Starbucks finally makes some money in Australia – what changed?

  • Starbucks initially entered the Australian market in 2000 but closed 70% of its locations by 2008
  • The chain struggled to align its brand with Australia’s strong coffee culture
  • However, younger consumers with a more global mindset may be helping to drive renewed growth

STARBUCKS FIRST entered the Australian market in 2000, expanding to nearly 90 locations across the country by 2008. However, in that year, it closed over 70% of those locations after a sustained period of low sales.

However, after 23 years and over $140 million in losses, Starbucks Australia posted its first profit this November with a 35% revenue increase to AU$157 million for the financial year ending June 2023.

It has, however, been a long road to get to this point. Initially, the rapid expansion of stores in both urban and regional areas was criticised for impeding the brand’s ability to build a solid market presence and customer base.

While this may be the case, the reasons Starbucks faced difficulties in gaining a foothold in the Australian market certainly go deeper than this.

Local coffee culture

Many believe Starbucks ventured into Australia without conducting sufficient market research. This meant an initial inability to capitalise on local consumer preferences and a cultural gap between what Starbucks offered and what consumers expected.

For many, Starbucks symbolised the Americanisation of coffee, emphasising a “fast coffee” model that prioritised speed and convenience over creating an atmosphere. It would be fair to say that this approach did not fit with Australia’s coffee culture.

Furthermore, in America, Starbucks played a key role in coffee’s second wave and early specialty coffee culture. By the time it arrived in Australia, however, the country had already earned a reputation for its distinctive café culture. This meant that when Starbucks began opening locations, it struggled to compete on both price and quality. In short, Starbucks entered a highly competitive market too late in the game

This meant that Starbucks faced stiff competition from independent coffee shops, which already had a substantial portion of the market share. It’s widely accepted that Australians have a strong cultural commitment to supporting local, independent coffee businesses, and many argue this simply left no room for Starbucks some 20 years ago.

Starbucks Australia finally starts to make some money

Young consumers to the rescue?

However, a lot has changed in the last two decades.

For one, consumers all over the world are becoming increasingly disloyal as far as coffee brands are concerned. Many point to younger consumers (and the influence of social media) as driving this trend. In particular, the rise of flavoured syrups and customisable beverage options has become impossible to ignore across the world – something which Starbucks has become largely synonymous with. In short – its time has now come.

This is particularly the case with young consumers. Indeed, a new cohort of Gen Z and young millennials are driving coffee consumption in Australia, and they exhibit new drinking preferences that align with what Starbucks offers.

Furthermore, Starbucks aligns with young people’s on-the-go lifestyle. There has been a global shift towards convenience and mobile ordering systems which is particularly prevalent among younger demographics – and Starbucks is able to cater to this demand.

Ultimately, Starbucks is a global brand with global appeal, and it’s leaning into that in the Australian market. This can be seen in the handful of outlets it opened in 2016 where it shifted its growth strategy from aiming to be Australia’s most popular coffee chain to focusing on locations that target tourists and more international audiences, such as shopping centres.

“Before, they were trying to hit the Australian coffee lover and that was never going to be where their success was going to come from,” says Rohan Cooke, owner of Golden Brown Coffee. “[Now] they’ve positioned their shops in international regions of Australia.”

Cold and customisable coffee

At the same time, Australia is no exception to the booming popularity of cold coffee seen in other markets across the world – another area Starbucks is well-positioned to capitalise on.

“You can expect that Australians will be drinking a lot more iced drinks as they’re finding the stigma towards Starbucks is dropping,” Kirk Pearson, founder of Project Zero. “The appreciation for iced, cold, and sweetened drinks is at an all-time high and I think it will remain elevated. I just don’t know for how long.”

Just like in the US, Europe, and other major consuming markets, we’re also seeing the exponential growth of RTD and cold coffee in the Australian market.

Ultimately, Starbucks’ eventual success in Australia is representative of what’s happening across the wider coffee industry. Driven by young consumers, cold and customisable beverages are now more popular than ever, and convenience is becoming the single most important driver of consumer behaviour across all demographics.

Although Australia’s specialty coffee shop culture was clearly robust enough to stave off Starbucks earlier in the 21st century, this industry-wide seachange is now becoming simply impossible to fight back against. While it may have stagnated, the tides are now turning in all other major coffee-consuming markets. For Australia, it’s clear that it was only ever a matter of time.

Coffee Intelligence

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