed 12 sites but opened 42 in 2011, made a loss of £32.9m for the year to last September. It last made a profit in the UK in 2006. This loss is despite posting 11 consecutive quarters of like-for-like sales growth.

In addition to refurbishing its 766 stores in the UK and Ireland, Starbucks changed its recipe for the first time in a major market in mid-March, putting an extra shot of espresso in its lattes and cappuccinos at no additional charge.

Following this launch, when it gave away 350,000 lattes in a single morning on 14 March, sales of lattes have continued to be 9 per cent higher. Mr Engskov said: "It has been remarkably powerful."