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When selling coffee is not enough
by Maurizio Corda

On 3rd August, American giant Starbucks [1] closed 61 of its 85 shops in Australia. After over a month and hundreds of jobs lost, I and many other coffee lovers still think about what went wrong and why did Starbucks fail to break the Australian market.

Being one of the biggest coffee retailer chains in the world, I did not really expect Starbucks to report profits falling down 28% from the previous year. Well that is what happened in April this year, when the coffee chain published the new results of an underperforming year.

As an immediate consequence, and since the biggest economic downturn came from its domestic market, Starbucks announced the closure of 100 national shops. A simple financial adjustment at first glance, it preceded a further mass closure of 500 shops [2] around the country.

A general economic slowdown, and the main US states being hit by a housing market slump were the main reasons of the sudden cut.

Australia faced a similar fate [3] not even a month later, when over 70% of the country’s shops closed at the beginning of August. That also meant more than 600 people losing their jobs all of a sudden. Adam, a former Starbucks employee in Penrith, NSW, was caught by surprise when he found out most of the Australian shops would be closing soon.

“I did not have a clue, I only started working there one month prior to the big announcement. Then, all of a sudden, they tell us 61 shops will close.”

Penrith Starbucks was one of the shops considered ‘underperforming’, even though Adam disagrees.

“It was never too packed, but it went on well. You could not expect it to be as busy as the city ones of course. We always had smiles on our faces and we served people well. I actually think people were very satisfied with our service.”

Even though Starbucks executives declared this whole operation has been a refocus rather than a dismantle (a refocus which only included Brisbane, Melbourne and Sydney), the core of this issue is to be found in Australian culture rather than in marketing tactics.

The simple truth is that Australia has got a sophisticated coffee culture, a simple thing that people at Starbucks did not fully understand.

“I never really felt the need to go to a Starbucks shop,” says Elise from Sydney. The coffee lover never really felt Starbucks had more to offer or more reasonable prices than its competitors.

“I have always felt like we had been invaded by Starbucks. The proliferation of the shops has been fast and intrusive in my opinion.”

Since the opening of the first shops back in 2000, Starbucks has never really breached the difficult Australian market. The general feeling is that they tried to sell a coffee culture which already existed.

Unlike the US where Starbucks is considered a ‘must’, and is far ahead of its competitors in terms of sales, Australia has always seen it as one of many, just one more competitor.

With a supposed expansion of the European market by the end of 2008, let’s hope Starbucks executives learned from the Australian mistake. Being a household name and having the resources to open multiple selling points is not enough, if there is no effort in understanding each country’s tastes and needs.