"We can never reach a stage where we can say, "I know everything, and I have nothing more left to learn".
Above quote from Pooja Agnihotri's book "17 Reasons Why Businesses Fail" appropriately suits a brand that has rejuvenated the refreshment behavior and destination of people worldwide with its excellent customer-satisfaction policy, innovative products, and bulls-eye marketing strategy. The brand spread across more than 75 countries and 28000 locations with annual revenue of approximately 23.51 billion USD (wall street journal). The brand is covering the world from Shanghai to Guantanamo Bay. According to CNBC, brand growth is so rapid that it opens one store every fifteen hours in China.
We are talking about Seattle, the USA, based on the largest coffee chain globally, "Starbucks Coffee". The brand is growing strength to strength worldwide and provides some very innovative strategy to the business world, which will work as a cornerstone for brands that are planning to thrive in the market and their customer segment; if everything about Starbucks is so impressive, then why I have used the quote as mentioned above, let me solve this enigma.
Yes, there is a large part of the world for Starbucks becoming a part of their lifestyle. Still, one continent seems uninteresting towards the world's most attractive and biggest coffee brand, and that continent is Australia. A continent that consumes 37 million kilograms of coffee in a year. A brand that is known for its consumer satisfaction, market STP (Segmentation, Targeting, positioning) method and market growth strategy how failed itself in geography where 75% of the population (around 19 Million) drinks coffee and 28% of those have three or more cups of coffee in a day. Let us decode a rare failure of a global brand with the below-mentioned points.
· The need and want determination failure.
The Australian coffee market industry has grown-up with a CAGR of 11% in the last 20 year, and in 2018 revenue generated from the sector was 5.5 billion USD. In 2017 the consumption of coffee per capita was 1.91 kg. The data has shown exhilarating figures and can attract a significant player like "Starbucks". Starbucks opened its first outlet in Australia in the year 2000, and in its first seven years brand accumulated 105 million dollars in losses with its more than 70+ (a big mistake that we will discuss in further points) stores. The root cause behind this is the strategic failure of management in understanding the consumers' needs and desires. If you ask any random person on the Australian street "Why Starbucks failed", they will tell you- we have taste sprouts; after ordering a coffee, we expect a delicious black coffee or creamy latte, not a half-liter of flavoured quaff. The consumers were already formed due to a century-long coffee culture of the country, and most of them are prefer small cafes; this hit hard the Starbucks as they could not be able to compete with local vendor due to consumers taste and preference which also works as an entry barrier for the brand.
· A needless aggressive expansion policy
Scarcity enhances the value of any brand or resource. Starbucks' biggest strategic mistake in Australia is that they never keep itself scarce in the region and opened too many outlets in no time. Though the southern hemisphere continent was known for its affection for coffee, the Coffee giant did not allow consumers to develop their brand's appetite by its rapid expansion policy. Its growth strategy backfires since the brand cannot exhibit any difference from local coffee shops by making itself readily available for consumers. Ultimately, due to severe losses, they had to shut down 61 out of 87 outlets in 2008.
· Competitive Rivalry
As already mentioned, Australia is one of the biggest Coffee markets in the world with 5.5 billion USD revenue and fully engulfed with café culture since 1900. The continent has many players who have grown exceptional Australian brand coffee, such as Australian macchiato or flat white. The local vendor acquainted with the Australian business model and is very much loyal amongst consumers; on the other hand, Starbucks started its operation in Australia with the same business model as the American continent. Starbucks' rival in the region has a competitive advantage over the brand since they understand the consumer psyche and deliver a consumer-oriented menu in which Starbucks failed. Also, to create a point of difference, the coffee chain brand keeps its product price higher than available brands in the market, which worked adversely for the brand.
There might be some more reason for "Starbucks failure" in the Australian continent, such as the "2008 Financial crisis", "Smart consumers", and "Australian people sentiment towards their products". And it is also correct that marketing relies on gut instincts. Still, it is vital for the organizations, before implementing any strategy, they need to understand the most crucial aspect of business--- Customer.
To know more strategic implications, follow our blog until next time.
About the Writer
PGDM, IMT Hyderabad
A constant learner, interested in equity research, business research, and market intelligence.
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