Starbucks – Straya (Never really took off)

starbucks-coffee

Market Evaluation: When we talk about an international brand entering another country to set up their business, they better make sure they evaluated things correctly. Most importantly, can they be local? Can they get along well with the local culture? When they get the right market evaluation, there’s a chance that a brand will be successful in the foreign country.

Metrics are basically the indicators that shows the performance of a particular brand in one specific market. Here I enclosed some of the metrics and analyzed how Starbucks performed in Australia and also the reason they failed in Australia.

Starbucks: What went wrong?” (Australian Food news, July 31,2008)

Starbucks failed miserably in Australia. The main reason is that they underestimated the market and they just analyzed the market like they did in the United states. Main reason behind the success of Starbucks in other parts of the world is that “Starbucks” brought the espresso coffee culture to those particular countries.  But in case of Australia, coffee culture was brought up long before Starbucks had set their stores up in the country. Main reason being the Italian immigrants who settles in Australia after the end of world war 2. They were the ones who established the coffee culture in the country.

Unfortunately, what worked in the US was ‘‘bitter, weak coffee augmented by huge quantities of milk and sweet flavored syrups. Not so much coffee, as hot coffee-based smoothies”. For the Australian consumer raised on a diet of real espresso, this was always going to be a tough sell (Mescall, 2008)

 

They stated that Starbucks incurred almost $143 million in losses from the time they set up their stores in 2000. Starbucks started setting up stores in few locations initially that might have helped them create a demand for their coffee initially but, when they started expanded stores, they eventually began to fall in the market. There was nothing new with Starbucks when they entered Australia except for being an American brand. When they realized Starbucks was no longer working out in Australia, they shut down 40 of their stores and sold the remaining 24 stores to “The withers group” who operates 7-eleven stores across Australia.

There are many problems they faced from Understanding the coffee market in Australia, Huge competition from already existing brands such as Gloria jeans, maccas and other local players, Priced higher than the competitors, improper market evaluation.

how-and-why-a-global-brand-starbucks-failed-in-australia-18-638

how-and-why-a-global-brand-starbucks-failed-in-australia-17-638

‘‘I just think the whole system, the way they serve, just didn’t appeal to the culture we have here” Andrew Mackay, VP of the Australian Coffee Traders Association, in Martin (2008)

When we look at the metrics:

Market share: An important metric we should be considering while analyzing our brand in the market. When it comes to Starbucks: <1% in Australia whereas the competitors are way ahead.

The coffee club: 4%, Gloria jean’s coffee: 3%, Michel’s Patisserie: 3%, Hudson’s Coffee: <1% and Starbucks comes later. There are some reasons for this failure of Starbucks such as: Expensive compared to the competitors, late entry into the market, wrong evaluation of Australian market and many more.

Brand loyalty: Brand loyalty never was a big thing in Australian market. Particular coffee brand isn’t particular for 44% of the Australians. 20% for Gloria jean’s, 10% for Mc café, 18% for Starbucks.

Pricing: Starbucks was always priced high compared to the others and moreover consumers here in Australia started preferring other brands over Starbucks since they offer coffee with almost the same quality as Starbucks, some better than them and they’re priced less.

Financial Metrics as explained in a word (Net Profit):  Starbucks always ran under loss as stated in their report for the year financial year 2007. Total accumulated loss of $143 million, $36 million on that year, $27.6 million in the previous year and they borrowed from parent brand (Starbucks US) for $72million. Only reason they survived in Australian market was because of their parent brand’s support.

Figure below shows the price of Espresso (Widely sold offering by every café in Australia)

how-and-why-a-global-brand-starbucks-failed-in-australia-8-638

 

Macca’s: (Mccafe)

When we talk about Mc Donalds entering Australian market, they stepped in the market pretty carefully. At the beginning, they just set-up two to 3 stores in major cities. Due to the limited stores in the city, demand for Maccas had increased. Slowly they started setting up stores to attract the masses. They also introduced Mccafe in 1993 which also gathered some attention and today Mccafe are the second largest shareholder in the market due to their timely introduction of Mccafe unlike Starbucks who introduced their brand in the market when it reached the Maturity stage.  Instead doing this, Starbucks forced themselves in the market and started setting stores which didn’t actually work out.

 mccafe

Can the international brands cope up with already existing and most preferred local stores? Well, the answer is Yes and No. Yes, in the case of Macca’s and No in the case of Starbucks. One of then evaluated the market thoroughly and one did not. One is very successful and one is a total failure. One was in a hurry to expand their stores to increase their revenue but one was slow but intelligent in the international market. One should learn from the other’s success.

 

References:

 

Submitted by:

Goutham Menda

Id: 215389129

 

 

 

 

 

 

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