Starbucks first store in Australia opened in July of 2000, not long after their successful expansion to China. Executives were confident in their decision to expand further, but it diminished in 2008 with the closure of the majority of their stores. Starbucks’s expansion into Australia clearly did not succeed like their other expansions to other developed countries had. This could be explained due to three reasons: advanced local coffee culture, the pace of expansion, and lack of effort to adapt (like they did in China) When Starbucks entered Australia, they expanded at an extremely fast pace and by 2008 they had opened 90 stores. However, such speed “grew faster than its popularity” as it ultimately resulted in a loss of $105 million in the first seven years. Given the fact that Australia has always had a strong and large coffee drinking culture, Starbucks should have been aware of the challenges they would have to face in that market. Before Starbucks was even introduced into the United States, Australians were already “enjoying espresso lattes in coffee shops set up by Greeks and Italian immigrants”. Consumers with a pre-existing market such as this one need to become acclimated to a new company. The charm of the local coffee shops was one aspect that Starbucks did not contain and needed time to develop. Similarly, a large portion of the local Australian population preferred having other certain types of food within such coffee shops such as sandwiches and other small bites . Howard Schultz, the CEO of Starbucks at the time mentioned that “(he) had resisted the idea of serving hot food from day one. While (he) encouraged innovation, (he) never envisioned people coming into Starbucks for a sandwich." The lack of attention and willingness to explore the established coffee culture in Australia resulted in the poor performance, and eventual closure of the majority of their locations. Starbucks did not have sufficient knowledge of preferences, and relied on the idea that Australia was westernized enough to accept them immediately. There is no evidence that Starbucks made an effort to truly differentiate themselves from the local establishments, or offer any enticing promotions once opened. Without these components, there wasn’t much of a chance for Starbucks to succeed against their competitors. The established cafes were satisfying the locals' demands, so a lower quality coffee at a much higher price within these highly populated business cities was almost insulting to Australians. Success In China Since those early days Starbucks has meticulously organized its efforts in China around three key pillars of Chinese society: family, community, and status. Unlike in Australia, Starbucks understood Chinese culture and adjusted their strategy right away. From the beginning of Chinese civilization, family has been the key source of security, education and spirit for the Chinese people. The society’s Confucian values entwine children and parents in a bond of shared responsibility that stretches throughout all stages of life. Parents should strongly engage in their children’s lives -- their upbringing, education and career -- and in return, children should respect and care for their parents as they age. Starbucks fully understood this and made engaging parents a cornerstone of its people operations. Since 2012, Starbucks has hosted an annual “Partner Family Forum,” where its employees (whom the company calls “partners”) and their parents can learn together about the company and its future in China. “Partners” talk about their professional experiences in the company and Starbucks leadership -- even CEO Howard Schultz -- speak to the parents. “Think about an annual meeting of shareholders; we had an annual meeting of parents in Beijing and Shanghai, and we had about 90% participation. We did not know who or how many would come. In most cases, there were whole families.” Chinese highly value their community, traditionally labeled as their “inside circles.” Be it their homes, schools or companies, they turn to these circles for loyalty, information and approval of their choices. With this in mind, Starbucks designed its retail spaces to facilitate these “circles” coming together. Unlike in the United States, where Starbucks chairs are often the quiet haunts of solitary laptop users, China’s Starbucks are laid out to welcome crowds, noise and lounging. In many cases, the spaces are up to 40% bigger than in the U.S. QUESTION 1 Discuss some of the most significant marketing challenges that a company faces when attempting to integrate into new markets with diverse consumers.
Case study
Why Have Starbucks Failed in Australia but Succeeded In China?
By Lukashevich, S., May 2021
Failure in Australia
Starbucks first store in Australia opened in July of 2000, not long after their successful expansion to China. Executives were confident in their decision to expand further, but it diminished in 2008 with the closure of the majority of their stores. Starbucks’s expansion into Australia clearly did not succeed like their other expansions to other developed countries had. This could be explained due to three reasons: advanced local coffee culture, the pace of expansion, and lack of effort to adapt (like they did in China)
When Starbucks entered Australia, they expanded at an extremely fast pace and by 2008 they had opened 90 stores. However, such speed “grew faster than its popularity” as it ultimately resulted in a loss of $105 million in the first seven years. Given the fact that Australia has always had a strong and large coffee drinking culture, Starbucks should have been aware of the challenges they would have to face in that market. Before Starbucks was even introduced into the United States, Australians were already “enjoying espresso lattes in coffee shops set up by Greeks and Italian immigrants”. Consumers with a pre-existing market such as this one need to become acclimated to a new company. The charm of the local coffee shops was one aspect that Starbucks did not contain and needed time to develop. Similarly, a large portion of the local Australian population preferred having other certain types of food within such coffee shops such as sandwiches and other small bites . Howard Schultz, the CEO of Starbucks at the time mentioned that “(he) had resisted the idea of serving hot food from day one. While (he) encouraged innovation, (he) never envisioned people coming into Starbucks for a sandwich." The lack of attention and willingness to explore the established coffee culture in Australia resulted in the poor performance, and eventual closure of the majority of their locations.
Starbucks did not have sufficient knowledge of preferences, and relied on the idea that Australia was westernized enough to accept them immediately. There is no evidence that Starbucks made an effort to truly differentiate themselves from the local establishments, or offer any enticing promotions once opened. Without these components, there wasn’t much of a chance for Starbucks to succeed against their competitors. The established cafes were satisfying the locals' demands, so a lower quality coffee at a much higher price within these highly populated business cities was almost insulting to Australians.
Success In China
Since those early days Starbucks has meticulously organized its efforts in China around three key pillars of Chinese society: family, community, and status. Unlike in Australia, Starbucks understood Chinese culture and adjusted their strategy right away.
From the beginning of Chinese civilization, family has been the key source of security, education and spirit for the Chinese people. The society’s Confucian values entwine children and parents in a bond of shared responsibility that stretches throughout all stages of life. Parents should strongly engage in their children’s lives -- their upbringing, education and career -- and in return, children should respect and care for their parents as they age.
Starbucks fully understood this and made engaging parents a cornerstone of its people operations. Since 2012, Starbucks has hosted an annual “Partner Family Forum,” where its employees (whom the company calls “partners”) and their parents can learn together about the company and its future in China. “Partners” talk about their professional experiences in the company and Starbucks leadership -- even CEO Howard Schultz -- speak to the parents. “Think about an annual meeting of shareholders; we had an annual meeting of parents in Beijing and Shanghai, and we had about 90% participation. We did not know who or how many would come. In most cases, there were whole families.”
Chinese highly value their community, traditionally labeled as their “inside circles.” Be it their homes, schools or companies, they turn to these circles for loyalty, information and approval of their choices.
With this in mind, Starbucks designed its retail spaces to facilitate these “circles” coming together. Unlike in the United States, where Starbucks chairs are often the quiet haunts of solitary laptop users, China’s Starbucks are laid out to welcome crowds, noise and lounging. In many cases, the spaces are up to 40% bigger than in the U.S.
QUESTION 1
Discuss some of the most significant marketing challenges that a company faces when attempting
to integrate into new markets with diverse consumers.
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