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Why Starbucks Failed in Australia?

Updated: May 26, 2021

It becomes very important for global brands to adapt to the local culture of the country they are deciding to expand in, otherwise, it might result in failure of expansion. We will be taking the example of Starbucks, an American coffeehouse chain and see how even after being popular in many countries, failed in Australia because of not adapting to its local culture.

“We want to provide all the comforts of your home and office. You can sit in a nice chair, talk on your phone, look out the window, surf the web... oh, and drink coffee too.”

About Starbucks:

Headquartered in Seattle Washington, the company was founded in 1971. It is the world’s largest coffeehouse chain. As of early 2020, the company is present in more than 70 countries, operating at more than 30,000 locations. It is probably the most famous coffee chain in the world. The reason why it is so famous is because it sells the customers a unique experience. For example, people can visit Starbucks and sit peacefully enjoying time with their friends or with their co-workers. They never ask their customers to leave if they have not ordered anything. They want their customers to have comforts of their homes and offices.

We see how popular Starbucks is and still it failed in Australia. Let us analyze why it happened from a marketing perspective.

Reasons for failure of Starbucks in Australia

1. Australian Coffee Culture

Starbucks set up the coffee culture for many countries but failed to do the same for Australia. It is because Australia already has a coffee culture which is different from the rest of the world. Australia has majority of small and independent local coffee shops. People enjoy going to local baristas for having their morning coffee. They enjoy the uniqueness of different coffee shops and love to experience the creativities of the place. They want good quality of coffee, and they are even ready to pay a little more for superior quality.

Starbucks has a tough time maintaining premium quality of coffee owing to the large network they have around the world. They also charge high prices for coffee which the Australian consumers are not willing to pay. Coffee is a passion in Australia. Everyone in Australia has different preferences for coffee and everyone has their own favorite cafes or local baristas. Thus, the people want their own unique preferences to be served to them.

2. Quick Expansion in Australian Market

Starbucks went wrong when it started expanding too quickly in the Australian market. In the year 2000, Starbucks opened its first shop in Sydney and then went on to expand in the market. They opened coffee shops at multiple locations hoping to succeed in the Australian market as they did in other countries. This was a major factor responsible for their failure because they did try to develop organic demand among the consumers. This led to Australian consumers not getting adapted to its tastes and thus, led to failure in creating brand loyalty.

3. Starbucks’ Coffee – Too Sweet for Australia

Starbucks did not adapt their menu according to the Australian market. They assumed that people will like the same sugary drinks that people in other nations liked. Australian consumers like espresso-based coffee which has a strong taste. This comes from the time after World War II when the Australian government launched a new immigration program. Due to this program, many Europeans found their home in Australia. Among these, a large number was of Italians and Greeks who brought with them the espresso coffee in Australia, thus making the Australian market love the espresso-based coffee. Today’s coffee culture in Australia is derived from its immigrants from Europe which is one of the most popular coffee cultures in the world.

Though Starbucks has different coffee options, the major drawback was that it served coffees that were too sweet in taste for Australian customers. This proved to be a major issue in its acceptability in the Australian market.

4. Too Many Competitors

As clear from the coffee culture followed in Australia, there are many independent coffee shops and local baristas. They are preferred by different people for their unique tastes. Australian consumers have the option to switch between shops if they do not like the one, they go to. This reduces the brand loyalty among the people. They do not care about a particular café, but they do care about the quality of the coffee they get, they like the unique experiences they receive, the different interior designs of the cafes, the aroma of strong espresso-based coffee and the cozy atmosphere which they find deserving of their time.

According to a report from IBIS world, 95% of cafes in Australia are independent. The owners of these cafes use freshly grinded coffee beans which helps in producing premium quality of coffee. The employees in these cafes also undergo the training for making the perfect cup of coffee for their customers. Thus, we see how several reasons resulted in the decline of Starbucks in Australia.

The Brand Loyalty of Australian consumers for coffee - we can clearly see from the pie-chart that for 44% of the consumers, the brand loyalty does not matter.

Starbucks’ Current Situation in Australia

As a result of the response received in the Australian market, Starbucks closed many shops at multiple locations in the year 2008. Since then, the company started slowly opening its shops in different locations such as Brisbane, Melbourne, Gold Coast and Sydney. According to Starbucks’ official website, currently it has 54 coffee shops in Australia. These locations are mainly aimed at serving the tourists in Australia. They are catering to people of other countries who already love Starbucks and have a brand loyalty for it.

Conclusion & Recommendations:

Though Starbucks already has a strategy with which they are serving the tourist population of Australia, there are other steps that could be taken by the company, if it wants to improve its condition in Australia. Some of the steps are:

Altering the Menu: It should change its menu so that it can adapt to the tastes and preferences of the Australian market. We have seen examples of famous food chains like McDonald’s and KFC altering their menus to adapt to the Indian market. In the same way, realizing the fact that sugary coffee is not liked in Australia, Starbucks should alter their menu to adapt to the Australian market. This one thing can help in increasing the number of customers.

Continuing the Slow Growth Strategy: Starbucks will also need to continue the slow growth strategy which it has started right now. The company can alter its menu and get feedback from the customers about the taste. Gradually, it will be able to serve the customers in a much better way. If they remain slow in growing, it will give time to the people to adapt to its flavors. Slowly, they can build on the brand loyalty and grow in the market.

Specialty Products: After the analysis of the Australian market, one thing is clear that Starbucks will not be able to get a huge market share in the country. It can cater to small number of customers and develop a small market for itself. As people in Australia love unique tastes and different people have different preferences when it comes to coffee, the company can come up with some specialty products that can help in attracting the customers.

Author: Ambey Sinha

Student at IFMR Graduate School of Business - Krea University


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