EIGHT years after one of the world’s biggest brands admitted humiliating defeat in Australia, Starbucks has begun — ever so quietly — reopening coffee shops in the country’s biggest cities.
A population starved of Frappuccinos, ignorant to what a “tall” latte is and baffled by drip coffee is about to get a double shot of Starbucks despite the global Goliath’s felling by the humble local barista.
The chain told news.com.au it had a new strategy for success and previously stated its aim was to be “the most successful coffee chain in Australia”. But a marketing expert predicts it wall fall short and would only open 10 more stores at most as the brand was still seen as “arrogant” by Australians.
In an Australian takeaway coffee market worth about $2 billion, Gloria Jeans has more than 450 branches in Australia while Coffee Club has 350 outlets. In comparison, there are a mere 22 Starbucks.
In 2002, two years after it entered Australia, Starbucks was in spitting distance of 100 stores. Then, without warning, the world’s most successful coffee chain closed scores of stores.
Racking up losses of $143 million on its Australian operations, in 2008 Starbucks sacked 700 staff and closed 66 branches leaving a rump of cafes in the CBDs of Melbourne, Sydney and Brisbane mostly serving tourists familiar with the brand.
And that’s the way it stayed until recently when, with little fanfare, Starbucks opened new stores in Sydney and Brisbane.
A Starbucks opened in Parramatta’s Westfield shopping centre last month. With a decor of “raw woods and illustrations of ‘underwater’ coffee botanicals, the new store embodies an old world nautical theme and the seafaring tradition of early coffee traders,” Starbucks colourfully boasted.
Starbucks Australia CEO Chris Garlick told news.com.au the chain’s handful of stores had a “significant and loyal customer base” but its new cafes, far from being on every street corner, would be concentrated in a limited number of areas.
“Our growth strategy is centred around our customers preferences and where they want us to be, which includes shopping centres and high traffic tourist locations,” he said.
“We’re confident these locations will help us create destinations for customers who want to come to our stores and relax, spend time catching up with friends, or some quiet time alone.”
This is perhaps most evident with its next big move into Sydney’s northern beaches, a prime tourist destination, by Christmas. The chain will straddle both Manly beachside and the famous Corso, in what is described as “the jewel in the crown” of commercial real estate.
Professor Paul Patterson, from the University of New South Wales’ Business School, said Starbucks’ main problem first time round was that it fundamentally misjudged Australia.
“I don’t think it was much to do with the coffee, the problem was the brand,” he told news.com.au.
“The Americans assumed that Australians would fall in love with an American brand and that just didn’t happen. Australians are not anti-American but they are anti arrogant American brands.”
The plan seemed to be open the doors and wait for the customers to flock in.
After all, it had worked in the UK where 800 Starbucks dot British high streets and in China where locals have gone gaga for “grande” cappuccinos at more than 2000 outlets.
The big difference? Prof Patterson said in the UK and China, Starbucks were partly responsible for introducing coffee culture in countries where a nice cup of tea was the hot beverage of choice.
But in Australia independent coffee shops were already part of the fabric.
“Starbucks failed to realise people were brand loyal to their local coffee shops because they know their barista and people weren’t going to leave that to go to a global brand.”
More than that, Starbucks charged a premium price. Even today a Starbucks tall latte at one of the few Sydney outlets costs $4.40 while a large flat white can be bought at funky holes in the wall nearby for $3.50.
The menu, heavy on US-style creamy sweet drinks and black coffee, only had a handful of milk-based coffees so beloved by Australians.
They already own the local arm of Japanese global convenience store franchise 7-Eleven — which also sells coffee but for just $1.
Withers Group’s then chief executive Warren Wilmot said the company had lofty ambitions for its new buy.
“Growing store numbers will be one of our primary opportunities,” he said at the time. “Our aim will be to make Starbucks the most successful coffee chain in Australia.”
But it’s not been a smooth transition to its new Australian franchisee. The Withers became embroiled in the 7-Eleven underpayment of wages scandal that consumed the company and saw chairman Russell Withers step down along with Mr Wilmot.
While its new expansion has been quiet it’s not gone completely under the radar. Residents in the Sydney beachside suburb of Manly almost spat out their chai lattes, so appalled were they at the idea of the US chain taking up residence.
Earlier this week, Mr Garlick told the Manly Daily the company had changed and was now true blue.
“No doubt it’s going to take a little bit of time for people to understand it’s a global brand run by Australians in Australia.”
Adriano Vieira, owner of Manly’s Silo coffee shop was far from convinced.
“Starbucks, they’re not a coffee shop that embraces the Australian way. Coffee drinkers won’t go to the shop, it will be kids who like to have a Frappuccino.”
President of the Cafe Owners and Baristas Association of Australia, David Barnham, said Starbucks’ success would hinge on whether they had learnt the lesson from their drubbing Down Under.
Chief among them would be that only seven per cent of Australian drink their brew black.
“The previous model of push button coffee didn’t work because Australians expect a full barista service,” Mr Barnham said. “I think a new model focusing on speciality coffees will have some success.
The Withers family were “savvy,” Mr Barnham said. The brand was well recognised and if they could balance its US roots while tweaking the concept to Australian tastes Starbucks could be a second-time-round success.
Will an expansionist Starbucks spell doom for the local coffee shop?
“Independent cafes make up two thirds of total cafes so even if Starbucks had 1000 cafes, it still wouldn’t make a dent, ” he said.
But Prof Paterson doubted Starbucks would get anywhere near that number of stores and were doomed to remain an also-ran, wedged between established chains and local independents.
“The Withers said they were going to make Starbucks the coffee brand of choice.
“Well that’s not going to happen because the competition is so well entrenched with independent coffee shops.”
He was also doubtful attempts to Australianise the brand would be able to go far enough to make a difference.
“The only way they can have some small growth is picking locations where there are many international tourists, such as Manly and CBDs, but fundamentally Starbucks has no point of difference.”
Nevertheless, he said Starbucks would stick around saying the company had to have outlets in Australia’s major cities to cement its global presence.
But he was sceptical Australians were going to embrace the joys of a double-tall latte with caramel.
“Do you want to get a good coffee down the road from a barista you know or from a global brand where no one knows you and you pay an extra dollar? It’s a no-brainer.”
benedict.brook@news.com.au
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