Starbucks' Australian Experience

Starbucks' Australian Experience
Case Code: BSTR304
Case Length: 24 Pages
Period: 2001-2008
Pub Date: 2009
Teaching Note: Available
Price: Rs.400
Organization: Starbucks
Industry: Food and Beverage
Countries: Australia; Global
Themes: International Business, Globalization Business
Starbucks' Australian Experience
Abstract Case Intro 1 Case Intro 2 Excerpts

"We have had to make a series of decisions that, in retrospect, have led to the watering down of the Starbucks experience and what some might call the commoditization of our brand."

- Howard Schultz, Chairman, President, and CEO, Starbucks Coffee Company, in a company memo to top execs on February 14, 2007.

"Part of the problem is that Starbucks' original business model just doesn't translate across markets. Starbucks original success had a lot to do with the fact that it introduced European coffee culture to a market that didn't have this tradition. Australia has a fantastic and rich coffee culture and companies like Starbucks really struggle to compete with that."

Nick Wailes, Associate Professor, expert in strategic management in the Faculty of Economics and Business at the University of Sydney, in 2008.

Starbucks: Down Under?

On July 29, 2008, Starbucks Coffee International, a subsidiary of Starbucks Corporation (Starbucks), Seattle, USA, one of the largest coffee chains in the world, announced its plans to close down 61 of its 84 stores in Australia by August 3, 2008. As a result, 685 'partners' would lose their jobs. The company also announced that with effect from September 1, 2008, Jason Ball, store development manager, Starbucks Australia, would take up the responsibility of Managing Director. According to the company, this step toward streamlining its business in Australia was a part of the multi-faceted 'transformation strategy' to bring the company back on track, taken up by founder Howard Schultz (Schultz).

Schultz resumed the responsibility of CEO of Starbucks on January 7, 2008, after a break of eight years from the day-to-day operations of the coffee chain. Commenting on the closures, Schultz said, "While this decision represents business challenges unique to the Australian market, it in no way reflects the strong state of Starbucks business in countries outside of the United States." The strategy in Australia entailed closure of 'underperforming' stores and focusing on three metropolitan cities: Brisbane, Melbourne, and Sydney and their surrounding regions. This announcement followed the unprecedented event - Starbucks recorded a net loss of US$6.7 million for the quarter ended June 29, 20085, with earning per share (EPS) being US$0.01.

There was simultaneously a drop in traffic in US stores, another first in the company's history. Comparable-store sales, an important measure of performance for the company, also dropped during the period. For the same 13-week period in 2007, the company recorded a net income of US$158.3 million with an EPS of US$ 0.21.This loss was attributed by the company mainly to exceptional costs that would be incurred in the closure of under-performing stores in the US and Australia...

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