#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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January 31, 2009 @ 4:23 pm
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.
April 19, 2014 @ 8:52 am
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.
December 3, 2021 @ 5:44 pm
I believe Starbucks’ failure when entering the Australia market showcases how strong-branded companies and their original business models and strategies will not always be successful as one cannot simply enter into foreign markets without first understanding them. Furthermore, I believe Starbucks’ failure in Australia derived from its fast store expansion rate, its lack of efforts to effectively adapt to and understand Australian culture, consumers’ psyche, and market conditions and state, and Australia’s well-established coffee culture. Regarding Starbucks’ fast store expansion and competition with an already-advanced coffee culture, Australian consumers preferred to have specific types of items. While the local shops already possessed these types of items, the Starbucks locations did not, which made it difficult for Starbucks to compete with the other local coffee shops as they had already met their consumers’ demands, especially considering how Starbucks had higher prices for lower quality coffee. In addition, Starbucks found success from introducing and implementing coffee culture into countries which did not have said culture like China. However, considering how coffee culture had already been well-established by Greek and Italian immigrants long before Starbucks had been introduced in the United States, Starbucks would inevitably face challenges when competing in this pre-existing market with a well-established coffee culture; Starbucks would need to sway Australian consumers from a pre-existing market with established, older local coffee shops which satisfied their demands, and incentivize them to visit and continuously purchase products from new Starbucks shops. Lastly, similar to my previous point, Starbucks lacked diverse and differentiating food items, preferences, and shop promotions, and believed in the idea that Australia had already become westernized enough to accept Stabucks’ culture. In comparison to Australia, Starbucks had huge success in China because it effectively adapted its strategies and efforts towards fitting into Chinese culture through several high-valued pillars like family, community (inner circles), and status. According to Associate Professor Nick Wailes, expert in strategic management in the Faculty of Economics and Business at the University of Sydney, “Starbucks succeeded in China because it did what was 100% aligned with the company’s core competence: introducing coffee culture to a country that didn’t have it. In case with Australia, it tried to bring the Italian coffee culture back to [Australian] Italians” (Lukashevich 2020). Overall, I found this article very interesting and insightful because it not only showcases how one cannot simply believe they can establish themselves in other countries without first re-orienting their business models and strategies to fit and grow within said country, but also how one must gain a better understanding of said country and the conditions and states of the foreign markets they wish to enter.