CNBC - Why Starbucks Failed In Australia

Short Summary

Main recommendation: Starbucks' Australian failure was caused by growing too fast, adopting a US coffee model without adapting it, and ignoring local coffee culture, so a newcomer should adapt to the local market rather than roll out a proven business model unchanged. Starbucks later re-entered Australia under the Withers Group with a tourist-focused strategy, and its planned Milan opening was framed as a lesson from that mistake.

Key Points

• Starbucks opened its first Australian store in Sydney in July 2000 and grew to 87 stores by 2008, expanding into regional areas and outer suburbs so quickly that Australians had little chance to develop a desire for the brand.
• Australians were already deeply immersed in cafe culture from Italian and Greek immigrants (espresso arrived in the mid-1900s), so Starbucks' sweeter, to-go, commodity-style coffee clashed with local preferences for sophisticated drinks.
• Starbucks lost $105 million in its first seven years and took up to $54 million in US loans by 2007; in 2008 it closed 61 stores (described elsewhere as 75), as part of a wider closure of 600 underperforming US stores.
• Starbucks charged more than local cafes, and Australians chose cheaper coffee from trusted local baristas.
• Gloria Jean's, a Chicago-founded chain now run by Australian franchisees, succeeded with a menu of espresso drinks and specialty coffee, reaching more than 400 Australian locations.

Details Worth Noting

• Concrete instructions: The transcript gives no step-by-step method for entering a market. The actionable guidance it implies is: pace expansion slowly so customers can build demand, avoid pushing into regional areas and outer suburbs too early, adapt the menu to local tastes instead of exporting a single standard menu, price against local competitors, and consider local franchise partners who understand the market, as Gloria Jean's did.
• Starbucks' 2014 Australian stores were bought by the Mount Waverley-based Withers Group, and by the time of the report Starbucks had 39 locations in Brisbane, Melbourne, Gold Coast, and Sydney.
• The comeback strategy targets tourists, especially US and Chinese visitors who want something familiar, and international students; Starbucks is entering large shopping malls.
• Australia welcomed about 9 million tourists in 2017 and 2018, and those visitors spent more than $30 billion in 2017 alone, which the video suggests could help keep the company afloat.
• For Milan, Starbucks said it would develop there "with humility and respect" for coffee culture and planned a roastery, where customers can watch beans roasted and processed.

Bottom Line

Starbucks' Australian setback shows that a successful chain can still fail in a mature coffee market when it expands too quickly and imposes a foreign coffee culture, and its return depends on targeting a different audience rather than the locals it initially misjudged.