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Why Starbucks Failed In Australia
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Starbucks has coffee shops all over the world
There are more than 28,000 locations and 76 markets
From Shanghai to Guantanamo Bay
And in China, a new Starbucks location opens up every 15 hours
But there is one continent that seems uninterested in the hype over the Seattle based coffee chain
And that continent is Australia
It's proven to be one of the toughest markets in the world to break into
So tough in fact, that Starbucks closed more than two-thirds of its stores on the continent back in 2008
So what went so wrong with Starbucks and Australia
To answer that let's go back to July of 2000
When Starbucks opened its first Australian shop in Sydney
From there it expanded fast
By 2008 Starbucks had 87 stores across the continent
I think one of the problems with Starbucks
and its true for a lot of businesses that have been successful in one country
is that they thought that their business model could just roll out
to a different environment and there was no need for them to adjust
But that was the problem
They tried to grow the Empire too fast
Starbucks rapidly opened up multiple locations
instead of slowly integrating them into the Australian market
When they launched they launched too rapidly and didn't give the Australian consumer
an opportunity to really develop an appetite for the Starbucks brand
They also moved into regional areas into outer suburbs of major cities
And so for the Australian consumer it was almost like it was too available for them
And so there wasn't this point of difference, this want, this need for Starbucks
And it wasn't an organic growth which is what we very much saw in the US
In its first 7 years in Australia, Starbucks accumulated $105 million in losses
By 2007, Starbucks Australia was hanging on by a thread
taking big loans from the US, totaling up to $54 million
And in 2008, Starbucks announced it was shutting down 61 stores
But of course 2008 was a difficult time for businesses due to the financial crisis
Along with Australia closures, Starbucks also closed 600 underperforming American stores
But even still such a retreat in Australia was embarrassing for the brand
When you're shutting down 75 stores
For the Australian consumer when they, when they did leave the market
or at least a large number of bestowals were shut down they didn't really care
It's partly because Australians are spoiled for choice when it comes to coffee
Australia's coffee market is one of the biggest in the world
the industry is expected to hit more than $6 billion in total revenue in 2018
They've been immersed in nuances of cafe culture since the mid 1900s
when Italian and Greek immigrants began traveling to the country
The immigrants introduced Australians to espresso
By the 1980s, Australians were fully engulfed in cafe culture
They've also grown accustomed to specialty menu items like a flat white or an Australian macchiato
So cafes in Australia were born out of like the Italian culture
of, you know, meeting of 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 a part of that
and then Starbucks came in with what is more of an American style
like coffee culture which is essentially just like coffee is a product, coffee is a commodity
Coffee is like, like perk me up in the morning it's caffeination
Starbucks had a basic menu and offered more sugary drinks which most Australians didn't like
in Australia where, you know, local tastes are different
So we don't really want a coffee that's, you know, hundreds of ounces with lots of sugar in it
We want something a little more sophisticated
Plus Starbucks charge more than local cafes
So Australians instead opted to pay less for coffee they liked from a local barista they trusted
And so when you come in with this big like hey, we're going to open all these cafes
And they're all gonna be to go focus
It just was the complete wrong market for what, what the Australian was used to
But there is one American coffee company that's thriving in Australia
Founded in Chicago and now based in Australia
Gloria Jean's got the traction in Australia that Starbucks couldn't
Gloria Jean's has more than 400 Australian locations
And serves more than 35 million consumers in Australia each year
So what is Gloria Jean's doing in Australia that Starbucks isn't
Well the company attributed to success to two Australians who franchised the business in their home country
Shops started to show up in Australia in 1996
Fast forward to today, the company has a presence in every Australian state
The reason? Its menu
The chain offers a wide variety of espresso drinks and specialty coffee
Failing to adapt its menu to Australians coffee culture proved to be a mistake for Starbucks
And the company faces another challenge later this year
Italy
Starbucks is opening its first store in Milan in late 2018
home of the espresso, Italy is rich in cafe culture
But according to Starbucks it's not going to make the same mistakes that it did in Australia
The company said that it would develop in Italy with humility and respect for its coffee culture
It announced it would be opening a roastery which is not your average cafe
It gives customers a chance to see coffee beans roasted and processed before their eyes
So there's a chance that it won't struggle like it did in Australia
But Starbucks isn't admitting defeat in Australia either
Starbucks is staging a comeback on the continent
In 2014, Starbucks locations in Australia were purchased by the Mount Waverley base withers group
Starbucks told CNBC that since its sale to the withers group the company learned a lot
So this time it's taking a different approach to putting Starbucks on the continent
So if you just think about Australia as a big tourist destination
There's a lot of U.S. and Chinese tourists
Starbucks has been very successful in China
and it makes a lot of sense for them to build out because
there are people looking for something that's familiar to them
Now with 39 locations in Brisbane, Melbourne, the Gold Coast, and Sydney areas
this time it's not looking to appeal to Australians
but instead the coffee giant hopes to be a familiar face for tourists visiting popular vacation destinations in Australia
free Australia has always been a high-volume tourist market
The same thing in terms of international students at our universities are potential opportunities for them
And we're starting to see Starbucks enter into some large shopping malls
here in Australia as well
Australia welcomed 9 million tourists from 2017 and 2018
And those international visitors spent more than $30 billion in 2017 alone
So tourists could possibly be the key to keeping the company afloat and preventing another downfall
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