Why Starbucks Failed In Australia

Starbucks has coffee shops all over the world. There are more than 28,000 stores and 76 markets. From Shanghai to Guantanamo Bay. And in China, a new Starbucks location opens every 15 hours. But there's a continent that seems uninterested in the hype over the Seattle-based coffee shop. coffee chain And that continent is Australia. It has proven to be one of the most difficult markets in the world to enter. In fact, it's so difficult that Starbucks closed more than two-thirds of its stores on the mainland in 2008. So what went so wrong? Starbucks and Australia To answer that, let's go back to July 2000, when Starbucks opened its first Australian store in Sydney.

From there it expanded rapidly. In 2008, Starbucks had 87 stores across the continent. I think that's one of the problems with Starbucks and it's true for many. Most companies that have been successful in one country thought that their business model could simply be implemented in a different environment and that there was no need to adapt. But that was the problem. They tried to grow the empire too quickly. Starbucks quickly opened multiple locations rather than slowly integrating them into the Australian market. When they launched, they launched too quickly and didn't give the Australian consumer a chance to really develop an appetite for the Starbucks brand.

They also moved to regional areas, to the outer suburbs of major cities. And so for the Australian consumer it was almost like it was too available to them. And so there wasn't this point of difference, this desire, this need for Starbucks. And it wasn't organic growth which is what we largely saw in the US. In its first seven years in Australia, Starbucks racked up $105 million in losses. In 2007, Starbucks Australia was on the hook for large loans from the US, totaling $54 million. And in 2008, Starbucks announced that it would close 61 But of course, 2008 was a difficult time for businesses due to the financial crisis.

Along with the closures in Australia, Starbucks also closed 600 underperforming US stores. But still, such a recall in Australia was embarrassing for the brand when 75 stores were closed. to the Australian consumer when they left the market or at least a lot of donations were closed, 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 largest. Globally, the industry is expected to reach more than $6 billion in total revenue in 2018. They have been immersed in the nuances of coffee culture since the mid-20th century, when Italian and Greek immigrants began traveling to the country.

Immigrants introduced espresso to Australians. In the 1980s, Australians were completely immersed in coffee culture. They've also gotten used to special menu items, like a flat white or an Australian macchiato. So coffee shops in Australia were born out of the Italian culture of, you know, meeting friends and meeting your local barista and it was like a local hangout where everyone knew each other and the coffee was just a part of that and then Starbucks came along. with what's more of an American style, like coffee culture, which is essentially like coffee is a commodity, coffee is a commodity.

Coffee is like, like perking me up in the morning, it's caffeine. Starbucks had a basic menu and offered more sugary drinks that 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 a lot of sugar. We want something a little more sophisticated. Plus, Starbucks charges more than local coffee shops. So Australians chose to pay less for the coffee they liked from a local barista. reliable And then when you come in with that big sort of "hey," we'll open all these cafes and everyone's focused.

It was just the completely wrong market for what the Australian was used to. But there is an American coffee company that is 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 every year So what? What is Gloria Jean doing in Australia that Starbucks isn't good at? The company attributes its success to two Australians who franchised the business in their home country. Stores began appearing in Australia in 1996. Fast forward to today, the company has a presence in all Australians. status.

The reason? Its menu The chain offers a wide variety of espresso drinks and specialty coffees Failing to adapt its menu to Australian coffee culture turned out to be a mistake for Starbucks And the company faces another challenge later this year Italy Starbucks will open its first store in Milan later 2018 birthplace of espresso, Italy is rich in coffee culture But according to Starbucks it will not make the same mistakes it made in Australia The company said it would develop in Italy with humility and respect for its coffee culture It announced that it would Open a roastery that is not a common cafeteria.

It gives customers the opportunity to see coffee beans roasted and processed before their eyes. So there's a chance he won't run into trouble like he did in Australia. But Starbucks does not admit defeat in Australia either. Starbucks is returning to the continent In 2014, Starbucks locations in Australia were purchased by the Mount Waverley-based Withers group. Starbucks told CNBC that since its sale to the Withers group the company has learned a lot. So this time it's taking a different approach to putting Starbucks on the continent. So if you think of Australia as a big tourist destination, there are a lot of American and Chinese tourists.

Starbucks has been very successful in China and it makes a lot of sense for them to develop because there are people looking for something. That sounds familiar Now, with 39 locations in the Brisbane, Melbourne, Gold Coast and Sydney areas, this time it's not looking to appeal to Australians, but rather the coffee giant is hoping to be a familiar face to tourists visiting popular holiday destinations. in Australia. It has always been a high-volume tourist market. The same in terms of international students in our universities are potential opportunities for them. And we're starting to see Starbucks enter some big shopping centers here in Australia too.

Australia welcomed 9 million tourists from 2017 to 2018, and those international visitors spent more than $30 billion in 2017 alone. So tourists could be the key to keeping the company afloat and avoiding another decline. Hello, thanks for visiting CNBC on YouTube. Make sure you subscribe to stay in the loop. -date of all the most important stories of the day. You can also click on any of the videos around me to see the latest from CNBC. Thanks for watching.