Starbucks Problems That Led to Their Failure in Australia Paper Example

Introduction

Opened its doors in 1971 in Seattle's Pike Place Market. It grew and by 1992 when it was publicly listed it had already established 140 stores and their expansion was very fast. They were experiencing a store growth of between 40-60 per cent every year. In the 1990s Starbucks was literally opening an average of one store per day (Palmer 2008). Starbucks has over 15000 stores worldwide today and it serves an average of 50 million people per week in North America alone. Starbucks became a phenomenon in that it successfully Americanised the European coffee tradition something that they did as pioneers. Something else is that Starbucks made sure they did not just sell coffee but they sold experience. One time the founding CEO Howard Schultz explained that they are not in the coffee business serving people but rather serving coffee. What they did was simple they made sure they provided comfort and entertainment in their stores and this came with a premium price Schultz & Young, 1997). They have always been consistent in their products something that has worked to their advantage.

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Problems that led to their failure in Australia

In mid-2008 Starbucks announced that it was closing nearly three-quarters of the stores in Australia something that the business world (Coleman & Stanford, 2008). The coffee house had made losses in the Australian market (Bawden, 2008). The coffeehouse set up locations in Australia with the objective of making it big in the country. But before we can examine the entry of Starbucks in Australia we need to look at the Australian coffee market. Their taste for coffee is a by-product of the immigrants who arrived in the country following World War 2. When the immigrants went to Australia they established a coffee culture which became a success. This was done by mostly the Greeks and Italians. To them coffee has always been their lifestyle and part of their tradition. In 2000 the coffeehouse, Starbucks decided to venture into the Australian market. What they never knew was that the challenge unlike in other areas was that Australians were already in coffee for a long time. The coffee culture in Australia can be described as mature and sophisticated. Unlike the Americans, the Australians like their small coffee shops and it is more of a relationship as they care more about the product hence it was evident that a global chain experience would not work in Australia. Something else that was different was that the Australians liked their coffee just straight and stronger with no need to have flavors to disguise its taste.

With all this information now we need to ask ourselves the question, why did a brand like Starbucks which is worldwide fail to stamp into this market. Does it mean that Starbucks did not take their time to understand the existing coffee culture? Was it a mere underestimating the relational aspect of coffee purchasing in the country? Maybe it was a case of overestimating the value of customers. One thing for sure is that a lot of these global brands see expansion into new markets as strategies well placed for domination and maybe Starbucks so that in Australia and decided to take the chance at once without studying the factors and risks they were going to.

One of the major reason as to why they failed was that they failed to entice the Australians into the new coffee cultures. As Martin noted 'I just think they failed in their whole system by the way they serve,, this did not appeal to the culture the Australians have' (2008). When Starbucks was introduced down south that is in Australia there was the hype by the consumers as this was a new brand of coffee coming. But after trying it they just realized that it failed in offering a unique experience that their coffee chains were not offering. Most people believed that the product was not worth the premium price that it was being sold.

Something else was that the rapid expansion and its omnipresence and its somewhat standardized store design as well as recent developments in terms of setting targets for its staff all worked together in dropping the in-store experience at Starbucks. The introduction of set targets to its frontline staff meant that there was minimal time for them to interact with their customers. This was unlike Starbucks which has always been at the forefront in making sure there is interaction with the customers. Starbucks points of differentiation were been drained gradually and now their ideology that coffee was not a commodity but a lifestyle was now being changed and selling coffee as a commodity (Palmer, 2008). This was a critical reason for their failure as they now operated just like a commodity selling point where the customers passed by to buy the commodity and leave.

The other reason was that its customer service started dropping very fast. Like for instance the quality of their baristas started to decline and they hired young people who had no experience in coffee brewing. This was a mistake as they started being undermined by other outlets that offered more at a less price. This dwindling in the quality of the customer service made many Australians opt for their traditional coffeehouse that were there before Starbucks. The decrease in customer service was very fatal as many customers now felt that they offered just normal coffee very poorly but at a very high price (Charles, 2007).

The final reason was that Starbucks had lost in its promise to offer superior coffee in very comfortable surroundings and that is why their prices were high. Starbucks switched to the vacuum-packaged coffee thus denying the consumers the store-filling aroma of the coffee beans. They also automated the machines hence no hand making of the coffee something that customers liked and characterized coffee making as a theater. Starbucks moved from quality and entered in more about hitting targets per hour whereas they maintained their high prices.

Solutions and recommendations

The solutions to all this would have been that as much as they are still operating in Australia in the major cities, they need to take their time and adopt the cultures of coffee in Australia. This will make them edge their competitors. They should stick to the Australian quality coffee that attracts the Australians who have had their tradition in coffee making. Another solution would be to stick to their core of the business and that is improved in customer service. They are not supposed to stop concentrating on profit whereas they are losing customers. What made them thrive were their services something that overtime they have been poor at. They need to go back to when they held their customers with high esteem and loyalty. They need to have qualified baristas. All this they do because they are focusing on their profit and not quality. They need to start offering quality that we came to know Starbucks of. Their core mandate should be quality and ambience not targets and profit. Venturing in new markets can look easy but unless it is carried in a way that it is supposed to be then there is a real danger that many international brands will lose their core businesses especially when they are focusing on profit and not quality at all times. What Starbucks did was trying to use the US business model and try to impose itself to the Australian market.

Conclusion

Although Starbucks made it big in the United States, it failed to replicate this success down in Australia. As discussed, there were some reasons that made it to fail there. This therefore means that there is always a risk of failure especially if a business does not adapt to the business culture of a certain place. When a business sacrifices its quality for profit then it will eventually fail.

References

AustralAsian Specialty Coffee Association (2006), Australian Coffee Market: Key Facts for 2006.

Burritt (2007), 'McDonald's challenges Starbucks with cheaper lattes', Bloomberg, 11 September, available at <http://www.bloomberg.com/ apps/news?pid=20670001&refer=&sid=a08JuUP7J6RY>, accessed 29 August 2008.

Palmer (2008), 'Starbucks: what went wrong?', AFN Thought for Food, 31 July, available at <http://www.ausfoodnews.com.au/2008/07/31/ starbucks-what-went-wrong.html>, accessed 29 August 2008.

Browning (2008), 'Starbucks hopes growth abroad will save its bottom line', ABC News, 31 July, available at <http://abcnews.go.com/ print?id=5487961>, accessed 29 August 2008.

Charles (2007), 'In the trenches: coffee', In the Black, May, pp. 28-31. N. Clark (2008), 'Starbucks: the brand we love to hate', Marketing, 2 April.

Cebrzynski (2008), 'Starbucks-dominated category wakes up and smells McD's espresso rollout', Nation's Restaurant News, 42(3), pp. 1-6.

Schultz and D. J. Yang (1997), Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time, Hyperia Publishing, New York.

Coleman Lochner and D. D. Stanford (2008), 'Starbucks reports first loss since 1992, predicts slower growth', Bloomberg, 30 July, available at <http://www.bloomberg.com/apps/ news?pid=20601205&sid=aZxrjcNWyi5Q&refer=consumer>, accessed 29 August 2008. B

Bawden (2008), 'Starbucks reports first loss in 16 years', Times Online, 31 July, available at <http://business.timesonline.co.uk/tol/business/