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Why Starbucks Failed In Australia

Source: CEO today

Starbucks might be one of the organisations that has coffee shops all across the world. Currently, Starbucks has more than 28,000 sites and is present across 76 marketplaces, all across the globe. From Shanghai to Guantanamo Bay, there's a lot to see and you'll find at least one Starbucks there.

Every 15 hours, a new Starbucks store opens in China. However, there is one region that appears disinterested in the Seattle-based coffee chain's buzz.

And the continent in question is Australia. Time and again, it has proven to be one of the most difficult markets to break into in the globe. Starbucks shuttered more than two-thirds of its locations throughout the continent in 2008 due to the difficult conditions.

So, where did Starbucks and Australia go wrong? Let's travel back to July of 2000 to find out.

The Launch Story

It was in Sydney when Starbucks first launched a store in Australia,

It quickly grew from there. Starbucks had 87 locations across the continent by 2008.

One of Starbucks' faults, and I believe it is true of many firms that have been successful in one nation, is that they believed their business model could simply be rolled out to a different setting with no need to modify.

But that was the problem.

Starbucks sought to expand its empire too quickly, opening several shops instead of gradually integrating them into the Australian market.

When they opened their first stores, they did it so quickly, that it did not provide the Australian customer with enough time to acquire a taste for the Starbucks brand. They also expanded into outlying regions and the outskirts of large cities.

As a result, for the Australian customer, it was almost as if it was too readily available, and there was no point of differentiation, no desire, and no need for Starbucks. And it wasn't an organic increase as was witnessed in the United States.

Starbucks lost $105 million in Australia within its first seven years. Starbucks in Australia was clinging to life by a thread by 2007 so much so that it had to obtain large loans of almost $54 million from its parent nation, the United States.

In 2008, Starbucks announced the closure of 61 locations. Adding to this, due to the financial crisis, 2008 was overall, a challenging year for businesses.

Starbucks also had shuttered 600 underperforming outlets in the United States, in addition to those in Australia.

Even still, a retreat like this in Australia was humiliating for the brand. When you're closing 75 outlets or business locations, time is of the essence. When Starbucks left the market, Australian customers were least bothered with the exit.

The Cultural Aspect

It was also due to the fact that Australians have an abundance of coffee options. Australia's coffee market is one of the largest in the world, with total revenue exceeding $6 billion by 2018. On the other hand, since the mid-nineteenth century, Italian and Greek nationals' immigration to the United States, have them immersed in the intricacies of café culture.

In fact, Espresso was brought to Australia by immigrants. Australians had become used to speciality menu items such as a flat white and an Australian macchiato by the 1980s.

So cafes in Australia were born out of, you know, the Italian culture of meeting friends and knowing your local barista and it being kind of like a local meeting place where everyone knew each other and that coffee was just treated as a part of the meeting.

And then Starbucks came in with what is more of an American style of coffee culture, which is essentially more like coffee being treated as a product or a commodity.

Starbucks had a minimal menu and provided more sugary beverages, which most Australians disliked. They were not looking for a coffee that's hundreds of ounces loaded with sugar; they were looking for something which was a bit more refined.

Plus, Starbucks is more expensive than local cafes, so Australians preferred to spend less for coffee they enjoyed from a local barista they trusted. So, when you come in with this huge plan like, "Hey, we're going to establish all these cafes, and they're all going to be to go focus,"

It was just the incorrect market for what the Australians were used to.

Not all American Coffee chains were a failure

However, surprisingly, there is one American coffee firm that is doing well in Australia.

Gloria Jean's was founded in Chicago and is currently situated in Australia. Gloria Jean's gained momentum that Starbucks couldn't. The company has over 400 outlets in Australia and serves over 35 million customers per year.

So, what exactly did Gloria Jean's do in Australia that Starbucks didn't?

Bringing the difference in its menu. The coffee shop network serves a wide range of espresso beverages and speciality coffees. Starbucks made a mistake by failing to adapt its menu to Australian coffee culture.

The Mount Waverley base withers group eventually ended up buying Starbucks stores in Australia in 2014. Now, Starbucks has learned a lot since its sale to the Withers group.

As a result, it's adopting a new strategy to bringing Starbucks to the continent this time.

The New Strategy

With 39 sites in Brisbane, Melbourne, the Gold Coast, and Sydney, the coffee giant is hoping to become a familiar face for travellers visiting Australia's renowned holiday spots.

Australia has long been a popular tourist destination. In terms of international students at universities, Starbucks sees potential opportunities, and the customers have already started to see Starbucks enter some large shopping malls.

Australia welcomed 9 million tourists between 2017 and 2018, and those international visitors spent more than $30 billion in 2017. Tourists may be the key to keeping the company afloat and preventing another downfall.

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