#2 Starbucks fails in Australia

Starbucks leaves Australia. One of the latest international business failures comes from one of the most successful retail companies in the world. Starbucks, which operates more than 15,000 coffee shops worldwide, in July announced that it will close 61. Remaining will be only 23 stores in Sydney, Melbourne and Brisbane. What was going wrong? Many people claim that Starbucks failed to understand Australia’s very sophisticated coffee culture. Others take it a step further and accuse Starbucks of arrogance typical of US-based multinational corporations

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4 Responses to “#2 Starbucks fails in Australia”

  1. Lena Hebenstreit Says:

    In the first moment I was wondering to read that Starbucks failed in Australia, because Starbucks, as a worldwide operating company, is very successful in general. In my opinion, exactly this fact could be the reason for the failure …

    Starbucks is a very self-confident company that has success all around the world, excapt of Australia. It could be a great example for gaints’ failures. I suppose that Starbucks was a little careless when it came to a proper analysis of the Australian market. As mentionned in the blog, Australia has a sophisticated coffee culture that needs to be understood very well. If Starbucks copied the strategy respectively the method for market entry from the entry mode of another country, the breakdown was predicted. The country portfolio of Australia is very different to the portfolio of other markets.

    On the other hand, the Australian culture is as sophisticated as the coffee culture when it comes to American products. Maybe Starbucks had a well prepared and reasoned strategy and the Australians did not excapt it just because of being „American“. In that case the best strategy could fail.

    Apart from the reason for the failure, it is always very interesting and shocking when the market entry of a international giant fails. The blog entry and my comment induce me to do a little bit more research and get some more information about this case.

  2. Bill Bartmann_ Says:

    Hey good stuff…keep up the good work! :)

  3. Sabine K. Says:

    I am wondering that big companies do not have a separate department for international communication, behavior, cultural aspects… etc. especially when a company decides to work with another company from abroad, it is crucial needed to consider the cultural differences. This is a very topical issue, but it seems that it is still not into the focus of the companies. Lot of mistakes would have been avoided, if the focus would have been on cultural aspects as well. I think it is the obligation of both parties to question what is important in a country, how they work, their values…

    Concerning Starbucks’ failure in Australia, I was wondering at first. On the first glance Australia seems very similar to the US. Both of them have got almost the same masculinity score in their culture, both are not very long-term-oriented and have got a low power distance. Furthermore both of them are very individualistic. So Starbucks should have been worked in Australia, but overall this dimensions I think they have forgotten one very important fact or just did ignore it: Australia is known for their obsessive coffee culture and Starbucks does not stand for this. Starbucks is not a typical coffeehouse; it is primarily a place where you can easily and fast get coffee. Coffee with every flavor you want every type you like. And I think the Australian people have a different understanding of coffee-enjoyment.

    Both parties are very individualistic, the US may were very arrogant and maybe thought that their successful coffee-chain would work anyway. And the Australians did not think to drink this adulterated coffee. Maybe their similarity in being so individualistic made it to a big problem. The US must have been better informed about the traditions and values of their target-country/ continent. One statement is: “Think globally, act locally”. I do really not know if Starbucks would have been worked if they would have adopted their products.

    This is a link with a bit more information about Australia’s coffee culture, even with a reference to Starbucks.

    http://www.lonelyplanet.com/australia/travel-tips-and-articles/69143

  4. Marion Valentinitsch Says:

    This example has shown, that understanding the culture of the target market is vital and very essential for every organization that hast expanding plans and wants to invest in a different region / country. It is common knowledge that cultures are different and what is good for one culture won’t automatically be good for another culture. Like Geert Hofstede has researched, what has a meaning for one culture certainly would have a different meaning in another cultural region.

    So where did it go wrong with Starbucks in Australia?

    First of all it is due to the fact that a thriving urban café culture was already present in Australia when Starbucks entered the Australian market.
    Additionally, Starbucks also failed to understand the psychological and socio-cultural aspects of the country it was entering.
    Australia is not one homogenous market; it has over 235 different ethnicities. The coffee tradition is mainly influenced by Europeans like Italians or Greeks. For those people, the small shop around the corner is important because of the personal atmosphere. Additionally many consumers didn’t like the ‘super-size’ high sugar/high fat mentality which is popular in the US and also the arrogant manner of Starbucks regarding its competitors. Offering the same espressos, frappucinos and lattes like in the US was not enough.

    Also the Australian people didn’t understand why they should pay a much more higher price.

    The one-size fits all approach does not apply when operating in two diverse cultures, and as seen by Starbucks experience, as well as other multinational companies like Wal-mart who have failed in foreign markets due to the simple reason of ignoring local culture.
    Retrospective it was a predictable surprise.

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