Why Starbucks Failed in Australia?

Are you shocked to find out that Starbucks has failed on the Australian continent? 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 uninterested 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.

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.

So what went wrong?

Here’s a summary of 4 reasons why Starbucks has failed in the Australian market:

1. Failing to understand the Australian consumer

Australia’s coffee culture has been strongly formed over a century. 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 fancy the sweet coffee offerings on the Starbucks menu, preferring smaller sized coffee, black and unsweetened coffee tastes. Starbucks tried to replicate closely the US business model and failed to research the market beforehand, to understand the Australian consumer preference and match its menu to local taste – instead, Starbucks served sweeter coffee options for which they charged more than local cafes.

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

2. Underestimating Brand Loyalty

In markets like the UK and China, Starbucks were extremely successful mainly because they were in a large part responsible for introducing coffee culture in markets where the preferred cup of hot beverage was tea. But in Australia independent coffee shops and coffee culture was already well established. “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). People preferred drinking coffee in small cafes, with a small and personal community feel and sharing stories with their local barista.

3. Projecting an Arrogant Brand Image

When it first entered the Australian market, Starbucks claimed its aim was “to be the most successful coffee chain in Australia” – which was seen as an “arrogant” statement by the Australian consumers.  Prof. Patterson from Uni. of New South Wales told News.com.au (2016) that 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 the opportunity to really 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 indicates the map locations of the remaining Starbucks stores in Australia.

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

Do you agree with my list?

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]

Published by Alle Ceambur

Digital marketing expert and copywriter. I have over 6 years of experience in business consulting. Passionate to help startups grow online.

2 thoughts on “Why Starbucks Failed in Australia?

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