Starbucks’ European division paid $175m in dividends to its US parent company last year, despite recording a 99 per cent fall in pre-tax profit as it spent heavily on developing more takeaway and drive-through services.
The company revealed in the latest accounts for its UK and European business that pre-tax profit fell from $99.5m in 2018, to $600,000 in 2019, as it incurred costs restructuring its operations, closing underperforming stores and investing in new formats. Its UK subsidiary reported a loss of £6.6m because of “difficult conditions on the UK high street”, it said.
The coronavirus pandemic has sped up a broad restructuring that Starbucks started in 2018, involving a move away from its traditional cafés towards more drive-through sites and online ordering.
By the beginning of April, 86 per cent of its European estate was closed as governments mandated lockdowns, with only 52 per cent reopened by May 31 with limited takeaway operations.
Sales this month have recovered to about 60 per cent of what they were in September last year, Starbucks said. But it added that drive-through had shown “exceptional growth” as consumers looked for pandemic-secure ways to buy coffee and food.
“We began evolving our business last year to meet what we were seeing as a new customer demand away from high street cafés” said Duncan Moir, president of Starbucks Europe, Middle East and Africa. He added that the pandemic “has only accelerated these trends”.
Starbucks’ complex corporate structure and practice of paying profits back to its publicly listed US parent company in dividends has come under scrutiny in recent years after the company revealed in 2012 that it had paid just £8.6m of corporation tax in the UK over a 14-year period.
Dividends are exempt from tax under EU law as it is expected that tax is paid on profits where they are initially earned.
Starbucks, whose Emea and UK subsidiary is made up of eight different companies, has increased its tax contributions in recent years, paying $11.6m in 2019 despite its fractional profits. The $175m dividend it sent to its US parent in 2019 was less than half the amount it paid in 2018.
“What these accounts tell us is that there is still remarkably little [we know] about how Starbucks is making profits,” said economist and tax campaigner Richard Murphy. He said that while there was no evidence of tax avoidance there was a “strong tax motivation” in the way Starbucks managed its finances. He suggested the company publish “country by country accounts”.
Starbucks said it was “in the process of simplifying its accounts”.
To cope with the fall in trade during coronavirus, the company has cut staff working hours in the UK by 30 per cent and is about to enter negotiations with its landlords for rent reductions across its store estate.
Part of the drop in profits was also because of a $33m one-off cost relating to the relocation of its European headquarters from Amsterdam to London, which it completed last year.
Starbucks, which launched in Europe in 1998, now operates about 3,500 stores across 43 countries in the region.