Transcription
Starbucks has coffee shops around the world. There are over 28,000 locations and 76 markets. From Shanghai to Guantanamo Bay. In China, a new Starbucks opens its doors every 15 hours. But there is one continent that seems uninterested in the popularity of the renowned coffee chain. That continent is Australia, known for having one of the hardest markets to enter. So difficult, that Starbucks closed more than two-thirds of its coffee shops on the continent in 2008. So, what went so wrong with Starbucks in Australia? To answer, let's go back to July 2000 when Starbucks opened its first Australian coffee shop in Sydney. From there, it expanded rapidly. By 2008, Starbucks had 87 coffee shops across the continent. I think one of the problems was that they thought their business problem could simply disappear and there was no need to make any changes. But that was the problem. They tried to expand the company too quickly. Starbucks opened multiple locations rapidly instead of slowly integrating the coffee shops into the Australian market. When they launched, they did it very quickly and did not give the Australian consumer time to develop a real appetite for the Starbucks brand. They also spread to regional areas and outside the suburbs of big cities. For Australian consumers, Starbucks was simply too available. There was neither a need nor a desire for Starbucks. It was not an organic expansion, which did happen in the United States. In its first seven years in Australia, Starbucks accumulated $105 million in losses. By 2007, Starbucks in Australia was hanging by a thread. Asking for large loans from the United States, totaling $54 million. And in 2008, Starbucks announced it would close 61 coffee shops. Of course, 2008 was a difficult year for all businesses due to the financial crisis. In addition to the closures in Australia, Starbucks also closed 600 underperforming American coffee shops. Still, the failure in Australia was embarrassing for the company. When 75 locations closed their doors to Australian consumers, when they left the market, or at least most of the chain did, Australian consumers didn't care. Partly because Australians have many options when it comes to coffee. The coffee market in Australia is one of the most successful markets in the world. The industry is expected to exceed more than six billion dollars in total revenue in 2018. Australians have been involved in the coffee industry and culture since the mid-1900s, when Italian and Greek immigrants began traveling to the country. Immigrants introduced espresso to Australians. By 1980, Australians were completely immersed in coffee culture. They also became accustomed to special menus that include "Flat Whites" and Australian macchiatos. Coffee shops in Australia were born from Italian culture, from meeting friends, from conversations with your local barista, and from seeing those interactions as something everyone had in common. Coffee was part of that interaction. Then Starbucks appeared with something that seemed more like an American version of coffee culture, which is essentially seeing coffee as a product, a commodity like morning caffeine. Starbucks had a basic menu and offered many sugary drinks, something most Australians don't like. In Australia, we don't want a hundred-ounce cup of coffee with a lot of sugar. We want something more sophisticated. Also, Starbucks charges more than local coffee shops, so Australians opted to pay less for their coffee at the local coffee shop they trusted. They entered the market with this idea of opening all these coffee shops; it was simply the wrong market for Australian customs. But there is an American coffee company that is thriving in Australia. Founded in Chicago and now based in Australia, Gloria Jean's achieved the reaction that Starbucks did not. Gloria Jean's has over 400 locations in Australia and serves over 35 million consumers in Australia each year. So, what is Gloria Jean's doing in Australia that Starbucks didn't? The company attributes its success to two Australians who created the franchise in their country. The coffee shops opened in Australia in 1996. Today, the company has a presence in every Australian state. The reason? Its menu offers a wide variety of espresso drinks and specialty coffees. The menu's inadaptability to Australian needs was a Starbucks mistake. The company faces another problem at the end of this year: Italy. Starbucks will open its first location in Milan at the end of 2018. Known as the home of espresso, Italy is rich in coffee culture. But according to Starbucks, the company will not make the same mistakes made in Australia. The company said it will expand in Italy with humility and respect for coffee and its culture. The company announced the opening of a coffee roaster, which is not a typical coffee shop. It offers customers the opportunity to witness the coffee roasting process in person, which could reduce the chance of a failure like the one that occurred in Australia. But Starbucks does not want to give up on Australia. The company is planning its return to the continent. In 2014, Starbucks' locations in Australia were purchased by the Mount Waverley group. Starbucks told CNBC that since the sale to the Mount Waverley group, the company has learned a lot. This time, Starbucks will take a different approach to its expansion on the continent. Australia is a popular tourist destination. There are many Chinese and American tourists. So it makes a lot of sense that Starbucks wants to use that to its advantage. Many tourists look for products they already know, with which they are familiar. With 39 locations in Brisbane, Melbourne, the Gold Coast, and Sydney, this time the company will not try to attract Australian customers; instead, the chain hopes to be a familiar face for tourists visiting renowned destinations in Australia. Australia has always been a very popular tourist destination. Furthermore, the number of international students in our universities is large. We are beginning to see the introduction of Starbucks into large shopping centers here in Australia. Australia welcomed nine million tourists between 2017 and 2018, and those international visitors spent more than 30 billion dollars in 2017. So tourists could be the key to keeping the company afloat, thus preventing another failure. Hello. Thank you for tuning into CNBC on YouTube. Be sure to subscribe to stay up-to-date on the day's most important stories. You can also click on any of the videos to watch the latest news on CNBC. Thank you for tuning in.