The decline of Starbucks

A major peril with textbooks is the choice of case-studies. The latest version of Global Business Today (the textbook I use in Business in the Global Economy) uses US cafe giant Starbucks as an example of internationalisation on three separate occasions. Thankfully, none of the short cases are specifically about the success of this expansion. As of last week, it would seem any new cases might be about the failure of the firm’s strategy. The firm closed 61 stores in Australia. Starbucks opened its first Australian store back in 2000 and had grown to 84 stores before last week.

There has been considerable gloating by the Australian press about the failure of Starbucks to appreciate that Australians already had a strong existing cafe culture and more mature tastes in coffee. As noted in the SMH story, “The president of Starbucks Asia Pacific, John Culver, admitted: “I think what we’ve seen is that Australia has a very sophisticated coffee culture.”” This interview with Culver in the Wall Street Journal from a couple of weeks ago explores the firm’s views of Asia more generally. Decisions about the Australian market come out of Culver’s Hong Kong office.

This scenario is a fascinating example of a firm coming from a seemingly close cultural home country struggling to repeat its competitive advantage. The major weakness of Starbucks’ approach in Australia was that they were a late-comer and therefore could do much less to ‘shape’ or ‘shift’ consumer behaviour and attitudes. Better market research might have helped them here, and perhaps greater product adaptation.

At an implementation level, their choice of locations has been criticised in the press also, as they sought out locations that commanded very high rents (thus forcing high coffee prices) and also began to run out of high foot-traffic locations (see an article in BRW (August 7, 2008 ) on this – sorry I can’t find an electronic copy anywhere).

In contrast, the remainder of the Asian operations, where coffee was a much less entrenched habit and thus Starbucks was able to shape expectations about both quality and prices, look likely to continue expanding.

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Tags: disinvestment, International business, International retailing, Internationalisation, retail, Starbucks