Starbucks: Failure Abroad
When one thinks of a global corporation, one thinks of a company who has got it together. They must right? How else could a corporation overcome transnational barriers and socio-cultural issues and still make a profit? Turns out not all global companies have this ability. Some do for the most part but are still vulnerable to mistakes. Such is the case with Starbuck’s failure in Australia. We will introduce you to the company, overview their history and expansion efforts, and explain in short why they failed miserably at something they have done literally thousands of times before.
Starbucks Coffee International, Inc. purchases, roasts, and sells whole bean coffees, brewed coffees, Italian-style espresso beverages, and cold blended beverages. The company markets its products through more than 15,000 stores in North America, Europe, the Middle East, and Asia and the Pacific Rim among other regions. The company was founded and is based in Seattle, Washington. As of 2008 Starbucks operates in 44 countries. (Starbucks.com). Starbucks Coffee International operates as a subsidiary of Starbucks Coffee Company. Starbucks diversified its business. Starbucks now offfers compact discs, books and other life style products. In addition they have created several strategic alliances with food manufactures both domestic and Abroad. (www.starbucks.com)
In 1971 the first Starbucks store was opened in Seattle’s Pica Place Market by Jerry Baldwin, an English teacher, Zev Siegel, a history teacher and the writer Gordon Bowker (www.mhhe.com). In 1982 Howard Schultz joined the company as a director of retail operations and marketing. He saw potential in Starbucks and started to build up a coffee house culture in Seattle. In 1984 Starbucks enlarged its product mix, adding coffee specialities like different kinds of Café Lattes and espresso beverages. In 1985 Howard Schultz left the company and set up his own Coffee Bar Il Giornale (www.starbucks.com). Shortly after, Starbucks began losing money on its expansion efforts. Howard Schultz purchased the struggling company in 1984. He then combined Starbucks with Il Giornale and changed the firm’s name to Starbucks Corporation. New and experienced managers were hired and successfully turned around the business. By 1991 Starbucks was doing well enough to offer stock options to all of their employees (premium.hoovers.com).
In 1992 Starbucks once again began expansion efforts. This time Starbucks set up coffee shops in department stores and bookstores and provided coffee to Sheraton Hotels. By the end of 1993 Starbucks had opened a new roasting plant and the number of stores locations neared 275 (www.starbucks.com).
Starbucks began operating internationally in 1996. Their first international venture was opening a Starbucks in Tokyo (www.findarticles.com). In the same year, Starbucks began operating an online coffee shop called Caffe Starbucks. This venture in particular was ahead of its time and not necessarily as successful as other ventures Starbucks was involved in. However, Starbucks kept on expanding in domestic areas like Florida, Michigan and Wisconsin and further internationally even opening a store in the Philippines in 1997. In the next year Starbucks opened several stores in Thailand, Taiwan, New Zealand, Malaysia and in the UK. Starbucks entrance into the United Kingdom was markedly different. There they acquired an existing firm, “Seattle Coffee Company”, and used the existing stores to transition into the market. In the same year, Starbucks expanded its brand name into several different grocery market chains and convenient stores. Domestically, they focused on entering new states like Louisiana, Oregon, Kansas, and Missouri (www.starbucks.com).
With business booming, the company continued expansion internationally and domestically. Between 1999 and 2002 Starbucks began operations in over 15 nations. After 2002, Japan had over 300 Starbucks cafes, and there were over 5,886 shops worldwide.
As of 2008 there are at least 15,756 Starbucks cafes and licensed stores in operation. (Shultz).
Starbucks Franchise Opportunity
Starbucks does not expand by way of traditional franchising. They do however have another opportunity they offer to those seeking Starbucks outlets. This idea resembles the franchise, but is still different; they call it a Starbucks Licence Store. Around 44 % – 54 % of the worldwide Starbucks stores are Starbucks Licensed Stores. Starbucks only offers the ability to license stores based on location. Generally it is only possible to license Starbucks stores in areas where corporate stores cannot operate, such as universities or airports.
The Starbucks licensed plan (resale plan) has its own strict rules. Starbucks receives royalties and licensing fees from the licensees, and in turn the licensee obtains the ability to offer Starbucks products to their consumers. Starbucks prohibits the licensee stores from offering other firm’s products in their stores so they can control the quality of coffee in all coffee shops more easily. In addition, all employees of both corporate stores and licensed stores must receive the same training. The training is developed by Starbucks and implemented both domestically and internationally alike. Licensed stores make it possible for Starbucks to expand easily while still maintaining the quality of product and service in every single store (www.best-franchise-opportunity-insights.com).
Problems with International Expansion
The American coffee market was quite new when Starbucks started it‘s business. They capitalized on the new trend/market and were very successful. After great success in the United States, Starbucks began to expand internationally. Some expansions were a tremendous success, while others were not so readily thriving. In some cases Starbucks saw an opportunity and moved to expand just as it had done domestically. So it was in China. The Chinese coffee market is newly developing. Starbucks expanded into china in order to meet the new demand. (www.starbucks.com) Despite amazing growth of some of their locations in China, Starbucks failed to understand local culture. This is most evident in Beijing, China, where a Starbucks’ location in the former Imperial Palace in the centuries-old Forbidden City closed in July 2007. The coffee shop had been a source of ongoing controversy since its opening in 2000; protesters felt that the presence of the American chain in this location was an affront to Chinese culture (Pajamadeed). Lack of consideration for traditional values and beliefs caused Starbucks to gain a bad reputation in parts of China. This is not the only case Starbucks failed to evaluate local culture.
Failure in Australia
Lack of understanding local culture is even more evident in Starbucks entry into Australia. When Starbucks penetrated the Australian coffee market in 2000, the company approached the endeavor with great ambition. Not only did they build stores in major cities like Sydney and Melbourne, but they also set up stores in less populated communities that occupy the coastal regions of the country. By 2008, they had established 85 stores. All the stores were internally structured and operated the same as they do in the United States. Essentially, they attempted to infiltrate the Australian coffee market by establishing their presence within the market relative to their presence in the US and other international markets.
The Australian coffee market is both highly competitive and highly sophisticated. The average consumption of coffee in Australia is running at an all-time high. They consume about 2.4 kilograms per person per year, what is the double that of 30 years ago. Cafés are a $7.5 billion industry in Australia. This data indicates that there are no demand problems with the current coffee market (Kaplan).
However, consumers continue to purchase coffee from coffeehouses. Franchises like Gloria Jeans and “mom and pop” coffeehouses as opposed to Starbucks. These establishments are chosen by most consumers because of their simple, uncomplicated menu selections and comfortable ambience. In addition, these kinds of places cater to the local consumer. They typically offer warm, friendly service and coffees that meet local demand.
Reasons For Failure
Many factors contributed to the failure of Starbucks in Australia. These reasons range from lack of foresight, over exposure in their growth strategy, lack of understanding concerning local culture, uneducated staff, and company debt leveraging. When comparing the case with concepts learned from class, one reason Australia failed may be this, Australia is consistently one of the closest countries culturally to the United States as measured by Trompenaars, Hofstede, and Kluckhohn & Strodtbeck (Francesco). This could lead Starbucks to do even less adapting than they would in other cultures around the world. They would then be more expecting of the results in Australia. The differences that do exist, however, were not on the Manifest Culture, or even the Expressed Values level. The important differences, such as the importance of the Coffee House tradition and the Dutch coffee "snobs" that populate much of Australian cities, are buried closer to the level of Basic assumptions. They are therefore not readily discovered.
Consumers were not accustomed to the style of coffeehouse that Starbucks runs. Speed and efficiency are Starbucks’ top priority for distributing coffee to customers throughout the day. However, most Australian consumers prefer to savor their cups of coffee and sit and enjoy them the moment they get them. One customer reported to the Australian online newspaper The Courier Mail that "it is difficult [for firm’s like Starbucks] to come into Australia, which has a mature coffee drinking population, and where the preference is sitting down and relaxing with a full cup of coffee instead of a paper takeaway cup.”
Australia’s Sophisticated coffee culture
What Starbucks ignored when they set up the 85 outlets in Australia is a “very sophisticated coffee culture” according to the Starbucks Asia Pacific president John Culver. Australian café market is the only country, with New-Zealand, outside Italy with 100% espresso-based markets in the world. Comparing to the United States and other countries mostly dominated by filter style, or brewed coffee. Australian have the reputation to be the consumers who have unique taste in espresso based coffees (Mercer). So entrance into such a market would clearly be a tough task for an American coffee brand.
Starbucks Coffee Culture
The Australians were not impressed by the Starbucks coffee culture. Starbucks had been successful all around the world, but some people did not want to buy coffee from the corporate giant. Those who had tried Starbucks were not impressed by the product. Consumers said it did not compare with the numerous local brews available which were largely better. Starbucks International failed to pay attention to the Australian’s passionate coffee preferences and culture.
Starbucks forgot to take into account in its marketing operation the “passion for coffee” cultural factor. Australian people felt that the giant corporate Starbucks wanted to invade the country to make profit without caring about the quality and the Island Culture, a very important factor for Australians (Mercer). When the company attempted to bring its coffee culture to the masses, it realized that Australia already had it, and according to the consumers, Starbucks’s Australian competitors were better. Coffee drinkers and lovers did not welcome the company with a smile because they felt that Starbucks was too intrusive in the market. The Hofstede cultural dimensions in which Australia and the U.S. differ the most are power distance and uncertainty avoidance. Australia is slightly lower on power-distance, displaying even more casual and peer-like interaction between high and low status individuals (Francesco). Australia is slightly higher on uncertainty avoidance, possibly leading locals to stick with local style coffee houses where they know the owners and already understand the menu. Starbucks lack of understanding of the similarities and differences between US and local culture may have lead to its demise in Australia’s urban regions.
Associate Professor Nick Wailes, expert in strategic management in the Faculty of Economics and Business at the University of Sydney, believes that organizations such as Starbucks, who lose sight of what initially made the business successful and fail to recognize the importance of local culture, will always fail in the Australian market. “There are a number of important business lessons that can be learned from this situation,” advised Wailes. “Unfortunately, Starbucks failed to truly understand Australia’s cafe culture and has become an example of the big corporate machine it originally tried to differentiate itself from.”
Agressive Growth Strategy
In the US, Starbucks started in Seattle as a single store. And in a nation bereft of genuine café culture, that single store soon captured the imagination, and became a second store. Before long, it had become a demand-driven phenomenon; everyone wanted a Starbucks in their local area. McDonalds grew exactly the same way in Australia. They opened just one or two stores in each city – that is enough to meet demand – thus creating an almost artificial scarcity, which built huge buzz around the brand experience. But when Starbucks decided to create its brand experience, they immediately tried to impose themselves, with multiple store openings in every city. "A few years ago there weren't that many of them and they seemed to be going OK, but then all of a sudden, they were everywhere. Some city blocks had three Starbucks on them -- it's crazy" (Makoob).
So while Starbucks grew organically in America, in Australia it tried to impose itself upon them. It took key sites. It hung huge signs. It even tried to get them to order coffee in new sizes, and with weird names. Basically, Starbucks said: “That’s not how you drink coffee. This is how you drink coffee.” For Australian people, the Starbucks experience wasn’t organic. It was implanted. They didn’t discover it: it was dumped on their doorstep. The only surprise was it took head office so long to realize that this approach wouldn’t work.
“Part of the problem is that Starbucks’s original business model just doesn’t translate across markets. Starbucks’s original success had a lot to do with the fact that it introduced European coffee culture to a market that didn’t have this tradition. Australia has a fantastic and rich coffee culture and companies like Starbucks really struggle to compete with that” (Palmer).
The perception of the staff that worked in Starbucks was also often compared to the workforce of the smaller brands and boutique coffee shops – the public did not feel they were knowledgeable enough about what they were selling. Brendan Smart, café owner, Sydney, commented, "What we do isn't rocket science, I'm the first to admit that, but you've got to have a passion for coffee that involves everything from grinding the beans to operating the machine. You go into Starbucks and it's full of teenagers behind the counter. I'd question whether they have that passion" (Makoob).
Another substantial reason for failure is Starbucks leveraging of debt to fund their expansion venture. Unlike fast food chain McDonald’s, who, in the beginning stages of their foreign investments, establishes a small number of restaurants and slowly expands based on demand, Starbucks insisted on starting out with several stores. While ambitious and potentially profitable in a less viable market, in Australia, Starbucks faced a highly competitive and traditional coffee market that was set in their ways. Adoption of the Starbucks brand was never going to happen overnight; nor was there opportunity to build demand because of the vast quantity of stores opened. In short, they started out too big, too soon in Australia when starting small might have improved the stakes for survival.
Starbucks Leaves Australia
Given their efforts to penetrate the very mature Australian coffee market, Starbucks reported in the summer of 2008 the systematic closing of 61 of their 85 stores (BBC News). While receiving approximately $72 million worth of loans from their parent company in the United States, the wholly owned subsidiary Starbucks Coffee Company-Australia has been unable to profit from their foreign investment. Company documents state operating losses for the past 2 years amount to $63 million (Courier Mail).
Starbucks’ entrance into Australia was anything but unprecedented. The corporation is almost as well known for their signature cup sizes as it is for their rampant, almost overtly aggressive expansion model. Starbucks Coffee International is a wholly-owned subsidiary of Starbucks Coffee Company; the corporation wisely chose to have a local vizier in their ranks before storming the country-continent. Entering into local partnerships is the modus-operandi at Starbucks and later we will visit some other strategic alliances’ with local partners that allow for a reduction in new-market risk through market experience. The Australian local tapped for this position was Australian businessman Markus Hofer, who runs the subsidiary—Starbucks Coffee Company (Australia)—as a joint venture between himself and Starbucks Coffee Corporation.
Starbucks strategically entered the Australian market in July 2000 a month and a half before the Summer 2000 Olympics hosted in Sydney, Australia. It is almost impossible to quantify how much money the Olympics brings in for the hosting country, yet it is very easy to surmise that Starbucks reaped great benefits by coordinating their entrance with the Olympics. Tourists and foreigners flock to the familiar, even when they want to “experience the local culture" they are more likely to grab a cup of coffee at the familiar green Starbucks store then try the local flavor. This artificial revenue inflation may have been a cause for Starbucks’ drive for further/deeper market penetration in Australia.
Less than 16 months after their initial entrance, Starbucks’ extra-normal growth was evident to all involved. “Within 16 months we went from 3 partners to 500 employees, from one store in Sydney to 26 throughout New South Wales, Queensland, Victoria, and the Australian Capital Territory,” Starbucks information technology manager Aram Dayeian commented (Esker, 2001). By February 12, 2002 the growing pains could be seen, but were misdiagnosed as long term investment discomfort, and unbridled optimism still reigned. February 12th was the day Starbucks Coffee Company (Australia) released to the press that it “might [take] up to five years before it (Starbucks Coffee Company-Australia) breaks even.” Markus Hofer, the joint venture partner spoke to the Australian Associated Press, saying: “Our entire operation’s running at a loss. But that’s what you’re going to do when you set up in a country like this” (just-food.com/AP Australia). That very day Starbucks opened their 27th outlet in Australia.
The Starbucks annual report for 2002 painted a very rosy picture, if you ignored the Australian operations. This was quite easy to do, as the company lumps subsidiary after subsidiary into consolidated earnings, and even the most energetic investigator would lose hope trying to discern and follow the money trails. Merger expenses totaled 8.93 million in 1998 and then went unseen for the following four years. Interesting to note is their store operating data as a percentage change in comparable store sales. The margin’s vary widely with respect to their international margins, from a whopping 28% in 1998 to 2% in September 2001, to a loss of 3% in September 29, 2002 (2002 Starbucks Annual Investor Report). To give a better perspective, the store operating data as a percentage change in comparable store sales margins for North America hovered between 5%-9% within those same five years. Was this international decrease in margins due to the Australian division’s losses? We may never know. At the end of 2002 Starbucks had 3,496 company-operated stores, most in the United States with 322 stores in the United Kingdom, 33 stores in Australia and 29 stores in Thailand which, combined, accounted for 85% of net revenues (2002 Starbucks Annual Investor Report). In 2002 Starbucks opened 294 licensed stores in various countries—Austria, Oman, Spain, Germany—to bring the grand total of licensed international retail stores to 928. With so many different streams of cash-inflows and varying forms of ownership, any single international loss is very hard to quantify.
When speaking of joint-ventures, tenuous partnerships and licensing agreements; a clear picture can be provided by looking into the past and extrapolating the data to gain foresight. Starbucks Coffee International entered into a joint venture with the Delek Group of Israel in 2001. The joint venture was renamed Shalom Coffee Ltd. It was based in Tel Aviv and opened two coffee shops, hoping to have a total of 20 coffee houses by the end of 2002. Unfortunately that dream was never realized and by April 1, 2003 Shalom Coffee ltd. closed down all of its six outlets in Israel (Robert Fisk). Starbucks Coffee Company and the Delek Group mutually agreed to end their joint venture. Under the joint venture agreement Delek paid Starbucks $250,000 for the franchise rights in addition to a six percent turnover (Helen Jung). This shoot-by-the-hip, all-or-nothing expansion may have worked in the North America and other countries, yet every sovereign state is unique and lightening fast market saturation should not be the only strategy Starbucks incorporates.
The writing was on the wall, as they say, and yet Starbucks like the oysters in “Through the looking Glass” continued right along their dangerous path at a tremendous pace. In July 2 of this year, Starbucks announced the closing of 600 US coffee shops, “[eliminating] as many as 12,000 jobs, the most in the company’s history (Sydney Morning Herald). The chain will finally slow its expansion after doubling in size in four years. 70% of these stores are less than three years old, a clear indicator that they have over-saturated a cash-strapped economy. Considering their U.S. operations account for nearly 85% of their operating income, this decision indicates a failing business strategy and need to concentrate on their market base. On July 29, 2008, the same month, Starbucks International announced the closure of 61 locations in Australia, leaving only 23 remaining in Brisbane, Melbourne and Sydney Communities (Starbucks.com/Australia).
A quick analysis of Starbucks’ 2008 10-Q Form shows a country undergoing economic ambivalence. While operating income increased by 4% to $333.1 million from the prior year quarter, operating margin’s contracted to 12.0% from 13.6% (about 160 basis points). A detailed review of this contraction shows a particularly weak US segment. The US operating margin declined by 290 basis points (from 17.5% to 14.6%) (From 10-Q Starbucks Corp Fiscal 2008). This depressing numbers all combine for a historic, unwelcome event in Starbucks’ history since becoming a publicly traded company in 1992—Starbucks announced its first ever quarterly loss of $6.7 million (Lee, Marketing). The loss amounts to about 1 cent per share compared to the 21 cents of profit per share a year earlier (msnbc.com News). Daniel Gross’ ‘Starbucks Theory’ may be very relevant during our current financial hardships. He proposes that countries with large numbers of Starbucks franchises are more likely to have a part in our global financial crisis. Why? He asserts that having a significant Starbucks presence is a good indicator of “a sign of a culture’s willingness to abandon traditional norms in favor of fast-moving American ones…also a pretty good indicator that excessive financial optimism had entered the [host country’s] bloodstream” (Daniel Gross, newseek.com).
No Connection between Starbucks US and Starbucks Australia failures
Closing 61 stores in Australia is far from the only downsizing Starbucks is doing at present. Indeed, the announcement to close these locations in Australia came literally on the heels of a separate announcement that Starbucks intended to close over 600 stores within the U.S. and cut down future growth plans by half (Gould). In light of Starbucks’ recent closures in Australia, many have worried that any similar store closings in the U.S. are an ominous sign that whatever caused such overwhelming failure in the Australian market will soon bring Starbucks to its ultimate demise at home as well. Such concerns must have crossed the minds of investors and speculators alike, following the announcements of withdrawal from Australia. These two announcements, however, are indeed separate issues. Whereas the Australian market is all but closing its doors to Starbucks, U.S. closures are simply attempts to boost profit margins. They are not significantly related issues.
Up until two years ago, Starbucks had loyally held to their plans to triple its number of stores. Indeed, this strategy seemed plausible because demand for Starbucks never seemed to slow (James). Since then, however, profit margins have sunk consistently as several factors began to interrupt Starbucks’s success. First, the overall U.S. economy has hit a slump and gas prices have gone up, causing customers to be less willing to make morning coffee runs. Second, competition has stiffened as both McDonalds and Dunkin Donuts each struggle desperately to grab a larger share of the coffee market. And finally, Starbucks stores were becoming too common and too close together. This detracted from the high class brand image of the Starbucks brand, and even led some stores to cannibalize business away from nearby older Starbucks locations. (James). These U.S. cuts only amount to 8.5% of Starbucks’s company owned portfolio (James). In cutting back, Starbucks hopes to increase long run profits in U.S. markets.
In contrast, the cuts in Australia amount to over 70% of their entire Australian market. In Australia, the closures were reactions to factors unique to the Australian market and not linked to U.S. downsizing. In fact, Starbucks founder and Chairman Howard Schultz claimed that the Australian cutbacks were going to “help support the continued growth of [Starbucks’s] international business” (Robertson). Starbucks is simply pulling out resources from a costly and unprofitable international market so that it may reinvest in other international segments that have already been shown to be profitable.
Although Starbucks may be experiencing difficulty in the domestic market in America, this does not reflect the state of the business in other areas of the world. Starbucks is a global brand; however, the company may be realizing that their business model is not transferrable worldwide. This is due to differing consumer tastes and the varying markets that they attempt to operate in. Starbucks have perhaps realized from their Australian mistakes that their particular brand is not going to be a success story worldwide and although the strength of the brand and its expansion has been phenomenal, this does not mean that it will be profitable and accepted regardless of where in the world they open stores.
In the statement that Starbucks released on 29th July 2008 the company stated that “there are no other international markets that need to be addressed in this manner" (Starbucks). This reinforces the point that Starbucks is still a success story in most countries that they have expanded into. Chief Executive Howard Schultz also added, “While this decision represents business challenges unique to the Australian market, it in no way reflects the strong state of Starbucks business in countries outside of the United States" (Allison).
It can be seen that Starbucks failed in Australia due to a number of economic and socio-cultural factors that the company has not encountered in any other markets, which is why they have been successful in other markets outside the US. Consumer demand is high and the positioning of the brand is suitable for operations in countries where Starbucks has experienced growth and profitability.
The chief executive also added that Starbucks is continuing to grow and expand in other countries and that the business is “well into the implementation phase of transforming Starbucks”. He believes that the decision to close stores in the failing Australian market “will help support the continued growth of international business”. Shultz has also pledged to reinvigorate the company and its US operations, arguing that a dip in service standards had contributed to declining traffic at a time of slowing consumer demand (Smith).
By closing Australian stores, Starbucks has reduced costs in a market where they were not seeing a big enough return. These savings can be used to help the failing stores in the US and expansion plans in countries where Starbucks is seeing substantial returns on the investments that they are making. The extra savings could also help reverse the dip in service standards by offering staff in successful stores more training to help boost profitability.
Ultimately Starbucks is paying a heavy price for the decisions they have made in Australia in terms of money wasted on paying off a sizeable labor force that they no longer need; however, it can be seen that in the long run the decision to close the majority of their Australian stores may be more economical than trying to increase their market share in the country.
Corporate Image and the future of Starbucks Australia
Starbucks has a very strong brand identity throughout the world. Starbucks is a company that other societies wanted; although the Australians were curious about Starbucks, they never viewed the company as “iconic” as people did in America and Europe, which is perhaps why Starbucks is successful in Europe for example and failed in Australia.
Starbucks’s rapid growth was successful in the US as it brought a new product; it was the first in the market of coffee shop chains and quickly established a foothold in an untapped market. The company successfully brought café culture to Americans for the first time and introduced people who had never even liked or tried coffee into the culture by providing a diverse range of options never before seen. The brand was widely accepted and became, to an extent, a symbol of status. (Palmer).
Michael Edwardson, a consumer psychologist in Melbourne, “If you look back to the ’90s, Starbucks was a cultural phenomenon worldwide. In America, Starbucks was an icon. It represented this ‘third place’ which is not home and not work but somewhere to hang out. Towns would want to have a Starbucks. Australia was never like that” (Mercer). Starbucks was accepted as expensive because it was a place to see and be seen. Starbucks did create the ‘third place’ and took this philosophy with them when they expanded; however, it was not successful in Australia.
Starbucks claims that the decision to pull out of Australia, coupled with the problems in the US market, has not damaged the brand image. Howard Shultz, CEO, stated “when we look at the opportunities that we have, coupled with some of the mistakes that have been made and the headwind of the economy, we believe strongly, unequivocally in the model, in the brand, and have great confidence that we can return a much higher long-term value to the shareholders.” Some of the changes Starbucks have announced to help reinforce the brand include the introduction of a “new food platform” as they seek to tap into the health and wellness trend, while the reduction of smell caused by sandwiches is to be addressed to ensure the coffee aroma in the stores can return (Palmer).
By reinforcing the corporate image of Starbucks in times where the brand image may have been tainted by failure, the company are attempting to win back customers’ perceptions and the view that the company is still an American icon. It is impossible to tell how effective these strategies will be, but by building a strong corporate image in the countries where they are currently successful, some of the negative publicity received from the closures in Australia can be offset. In terms of changing public perception in Australia, Starbucks has to look at the consumers’ tastes and try to adopt a marketing strategy that will make their remaining twenty-three stores popular and profitable enough to win over the public in these areas to maximize what remaining assets they have left in the country.
From articles posted in the Australian news since the closure announcement, it can be seen that Starbucks is usually not viewed favorably in Australia. Many of the articles cited in this paper have viewed the closure of Starbucks stores in Australia as a positive action as there is the feeling that there is no need for them. The media also has the view that Starbucks expanded too rapidly in the Australian market and this affected the opportunity for them to make profit. In the quest for market domination, most of the Australian media shares the view that Starbucks destroyed any chance it had to make an impact on the marketplace. It is generally agreed that Starbucks should have opened a few stores at first and tested the water and the Australian marketplace to gain a small market share, and then expand if research showed that this was going to be profitable. It has been proven that the media can influence consumer perceptions, and although this may have been the case with Starbucks, ultimately the expansion into Australia failed due to a number of factors and it is arguable which reason was the most influential on the decision to close the majority of their Australian stores.
Starbucks failed to assess the local culture of Australia. They entered a market that had no room for them. Worse, they failed to identify that they were failing. Unfortunately Starbucks continued to grow their troubled business until finally disaster struck. If Starbucks is to succed internationally they must realize that convergence is not applicable in all coffee markets. Starbucks must utilize a contingency approach when entering new markets. Starbucks would be wise to conduct local market surveys and SWOT analysis specific to each region they are trying to enter.
Starbucks expansion clearly demonstrates traits of divergence, contrary to management’s beliefs. International companies in most situations cannot implement a one size fits all expansion strategy. The “McDonaldization“ of culture into a homogeneous world culture has not occured (Francesco). Convergence does not characterize the international coffee market at present, and cultural ties to tradition may prevent this from ever being the case. Globalization is an opportunity for companies like Starbucks to prove to local cultures that they value their customs, norms and traditions. If they do this, success will surely follow.
Allison, M. (2008) Starbucks closing 73% of Australian stores. The Seattle Times [online].
http://seattletimes.nwsource.com/html/businesstechnology/2008079196_websbuxaustralia29.html [accessed 05/10/2008]
CourierMail. Starbucks to close 61 coffee shops in Australia. (2008)
Doherty, J. (29. September 2008). Retrieved October 6 2008. From Factiva
Esker Delivery Solutions “Starbucks Case study”
Emerson, D. and Tibbetts, A. (2008) Starbucks closes 61 shops, cuts 700 jobs. The Sydney
Morning Herald [online] . Available at: http://business.smh.com.au/business/starbucks-closes-61-shops-cuts-700-jobs-20080729-3mt1.html [accessed 05/10/2008]
Francesco, A. And Gold, B. (2005) International Organizational Behavior. Pearson: New
Gould, D. (July 2008). PSFK.com. Retrieved October 9 2008.
Gross, Daniel. “Will your recession be Tall, Grande, or Venti?”
Helen, Jung AP/Mena Business Reports/Financial Times Information “Starbucks pulls out of
Hoovers D and B. (2008) Starbucks
James, A. (2. July 2008). Starbucks Plans to Close 600 Stores Across U.S. ; 12,000
Employees Affected, But Company Hopes to Absorb Some. Seattle Post-Intelligencer
, S. A-1.
Just-food.com/AP/Asiapulse News “Starbucks Australia Not Expecting to Break Even for 3-5
Kaplan, Morris. “Coffee consumers become more sophisticated“ Sept 13 2008. The
Australian Business. Accessed October 24.2008 http://www.theaustralian.news.com.au/story/0,25197,24335646-5001942,00.html
Lee, Jeremy “Brand Health Checks: Starbucks”
Makoob Business (2008) Coffee culture grinds Starbucks Australian operation. [online].
http://business.maktoob.com/NewsDetails-20070423178307-Coffee_culture_grinds_Starbucks_Australian_operation.htm [accessed 05/10/2008]
Mercer, P. (2008a) Australian coffee drinkers prefer quality over Starbucks’ quantity. The
UAE National [online]. [Accessed 05/10/2008] Available at:
Mintz, J. (1. May 2008). Starbucks Looks to International Stores to Fuel Earnings.
Retrieved October 8 2008.
MSNBC (Reuters and AP contributed) “Starbucks posts its first quarterly loss”
Pajamadeen. (2008). Why starbucks Failed in Australia. Available At:
http://www.pajamadeen.com/business-news/why-starbucks-failed-in-australia [assessed at 15/10/2008]
Palmer, D. (2008) Starbucks: What went wrong? Australian Food News [online]. Available
Robertson, J. (29. July 2008). News.com.au. Retrieved October 11 2008. From Couriermail:
Schultz Arrives in Tokyo to Open the Largest Starbucks Store in Japan; Average of Two
Starbucks Stores Opening Each Week in the Market. Mar 12 2001. Business Editors
Smith, P. (2008) Starbucks tastes defeat in Australia. The Financial Times [online].
Starbucks (2008) Announcement to Customers 29th July 2008. Available at:
http://www.starbucks.com/australia/ [accessed 05/10/2008]
Starbucks (2008) Company Timeline
Starbucks Closes Chinese Palace Outlet
Starbucks Coffee Franchise
Starbucks (2008) Fact Sheet
Starbucks “Form 10-Q April 8-2008”
Strategic Management (2008) Starbucks Background 1971-1987
Sydney Morning Herald “Starbucks closing 600 coffee shops”