Why Starbucks Failed In Australia

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When Starbucks set up shop in Australia, it was expecting big things. After all, we have similar metropolitan makeup to the USA and are among the most prodigious consumers of coffee in the world.

Alas, the company went the same way as Taco Bell, Chilli's, Burger King and various other US franchises that failed to make the transition Down Under. This fascinating video explains precisely what went wrong.

In a recent CNBC video, Gartner research analyst Thomas O'Conner and other commentators explain how Starbucks managed to screw up a golden opportunity to become the McDonald's of coffee in Australia. In short, they launched too rapidly and too aggressively, which turned Aussie consumers off the brand from the get-go.

Instead of growing organically, the franchise expanded to regional areas and outer suburbs from the very beginning, with 87 stores sprouting up in a very short time period. In the words of O'Conner: "[Starbucks] was too available."

After seven years, the brand had accumulated US$105 million in losses and ultimately shut down the vast majority of its stores.

The full video, which we've embedded below, is definitely worth a watch. With that said, there are two thing that it fails to mention. Namely, Australian coffee drinkers have taste and are tighter than a fish's anus. Starbucks tasted like rubbish and cost upwards of $5 a cup. Infer from this what you will.

[YouTube]


Comments

    Gloria jean is the exact same thing. And it seems to be doing fine

      The coffee is Starbucks is pretty bad. It also has the atmosphere of a tarted up McDonalds. Can you get your coffee in a cup in Starbucks? The cakes and sandwiches are wrapped in plastic wrap or plastic boxes, aren't they (? it's also a while since I've been in a Starbucks). It's a while since I've been in Gloria Jeans but do they yell out your name so you can collect your take-away coffee, even if you want to take it all the way back to a table and chair. On a hot day I do enjoy a Starbucks Frappacino, but that's about all I would get from there in the way of drinks.

        Their failure in Australia was a bit of a wake-up call for the company, actually. Starbucks has improved their food and coffee a fair bit to the point that it's an adequate baseline. Doesn't hold a candle to a good Australian cafe or anything but it's reliable and pretty available, at least around here (I'm in Seattle at the moment so obviously Starbucks is everywhere)

      Ya watch the video?

        yeah, but I don't agree with it. gloria jean's the same exact thing, but apparently it's different.

    "there are two thing that it fails to mention. Namely, Australian coffee drinkers have taste and are tighter than a fish's anus. Starbucks tasted like rubbish"
    Your first point: I think it did say exactly that, and quite a few times. In fact, the new strategy of trying to appeal to tourists rather than Australians reinforces that they do understand, but are unwilling or unable to modify their offering significantly. It's a franchise after all.

      Yeah, I think its one of the biggest reasons it failed as well. Its basic blend just doesn't cut it here. I think its why a lot of US chains fail here - the competition is pretty hot, and their cookie cutter approach just doesn't cut it when you're trying to set up.

      When you're new, you need to first match the existing competition, then build on that, and if the base product isn't as good in the locals eyes, you just aren't going to get traction.

      Made worse by there being a coffee shop on every corner, whether its a franchise or not. And we have a lot of coffee franchises already in Australia, so its not a simple market to break into.

        I think there's a blend of coffee drinkers (scuse the pun). For some they don't care about fancy coffees so a flat white or a cappuccino are about the limit of their interest. For these people why would they spent too much on a Starbucks coffee when they can get their "basic" coffee just about anywhere at a fraction of the price?

        For others they care about quality, at which point the Starbucks coffee just isn't good enough, so they'll seek out their favourite coffee shop instead. So in effect Starbucks fails to capture either market.

        And I think a lot of Aussies really do have the tall poppy syndrome. In that we'd much rather go to a small (independent) shop and avoid the famous world brands. I suspect Starbucks could have priced their coffee cheaper than the competition and people would still have refused it, just because it was Starbucks.

    The TL;DR version is, they were offering terrible chainstore "coffee" in a marketplace that already had a clear monopolist (Gloria Jeans). Destined to fail.

    Alas, the company went the same way as Taco Bell, Chilli's, Burger King and various other US franchises that failed

    Burger King is doing ok. They were renamed as Hungry Jacks because someone here already owned the name Burger King. So they've been around for decades, and while they may not be doing as well as McDonalds they're still kicking along. I remember back when I was a kid the paraphenalia at the stores was a lot more Burger King-ish.

    As for Taco Bell, I know they're starting to open restaurants now, but I didn't think they'd tried to get into the Aussie market before? Though, now I google it apparently this is the third time they've tried. Wow, never even seen a TB shop here before. Must have been in the southern states.

    Hmm, bit more research seems to indicate this is a common theme, Chilis was in NSW, so were a few other chains that took a crack. We never even got a glimpse of them up here in QLD.

      Burger King terminated their Aussie operations around 2002. They had an agreement, which was the Hungry Jacks franchises for the reasons you say, but after the US parent company tried to manipulate their agreement with the Aussie side of things, ended up selling all their rights to the new Aussie HJ company. From then on theres been zero US ownership.

      With Taco Bell, I remember a store in Sydney in the late 90's, on the corner of Liverpool and George - its been a Hungry Jacks for a good while though. Was a cheap eat with $1 taco's, making for a different option to all the McDonalds in the area.

        Fair enough. I just remembered HJs being BK when I grew up and I know that HJs is still doing fine.

        Even if they sold the franchise I'm not sure I'd count that as a failure like the others mentioned. Since the shops themselves are doing well, it's just legal wrangling that hamstrung them.

        The HJ situation is more complicated than that.

        Hungry Jacks is still the official Burger King franchisee in Australia, even if it's not US-owned (that's generally how franchise agreements work). The company, Competitive Foods Australia, used one of Pilsbury's other brands because Burger King was trademarked by a place in Adelaide.

        When they renewed their franchise agreement in 1991, it came with the stipulation that they had to open a certain number of stores. The Burger King trademark expired in 1997 and BK claimed HJ's hadn't kept up this part of the agreement, so stepped in and started opening their own separate stores under the Burger King brand, and also tried to limit Competitive Foods from opening new stores. They took Burger King to court, arguing they had breached the franchise agreement, and the court agreed. They pulled out and transferred the AU Burger King locations to the New Zealand Burger King franchisee, who ran them until 2003 when Burger King US decided to just transfer the stores and the Burger King brand to Competitive Foods, under the condition that HJ come up with consistent branding and menus across both chains, which they did by just turning the BK locations into HJs.

        It's definitely not correct to say that Burger King is a failed chain in Australia, though. Hungry Jacks *is* Burger King's Australian franchise. Their stupid attempt to cut the franchisee out of the deal was a failure, but Hungry Jacks is the same food, the same slogans and everything.

        If you want to talk about failed US burger chains in Australia, the answer is Wendy's, not BK. They managed to expand into New Zealand fine but the Australian Wendy's franchise failed hard.

        Last edited 09/08/18 4:48 am

          Nice Neg0, only 8 days in moderation hell. :) Dont disagree with what you wrote btw (actually read it back then via your profile) just wasnt going to go into the fine details at the time.

          Whether BK made a proper play at Australia and succeeded or not depends on your point of view, but as you point out it really doesnt matter. What we get with HJ is effectively the same thing.

          Personally, I'd call it a B- pass. Has enough right parts without many wrong parts. How they tried to weasel out of it is where it gets marked down.

            I live in the US right now. HJ's *is* Burger King. They're nearly identical. Only real difference is the lack of the King in their marketing.

      The only Taco Bell restaurant currently operating in Australia is in the suburb of Annerley, Brisbane. It's pretty good.

    " The Australian market was hard to break into because they had a cafe culture, based on Greek and Italian immigrants"
    I could be wrong here, but pretty sure the US has Italian and Greek immigrants too.

    For me, Starbucks in Australia was simply a mock up of the US Starbucks.
    The customer service sucked, and there was never any free WiFi, which is the big draw card for the US customers - tales of people working from Starbucks are rife, so from the start it was skinny Starbucks lite.

    Whilst this may seem petty, customers are fickle, and if you're not offering anything that differentiates your business, then you're giving away that opportunity to impress the customer.
    And I'm not even a coffee snob.

    To be honest, I hadn't even noticed they'd left the country.

      The big difference is timing. The bulk of the immigration from Italy to the USA happened between 1900 and 1912, where in Australia there was a mass migration from Italy post-WW2, starting from 1948 and going into the 1950s,

      The espresso machines started being manufactured in 1901 but they were giant steam-based contraptions and didn't start becoming like the modern, streamlined espresso machines until Gaggia patented his machine's design in 1938.

      Basically the Italians had been drinking good espresso coffee and they bought that culture and the machines with them to Australia. The main wave of Italian migration into the US happened before the machines were practical and the culture was as firmly established.

      The quality of Starbucks in the US wasn't any better than the Starbucks here. We have a very high standard in the basic café here, and the Starbucks model isn't that good. The only thing they did 'better' (and its subjective) was they had a milkshake sized option if you REALLY needed the caffeine kick.

      But the quality there wasn't really any different to what we got here. They had no real competition there, so the bar was a lot lower, while here, they need to compete with established franchises in every major market plus independents.

      Gloria Jean, Hudsons, Coffee Club, and every other franchise I've missed are a much higher standard than the Starbucks blend they've shipped (via Ireland) internationally. They had to be, because they had competition both from each other, and every café in the country.

      And no, its not petty. When our base standard is so good, the cookie cutter approach Starbucks used needs to be better than what it was to work. Customers don't need to be fickle when theres a better tasting option 3 doors down. We really do have a great coffee culture here.

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