Starbucks Is Losing Money in the U.K.

(Bloomberg) -- Starbucks Corp. reported an annual loss in its U.K. operations, saying foot traffic at its cafes declined in a downbeat economy and as consumers want coffee delivered to their homes or desks.

The company’s British store arm lost 17.2 million pounds (about $22 million) in the year ended September 2018, after a profit of 4.6 million pounds a year earlier, according to a filing Thursday.

The shares were little changed in early New York trading.

Starbucks took a 20 million-pound hit related to renegotiating leases and closing unprofitable stores in the U.K., where a shift to e-commerce and a fall in consumer confidence amid political uncertainty over Brexit have deepened a retail crisis.

While shutting weak locations, the company is expanding its roster of drive-through outlets in the U.K., which already includes more than 100 owned and licensed shops. It has also begun delivery in London through a partnership with Uber Eats, which Starbucks plans to expand to other locations across Europe and the Middle East later this year.

Across Europe, Starbucks has been shifting more of its stores to franchisees. Last year it gave long-time Latin American partner Alsea SAB the rights to open and run cafes in France, the Netherlands, Belgium and Luxembourg, where its presence is relatively limited compared with the U.K.

Starbucks’ European licensing operation, also registered in the U.K., boosted its profit in the latest year via a deal with Nestle SA to distribute the U.S. company’s coffee in Nespresso capsules.

“Doing business in EMEA continues to be challenging for Starbucks. From the changing consumer landscape to high rents and political uncertainty, there are ongoing pressures across the region,” Martin Brok, the company’s president in Europe, Middle East and Africa, said in a statement.

The U.K. cafe business and the European licensing arm together paid 22.6 million pounds of tax in Britain, up from 13.7 million pounds a year earlier. That’s been a sore subject for the company in recent years, with British lawmakers accusing U.S. multinational companies of tax avoidance -- which Starbucks has denied.

To contact the reporter on this story: Eric Pfanner in London at epfanner1@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Jonathan Roeder

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