Starbucks was launched in 1971 in Seattle, Washington, by three people – Jerry Baldwin, Zev Siegl, and Gordon Bowker. It is, today, the world’s largest coffeehouse chain with more than 40,000 stores worldwide. Starbucks’ success story isn’t ordinary and is something to be studied by marketing and business professionals. But what might be even more interesting to learn and study from a marketing lens is the fate of the American coffeehouse chain in the country ‘Down Under.’
Starbucks turned out to be a failure in Australia, and this was unprecedented for the billion-dollar company at the time. So, why did it fail in Australia, and what lessons can we, as marketing people, learn from it? Let’s find out.
Starbucks opened its first outlet in Australia in July 2000 in Sydney. As usual, it saw immediate success as something new to the Australian people. Soon, it started expanding into every territory of Australia. By 2008, Starbucks had 87 stores across Australia, and it was huge by numbers.
However, the popularity of Starbucks didn’t last long, and this gave people and the marketing experts an opportunity to explore the reasons behind it.
A major reason they came up with is that Starbucks didn’t adapt to the local needs of Australians. One of the major factors we discuss when it comes to expanding a business into an international market is how important it is to learn, study, respect, and adapt to the local culture there.
The people who are based out of there with their own set patterns and habits are not going to change for any company, no matter how big. It is the company that must adapt at all costs, with its product and its services.
Starbucks had already tasted success elsewhere, such as in China, Japan, Thailand, Malaysia, etc., and thought that they could emulate the same success in Australia by doing what they always do – Expand their store outlets in multiple locations.
The problem in doing that in Australia is that Australia already has a robust and thriving coffee market. Australians were not alien to the coffee culture that Starbucks supposedly aims to bring to most countries.
Australia has been a major market for coffee since the early-to-mid 1900s, when immigrants from Greece and Italy poured into the country. These Greek and Italian immigrants exposed Australia to Espresso, and slowly started the coffee and cafe culture in the country.
By 1980, Australia was completely immersed in the cafe culture. The total valuation of Australia’s coffee market today is $6 billion. Starbucks wasn’t going to change that overnight, or even in a few years.
However, Starbucks remained, and the occasional Australian did pay a visit to its stores, which kept the company running. But Starbucks opted for its fast expansion and rapid growth model. They even opened up stores in the outback and outer suburbs of Australia.
So for Australians, the Starbucks coffee became way too available. This killed whatever little interest Australians had in visiting Starbucks. They didn’t give Australians enough of a chance to develop an appetite for their brand. The growth wasn’t an organic one.
By 2008-2009, Australia shut down 2//3rd of its Starbucks stores across the nation. From 87 stores, it was left with only 26 stores in no time. In its first 7 years of operation in the country, Starbucks accumulated a net loss of $105 million. Starbucks Australia even took huge loans of up to $54 million from the USA.
But unfortunately, none of the measures worked. They realized a little too late that their same successful model didn’t appeal to Australians. They should’ve adapted.
Starbucks wouldn’t have shut down in Australia despite such massive losses and getting the marketing wrong. But the year 2008 turned out to be a devastating one for all businesses worldwide, especially in America. Due to the global economic crisis in 2008, there was financial strife.
So, Starbucks had to close 600 stores in the USA, and that didn’t help their case of revival in Australia. What’s worse is that Australians didn’t seem to care at all when all those Starbucks stores were getting shut down. It didn’t affect their coffee consumption pattern at all.
This also gave marketers the idea of what coffee meant to Australians. Owing to its Italian and Greek roots, the coffee culture in Australia was more about meeting people, hanging out, and spending time in the middle with friends and family.
Starbucks sold coffee and cafe culture to Australians, like how most Americans consume – A product, a commodity, and something to drink. That didn’t strike a chord with Australians.
But while Starbucks failed with that approach, another American coffee chain found success. Gloria Jeans has more than 400 stores across Australia, and it serves more than 35 million consumers.
So, what is Gloria Jeans, that existed in Australia since 1996, doing correctly that Starbucks failed to grasp? Turns out, the answer lies in the Menu.
The Starbucks Menu provides more sugary drinks and food available, something that isn’t very popular among Australians. Whereas Gloria Jeans offers a variety of Espresso drinks and specialty coffee. They quickly realized the food and drink items that Australians have liked for over a century.
While Starbucks failed in Australia, they didn’t quite give up on the country completely. They planned to return to Australia and target tourists at that time. Australia welcomes 9 million tourists annually, and they spend up to $30 billion every year.
Therefore, it is a huge market to cater to tourists alone, especially Chinese and American people who visit here in large numbers. This approach helped Starbucks sustain in the country.
