Why Starbucks Failed In Australia - YouTube

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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