Source : THE AGE NEWS
Ask any Australian who drinks and enjoys coffee what they think of Starbucks, and you’ll find many willing to share an opinion.
Those who know of Starbucks’ foray in Australia are broadly familiar with a narrative that is over a decade old. The US corporation attempted to set up shop in Australia in the 2000s, grew too rapidly, shut 60 stores and fired 700 staff. In 2014, Starbucks sold its brand licence and remaining 24 stores to billionaire Russell Withers, who brought the 7-Eleven chain to Australia.
There are frissons of patriotic pride in the fact that the largest coffee company in the world was rejected in Australia. The nation’s bustling independent cafe culture is one of our most popular exports and an inextricable part of the Australian lifestyle. Finding a firm foothold in this market, for some US chains, can be a perilous endeavour: burger chain Wendy’s is on its second crack; Taco Bell’s current operator is wanting out after three attempts.
But, somewhere over the years, Starbucks’ performance started turning a corner. The steep year-on-year losses are stemming. In the 2023 financial year, it broke into profitability for the first time.
Out of sheer persistence, if nothing else, the $US94 billion ($147 billion) juggernaut Aussies once rebuffed has carved out a space for itself in the coffee scene.
“The very first thing we had to do was say clearly: what they’ve done for the last 14 years didn’t work,” said Starbucks Australia chief executive Braeden Lord. A long-time board member of the coffee chain’s Australian operations, Lord was leading the revival of Gelatissimo before being appointed to the CEO job.
Starbucks, put simply, had to stop chasing the mainstream market, metropolitan city coffee purveyors who savoured the neighbourhood cafe experience.
“We had to understand, beyond Millennials and Gen Zs, who were our target audience, where our safe spot was to be able to grow the business foundations off,” Lord said.
High foot traffic areas frequented by international travellers, Asian tourists and students have been always core to Starbucks’ customer base – but they are no longer the only demographics where the chain is now resonating.
Pockets of suburban and regional Australia spanning various cultures are embracing the Seattle-born coffee chain, which has grown to more than 80 stores. When Starbucks opened its first Western Australia store in Piara Waters in October last year, the turnout was so tremendous that it had to do some crowd control.
The opening of Starbucks’ first Perth store in Piara Waters attracted throngs of people and queues for hours.Credit: Blackmont Property
“This is not a word of lie, we had to cut off the drive-thru at six o’clock for people queuing,” said Lord.
“We broke, literally, international records for Starbucks … number of transactions, dollar sales, [for the] day, week, month,” he said. “The demand was amazing.”
While many Australian coffee drinkers might still turn up their nose at Starbucks, others around the country have been happy for the US giant to set up in their town.
Before the WA stores opened, Starbucks’ best-performing store was the drive-thru in Mount Druitt, 45 kilometres west of the Sydney CBD.
“What it comes down to is convenience,” Lord said of its consistent success. After the COVID-19 pandemic eased, Starbucks invested in making an app where 9 per cent of all orders are made.
Perth and Queensland, where coffee chains Dome, Miss Maud and Zarraffa’s operate a combined 140 stores, are more embracing of chains than the east coast, said Titanium Food director Suzee Brain.
Social researcher and demographer Mark McCrindle points out tradies picking up coffees on the go from petrol stations aren’t consuming coffee in the same way an office worker in the CBD is. “It’s a different social context,” he said. “There are different values around it, different socioeconomics. It’s little surprise [Starbucks] is doing well in some of these aspirational suburbs.”
Starbucks has also found a tailwind in the growing demand for iced drinks, driven by Gen Z and aided by the popularity of bubble tea and matcha. More than half of Starbucks’ drinks are cold beverages, while the reverse is true for typical cafes. Seasonal menus and a global audience waiting to jump on the next TikTok-viral drink or secret menu item has helped drive sales.
Year 12 student Tiffany Nie, photographed October 2020, was among many students around the world who have made use of Starbucks as a study space.Credit: James Brickwood
With COVID in the rearview mirror, Starbucks is leaning back into its reputation as a third space. The coffee juggernaut has tied its brand to hyper-customisable products and a consistent store experience with free Wi-Fi and power outlets that have attracted students, remote workers, tourists and groups.
“It can be younger, growing, emerging families, newer Australians,” said Lord. “A lot of Muslim communities that don’t drink alcohol, this is their place to congregate … [They] come in as a family and have cups of coffee at 10pm at night.”
Still growing: How much scale is enough?
At 80-odd stores and counting, Starbucks is still expanding its way to success. The country’s biggest coffee chains are all homegrown, but only get so far: Brisbane-born Coffee Club Australia counts 220 in Australia, Gloria Jean’s has about 150. McDonald’s, through McCafe, is arguably the country’s biggest seller of coffee. There are 40 stores in Starbucks’ pipeline.
But given its two-and-a-half decade-long presence, some have questioned whether the investment and annual losses have been worth it.
Former Starbucks CEO Chris Garlick spoke positively about Withers’ belief and willingness to invest in the brand, sentiments Lord echoes.
“Russell was almost infatuated with the brand. He just believed so much in the brand,” Lord said. “He saw Starbucks and thought, this is such a beautiful brand, such an opportunity.”
Some industry figures aren’t convinced that sticking it out is the same thing as finding long-term success. On the iced drinks frontier, it is facing increasing competition as the broader beverages market shifts to meet demand.
A Starbucks barista uses a portable blender to make cold foam in New York. Credit: Bloomberg
The trend won’t last forever, and younger drinkers, Brain said, would grow up eventually. “[They’re not coffee snobs] until they get their first jobs, until they get income,” said Brain. “They’re not making lifelong customers.”
Starbucks might have differentiated itself once for its customisation, but they are losing that edge, surmises Single O chief executive Michael Brabant. “I think what we’ve seen in the last three years is this explosion in specialty of people going, ‘let’s take that, but let’s do it at a quality level’.”
When this masthead visited Starbucks’ newest Sydney store on Elizabeth Street, just outside Gadigal Metro station, Brain described the use of floor space as a “disaster”. The outlet, diagonally across the road from another Starbucks store facing Hyde Park less than 100 metres away, is designed for takeaway, not for lingering in. It features just six seats – bench stools that face the window – with the rest of the store space taken up by significant amounts of Starbucks-branded merchandise and a long counter. Digital menus display items in miniscule hard-to-read font.
A visit to the Hyde Park store found it dishevelled and run down. Leaves from the park had blown into the store and empty cups lingered on tables and benchtops. Lopsided posters were stuck on the walls with grimy tape. “The [Elizabeth Street] store is much cleaner, it’s obviously newer. But you can see the discrepancy in execution,” said Brain.
Starbucks’ third space strategy can be a double-edged sword. During the 45-minute visit, only a party of three vacated their table. “Everyone’s just waiting, trying to spend as little as possible, keep their seat as long as they can,” said Brain.
Encouraging customer spend of roughly $9 an hour is important, according to the retail property consultant, especially for businesses relying on volume. Seating configuration is also important. “They might seat 30 people, but they only seat 15 people at a time because everyone’s coming in and sitting with a computer on their own,” said Brain. “That’s half their sales potential.”
‘This is really a sustainable business model within the Australian landscape.’
Starbucks Australia CEO Braeden Lord
Overseas, Starbucks is under pressure. Global coffee prices are rising. Under global CEO Brian Niccol, the Nasdaq-listed juggernaut has been executing a turnaround to win customers back to stores by making cafes more welcoming, prioritising efficiency, updating its dress code, and bringing back messages on cups. “Our problems are fixable. Most of what we need to do is in our control,” Niccol said in October.
Asian cities such as Seoul, Tokyo and Shanghai are developing their own coffee scenes. China’s answer to Starbucks, Luckin Coffee, was founded in late 2017 but has already exploded to more than 22,000 stores worldwide, outpacing the number of Starbucks in China. Orders are app-only, prices are lower, service is quick and tech-powered, and flavours (brown sugar boba latte, cheese latte) are interesting. It is reportedly planning a US launch this year. Starbucks might get beaten at its own game.
In Australia, the chain swung back to a loss ($5.8 million) for the 2024 financial year as customers pulled back their spending. The cost of beans is up 20 per cent annually. Starbucks hiked cup prices by 30¢ to 50¢.
Most, but not all, of its stores are profitable. “Last year was a tough year for us. It didn’t play out the way we hoped, I’ll be very transparent with that.” Starbucks isn’t alone: CreditorWatch has forecasted 8.9 per cent of food and beverage outlets will close.
But Lord is starting to see improving customer sentiment and a more positive outlook. “Consumers are starting to come back,” he said.
“This is really a sustainable business model within the Australian landscape.”
A barista at Single O, Sydney.Credit: Steven Siewert
While Starbucks may have found some footing on Aussie soil, the chain stands some ways apart from Australia’s proudly independent cafe culture.
“You hear it all the time,” said Single O’s Brabant. “You have a mate, they go overseas, come back … They’re like, it was a great trip.
“Second comment, I reckon, is normally, ‘coffee was shit. It’s good to be home, I can’t wait to go to my local’.”
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