Wednesday, April 26, 2017

Can Starbucks succeed in Australia?

When analyzing business strategy using the framework presented by Collis and Rukstad in their article “Can you say what your strategy is?, one should first identify the basics; are Objective, Scope and Advantage aligned in a cohesive and easy to communicate strategy?

The framework -translated into what the authors called “the statement”- should be critical for companies, specially the ones that operates globally and have thousands of employees and customers worldwide. That is the case of Starbucks, which business model has been internationally credited of socializing coffee and offering a superior service and experience in their cozy, computer-friendly stores. Almost the same strategy has been used to internationalize the company that by June 2016 already had presence in 72 countries.

But every country represent a different challenge, a different market structure and different customer preferences, and Australia is a fine example of that. Starbucks opened its first store in Sydney in 2000, followed by the opening of 84 more stores across the east coast. After eight years of battling against the underestimated Australian coffee culture, the company decided to close the majority of them, accounting for more than 143 million in recorded losses (1). Having myself lived in Australia for three years, I can certainly vouch for the extraordinary coffee culture that australians have built over the decades, and that might have been originated with the Italian migration during the gold rush years in 1850. In the following decades, continuous waves of Greek and Italian immigrants might have helped spread out the culture of espresso coffee and coffee shops as local meeting spaces.
To present, 95% of coffee shops in Australia are independently own (2), being a barista is a prestigious occupation -not just a part-time job performed by students- and in most coffee shops, coffee grains are grinded (and even roasted) on site and served in small glass cups that people patiently wait for in lines outside the best shops of big cities. Moreover, sugar on coffee is offered by baristas by the spoon, so the single idea of a 500mm. of sweet flavored coffee could make any purist run away instantly.

Getting back to Starbucks’s strategy to succeed in such environment; even if the objective and scope were right; that is, aggressively enter the Australian market by making a presence in most business districts, shopping centers and touristic spots -a limited scope and ambitious goal-, the advantage that Starbucks was offering to Australian consumers was still questionable.

Now, after 17 years of that first failed attempt, Starbucks is decided to give a second in the Australian market, this time, with a much more humble strategy, opening stores only in a couple limited areas, focusing in shopping centers and beach neighborhoods. In my opinion, if Starbucks strengthens its advantage in cold beverages and younger consumers, it might have a chance to succeed in the Australian market, also by implementing it in a much quieter way that recognizes the local cultural singularities, and relying less on the brand -which might have had an impact in the initial resistance of Australian consumers.


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