Why Starbucks Failed in Australia

August 13, 2008

Starbucks CoffeeWhen the Starbucks’ (NASDAQ: SBUX) coffee chain announced last month that it would close 600 U.S. stores over the next several months, — a move which will cost an estimated 12,000 Starbucks’ employees their jobs — it only amounted to a closure of five percent of the company’s U.S. locations. But job cuts were much deeper in Australia, where 61 of 85 Starbucks’ outlets closed last week. The only Starbucks remaining open Down Under are a few in Brisbane, Melbourne and Sydney. Starbucks has withdrawn completely from Australian Capital Territory, South Australia and Tasmania. At the same time, the company says it’s accelerating its international growth.

So what went wrong in Australia? The answer is surprisingly simple: Starbucks didn’t understand its audience. The coffee giant didn’t understand local customs and its target market, instead trying to impose its cookie-cutter American business model on Aussies. When Starbucks made its Australian debut in 2000, a thriving urban cafe culture was already in place. In an Australian newspaper article, Chris Berg wrote of the pitfalls of globalization, saying: “The secret of the company’s success in the American market wasn’t that it sold coffee. It sold coffee culture. . .The other aspect of Starbucks’ appeal in the U.S. has been its establishment of the cafe as a social hub…But when Starbucks came to Australia to bring coffee and the cafe culture to the masses, it found that we already had it. Particularly in Melbourne, we have better coffee and more relaxing cafes than anything that Starbucks brought with it.”

Starbucks in Beijing, China, at the Imperial Palace in the Forbidden City

Starbucks failed to grasp the simple concept that McDonald’s (MCD) understands: When in Rome, do as the Romans do. While the coffee chain offers the same espressos, frappuccinos and lattes worldwide, the McDonald’s menu varies according to the dictates of local culture and tastes. In Japan, a consumer can buy an Ebi Filet-O (a shrimp burger), while McDonald’s customers in Turkey can purchase kebabs, and the McCurry Pan is available in India. Starbucks has failed to understand local social mores in the past, most notably 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.

Map of Starbucks Locations

Twenty-nine percent of Starbucks’ outlets are located outside of the United States, with new stores scheduled to open in Algeria, Belgium, Bulgaria, Colombia, Hungary, Poland and Portugal. According to the company’s February 2008 fact sheet, Starbucks operated in 44 countries, with 4,588 international locations.

Arthur Rubinfeld, President of Global Development at StarbucksIn February, Starbucks rehired Arthur Rubinfeld, credited with helping Starbucks grow from 100 stores to 4,000 stores, as president of global development. Rubinfeld also authored Built for Growth — Expanding Your Business Around the Corner or Across the Globe, a book detailing his views on branding, business model infrastructure and site selection.

And a tip of the hat to Mark Herron of Sydney, Australia for the story idea. G’day, Mark!

Read more Australian news.

Copyright ©2008 pajamadeen.com


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