The Surprising Reson Why Starbucks Failed in Australia

The Surprising Reson Why Starbucks Failed in Australia

Hello Starbucks lovers and enthusiasts. Are you curious to know why Starbucks failed in Australia? Well, keep reading to find out exactly why it happened. 

Starbucks is a truly global coffee brand, with more than 20,000 stores in 2016 spanning from Shanghai to Argentina. But there is one continent that was NOT interested in the coffee giant: you guessed it, Australia. According to CNBC (2018), Australian consumers were not impressed by the way Starbucks decided to enter the market. This has led to a major failure for the American coffee brand on the continent down under.

Starbucks opened the doors to its first store in Australia back in year 2000. However, in the first 10 years Starbucks accumulated $105mil in losses, forcing the company to close 70% of its stores in Australia.

Why Starbucks failed in Australia?

Below is a summary of 4 reasons why Starbucks has failed in the Australian market. I have attached a short video to better illustrated the reasons for Starbuck’s failure.

1. Starbucks Failed to understand the Australian consumer

 

Australia’s coffee culture has a long history dating at least century ago. Since 1900s, when the first Italian and Greek immigrants moved to the continent, they introduced the #espresso, which is the key ingredient to Australians’ favourite coffee beverage today – the flat white. Like Italians, Australian consumers didn’t instantly fall in love with the sweet coffees offered on the Starbucks menu, preferring smaller sized coffee, black and unsweetened coffees. 

Starbucks tried to replicate closely the US business model and failed to understand the Australian consumer taste preference.  Instead of matching the coffee menu to Australian taste, Starbucks served larger, sweeter coffee drinks, for which they charged more than local cafes.

So, it’s easy to say their strategy was set up for failure from the start-bucks.

Screen Shot 2018-11-09 at 3.14.54 PM
Starbucks Australia Menu Sweet Coffee Offering (Starbucks.com.au 2018)

2. Underestimating Brand Loyalty for Existing Coffee Shops

 

When Starbucks entered new markets like China, they were extremely successful mainly because they were introducing the coffee culture. China does not have a long-standing coffee culture, with majority of people preferring a cup of tea to any other hot beverage. So the brand “Starbucks” became synonymous with “Coffee”, and the offer created their own demand.

But in Australia independent coffee shops were already well established, having built a loyal community of fans over the years. People were used to drinking coffee in small cafes, with a small and personal community feel and sharing stories with their local barista.

With existing competition from local coffee shops, it was not easy for Starbucks to make customers switch.

“Starbucks failed to realise that Australian consumers were brand loyal to their local coffee shops and they were not going leave that and switch to a global brand” (Brook 2016).

 

3. Starbucks Projected an Arrogant Brand Image in Australia

 

Among the worst things an international brand can do is be arrogant.

And Starbucks made this mistake in Australia.

When it first opened shops in the Australian market, Starbucks claimed it aimed “to be the most successful coffee chain in Australia”. This comment was seen as an “arrogant” statement by the Australian consumers.

Prof. Patterson from UNSW said the main issue with Starbucks was that it misunderstood Australia.

“I don’t think it has to do with coffee, the problem was the brand”. He added: “Americans assumed that Australians would fall in love with an American brand – and it did not happen. Australians are not anti-American, but they are anti arrogant American brands” (Brook 2016).

 

4. Aiming Rapid Expansion as Opposed to Organic Growth

 

Another issue was the fact that the Seattle-based coffee brand didn’t give the Australian consumer enough time to develop an appetite for the brand. Starbucks moved too quickly and expanded too fast in the Australian market – and aimed to grow at a faster rate than its popularity (Turner 2018).

Eight years after opening its first store in Australia and suffering major loss on its operations, Starbucks sacked 700 staff and closed 61 branches across Australia (Brook 2016).

Today, in the Australian coffee market, Gloria Jeans has more than 450 branches in Australia while Coffee Club has 350 outlets. In comparison, Starbucks Australia maintains only 42 stores in Sydney, Brisbane, the Gold Coast and Melbourne areas and caters mainly to tourists who are familiar with the brand.

Nevertheless, Starbucks will not disappear from the Australian market as it needs to maintain outlets in Australia’s major cities to cement its global presence. However, researchers remain sceptical that Australians are going to embrace the joys of a “caramel popcorn pretzel frappuccino” anytime soon.

“Do you want to get a good coffee down the road from a barista you know or from a global brand where no one knows you and you pay an extra dollar? It’s a no-brainer.” (Brook 2016).

The image below is a map with locations of the remaining Starbucks stores in Australia.

Screen Shot 2018-11-09 at 3.58.43 PM
Image: 2018 Starbuck Australia Store Locations (11 stores in Brisbane-Gold Coast; 18 stores in Sydney; 13 stores in Melbourne)

Final thoughts:

It’s not just 1 thing that led to Starbucks failure in the Australian market. By making so many mistakes, from failing to research the consumers to making arrogant claims, Starbucks has set itself for failure right from the start. What’s the most interesting fact? The mistakes they made in Australia could have easily been avoided by having the right leadership and marketing plan.

Learn to build a marketing plan from scratch.

What do you think is the main reason for Starbucks’ failure in Australia?

Curious to know your thoughts.


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References:

Brook B. (2016) “Starbucks coffee is quietly expanding in Australia after humiliating retreat eight years ago” [online], available from <https://www.news.com.au/finance/business/retail/starbucks-coffee-is-quietly-expanding-in-australia-after-humiliating-retreat-eight-years-ago/news-story/b7f136c4d78f24aaa600a3822b1e31b4&gt; [accessed 10th Nov 2018]

Turner A. (2018) “Why There Are Almost No Starbucks in Australia” [online], available from <https://www.cnbc.com/2018/07/20/starbucks-australia-coffee-failure.html&gt; [accessed 9th Nov 2018]

Starbucks Australia (2018) “Starbucks in Australia” [online] available from <https://www.starbucks.com.au/Home.php&gt; [accessed 9th Nov 2018]

Starbucks (2018) “Starbucks Company Timeline” [online], available from <https://www.starbucks.com/about-us/company-information/starbucks-company-timeline&gt; [accessed 9th Nov 2018]


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