Why Starbucks Failed In Australia

CNBC

26 Jul 201806:49

Summary

TLDRThe script discusses Starbucks' struggle in Australia, a market known for its tough entry and coffee culture. Despite a rapid expansion in 2000, the brand closed two-thirds of its stores in 2008 due to a lack of consumer interest and competition from local cafés. Starbucks' basic menu and high prices were out of sync with Australian tastes, favoring specialty coffees and a more personal café experience. In contrast, Gloria Jean's Coffees succeeded by adapting to local preferences. Starbucks plans a strategic return, focusing on familiarizing tourists and students with its brand in popular Australian destinations.

Takeaways

🌏 Starbucks has a global presence with over 28,000 locations across 76 markets, but faces challenges in certain regions like Australia.
📉 In 2008, Starbucks closed more than two-thirds of its cafes in Australia due to difficulties in entering the market.
🏙️ Starbucks' rapid expansion in Australia without allowing time for consumer adoption led to its downfall.
📈 The Australian coffee market is highly competitive and successful, with the industry expected to surpass six billion dollars in revenue in 2018.
🇦🇺 Australians have a deep-rooted coffee culture, influenced by Italian and Greek immigrants since the mid-1900s.
☕ Australian consumers prefer specialty coffee menus, including 'Flat Whites' and Australian macchiatos, which Starbucks did not offer.
💸 Starbucks faced financial struggles in Australia, accumulating losses of 105 million dollars in its first seven years.
📉 The financial crisis of 2008 exacerbated Starbucks' situation, leading to the closure of 61 Australian and 600 underperforming American cafes.
🏆 An American coffee company, Gloria Jean’s, succeeded in Australia by adapting to local tastes and offering a variety of espresso-based beverages.
🇮🇹 Starbucks is cautious about its expansion into Italy, known for its rich coffee culture, by opening a roastery to showcase the coffee-making process.
🔄 Starbucks plans a strategic re-entry into the Australian market by targeting tourists, particularly Chinese and American, who seek familiar brands.

Q & A

How many Starbucks locations are there worldwide?
-There are more than 28,000 Starbucks locations around the world.
In which year did Starbucks open its first Australian cafe?
-Starbucks opened its first Australian cafe in Sydney in July 2000.
What was the rapid expansion strategy of Starbucks in Australia?
-Starbucks tried to expand the company very quickly, opening multiple locations rapidly instead of slowly integrating into the Australian market.
Why did Starbucks fail to gain popularity in Australia?
-Starbucks failed to adapt to Australian coffee culture and preferences, offering a basic menu with many sugary drinks, which did not appeal to Australians.
How many Starbucks cafes did Starbucks close in Australia in 2008?
-In 2008, Starbucks announced the closure of 61 cafes in Australia.
What was the financial situation of Starbucks in Australia in its first seven years?
-Starbucks accumulated 105 million dollars in losses during its first seven years in Australia.
How did the Australian coffee market differ from Starbucks' approach?
-The Australian coffee market is known for its sophisticated tastes and preference for espresso-based drinks, unlike Starbucks' basic menu and sugary offerings.
Why did Australians prefer local cafes over Starbucks?
-Australians preferred to pay less for their coffee at local cafes they trusted, rather than the more expensive Starbucks.
Which American coffee company succeeded in Australia where Starbucks failed?
-Gloria Jean’s, an American coffee company that adapted its menu to Australian tastes and culture, succeeded in Australia with over 400 locations.
What is Starbucks' strategy for its return to Australia?
-Starbucks plans to focus on locations that cater to international tourists, particularly Chinese and American tourists, providing a familiar brand for visitors to recognized destinations in Australia.
What is the significance of Starbucks' new approach in Australia considering the tourist market?
-Australia is a popular tourist destination with a large number of international visitors, including students, who spent over 30 billion dollars in 2017. This presents an opportunity for Starbucks to avoid past mistakes and cater to a familiar market.

Outlines

00:00

🌏 Starbucks' Struggles in Australia

Starbucks, a global coffeehouse chain with over 28,000 locations, faced significant challenges in Australia, a notoriously difficult market to penetrate. Despite rapid expansion, with 87 cafes by 2008, the company failed to adapt to Australian tastes and consumer habits. The rapid growth without allowing the market to develop a taste for Starbucks resulted in over two-thirds of the cafes closing by 2008. The Australian coffee culture, deeply rooted in Italian and Greek traditions, did not resonate with Starbucks' American approach to coffee as a commodity. The company's basic menu and sugary drinks were not favored by Australians, who preferred local cafes that offered a sophisticated coffee experience at lower prices. Starbucks' missteps in Australia were compounded by the 2008 financial crisis, leading to a significant loss and closure of 61 cafes. Interestingly, when Starbucks exited the market, Australian consumers, who had many local options, were largely indifferent.

05:02

☕ Starbucks' New Strategy and Return to Australia

Starbucks announced the opening of a coffee roaster, offering customers the unique experience of witnessing the coffee roasting process, which might mitigate past failures like the one in Australia. The company is also planning a strategic return to Australia, having learned from its previous exit. In 2014, Starbucks' Australian locations were acquired by the Mount Waverley group, and since then, Starbucks has been refining its approach. The new strategy focuses on leveraging Australia's popularity as a tourist destination, particularly among Chinese and American tourists who seek familiar brands. With 39 locations in key Australian cities, Starbucks aims to be a familiar face for international visitors rather than targeting local consumers. The influx of international tourists and students, who spent over 30 billion dollars in 2017, could be instrumental in supporting Starbucks' presence in Australia. The company is also introducing itself to large shopping centers, aligning with Australia's status as a major tourist destination.

Mindmap

Keywords

💡Starbucks

Starbucks is a globally recognized coffeehouse chain that originated in Seattle, USA. It is known for its widespread presence with over 28,000 locations worldwide. In the video, Starbucks' expansion into Australia is discussed, highlighting its initial rapid growth and subsequent challenges faced in the Australian market.

💡Market saturation

Market saturation refers to the point at which a product or service has reached its maximum potential for sales within a given market. The script mentions that Starbucks opened multiple locations quickly in Australia without allowing the market to develop a taste for the brand, leading to over-saturation and a lack of demand.

💡Expansion strategy

An expansion strategy outlines how a business intends to grow, often by entering new markets or increasing its presence in existing ones. The video discusses Starbucks' aggressive expansion in Australia, which involved opening 87 cafes across the continent by 2008, a strategy that ultimately contributed to its failure in the market.

💡Cultural fit

Cultural fit pertains to the compatibility of a business's practices and offerings with the local culture and consumer preferences. The script points out that Starbucks' approach did not align well with Australian coffee culture, which values specialty coffee and a personalized experience, unlike the standardized offerings of Starbucks.

💡Flat Whites and macchiatos

Flat Whites and macchiatos are types of coffee drinks that are popular in Australia. The script mentions these as examples of the specialty coffee options that Australian consumers prefer, which were not adequately represented in Starbucks' menu, contributing to its lack of appeal in the Australian market.

💡Italian and Greek immigrants

The script highlights the role of Italian and Greek immigrants in the mid-1900s who introduced espresso to Australia, significantly influencing the country's coffee culture. This historical context is crucial for understanding the deep-rooted coffee traditions in Australia that Starbucks struggled to align with.

💡Gloria Jean's

Gloria Jean's is an American-founded coffee company that has successfully adapted to the Australian market. The video contrasts Starbucks' failure with Gloria Jean's success, which is attributed to its locally adapted menu and understanding of Australian coffee preferences, with over 400 locations in Australia.

💡Financial crisis of 2008

The financial crisis of 2008 had a global impact on businesses, including Starbucks. The script notes that the crisis was a contributing factor to the closure of 61 Starbucks cafes in Australia, as well as 600 underperforming American locations.

💡Menu adaptability

Menu adaptability refers to a business's ability to modify its offerings to suit local tastes and preferences. The video points out that Starbucks' failure to adapt its menu to Australian tastes was a significant error, unlike Gloria Jean's, which offers a variety of espresso-based beverages that resonate with local consumers.

💡Tourist appeal

The script discusses Starbucks' strategy to appeal to tourists, particularly Chinese and American visitors, who are familiar with the brand. This approach is part of Starbucks' revised expansion plan in Australia, aiming to provide a familiar face for tourists in popular destinations.

💡International students

International students represent a significant market segment in Australia, contributing to the country's diverse and cosmopolitan environment. The script suggests that the presence of international students, along with tourists, could be a key factor in Starbucks' revised strategy for success in Australia.

Highlights

Starbucks operates over 28,000 locations worldwide across 76 markets.

A new Starbucks opens in China approximately every 15 hours.

Australia is known for being one of the toughest coffee markets to enter.

Starbucks closed more than two-thirds of its cafes in Australia in 2008.

Starbucks opened its first Australian cafe in Sydney in July 2000.

The rapid expansion of Starbucks in Australia without market integration was a strategic mistake.

Australian consumers did not develop a taste for Starbucks, leading to a lack of demand.

Starbucks' expansion into regional areas made it too available, reducing the desire for their brand.

Starbucks accumulated losses of 105 million dollars in its first seven years in Australia.

In 2007, Starbucks Australia was on the brink of collapse, requiring significant loans from the US.

The 2008 financial crisis affected businesses worldwide, including Starbucks' closures in Australia and underperforming US locations.

Australians have a rich coffee culture and numerous options, making them less affected by Starbucks' exit.

Australia's coffee industry is expected to surpass six billion dollars in total revenue by 2018.

Australian coffee culture was heavily influenced by Italian and Greek immigrants in the mid-1900s.

Gloria Jean's, an American coffee company, has thrived in Australia with over 400 locations.

Gloria Jean's success is attributed to adapting to Australian tastes and preferences.

Starbucks plans to open its first location in Milan, Italy, with a respect for coffee culture.

Starbucks intends to return to Australia, focusing on serving tourists and international students.

Australia welcomed nine million tourists between 2017 and 2018, who spent over 30 billion dollars.