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Starbucks gears up for a comeback

StarbucksAfter a humiliating withdrawal from the Australian market nearly 10 years ago, Starbucks appears to be taking another stab at expansion.

The US-based coffee chain has quietly opened new locations in Sydney, Brisbane and Melbourne in recent months, bringing its total footprint Down Under up to 29. That is five more than the Withers Group inherited when it bought the licence in 2008.

At the time, Warren Wilmot, former CEO of the Withers Group, which also runs 7-Eleven in Australia, said the aim was to make Starbucks the most successful coffee chain in the country. But until recently, there were few if any visible signs of progress.

However, IRW has learned that the Withers Group is now looking to open more Starbucks stores in areas that attract a high volume of international tourists in prime CBD locations across the country, shopping centres and airports.

Theyre looking for strategic locations that can help them go after their target market, said Zelman Ainsworth, head of retail leasing in Melbourne at CBRE Asia Pacific, wo is working with the Withers Group to find properties in the citys CBD, particularly on Swanston Street and Elizabeth Street.

A source familiar with the business said the Withers Group strategy involves targeting low-hanging fruit tourists and international students who are already familiar with the brand and taking a methodical approach to store expansion. Converting local customers is less of a priority.

The strategy is carefully considered development. International students and travellers are easy [to acquire], so theyll go after them first and then continue to grow beyond that. The easy path initially is to expand where stores are financially viable, the source told IRW.

That likely means sticking to CBD areas, although shopping centres are not out of the question. Two suburban Melbourne shopping centres Eastland and Chadstone are both homes to new Starbucks stores.

The source suggested this approach will help the Withers Group avoid one of Starbucks costliest mistakes in the Australian market.  

The first time around, they went with rampant development. They did silly things like have one store in Darwin and Tasmania, which were very expensive to operate, rather than getting a good core of performing businesses in capital cities and growing from there.

Im still absolutely convinced it will be successful in Australia if its done in a careful and considered way, the source said.    

A spokesperson for the Withers Group declined to comment for this story.

It’s a red ocean out there

While many analysts say this strategy is sound in theory, they question the amount of growth possible.

I cant in my wildest dreams see them expanding to the extent they were ten years ago, said Paul Patterson, a professor in the University of New South Wales Business School, who has written several case studies on the failure of Starbucks in Australia.

At one point, the US coffee chain had 84 stores in Australia, before it ultimately closed 66 locations and sold the remainder to the Withers Group, racking up a $143 million loss.

Patterson said the Withers Group is now up against several challenges, but the primary one is competition from thousands of local independent coffee shops that have taken the Starbucks lifestyle cafe concept and run with it.

We have a duty of debt to Starbucks because they invented the concept of the lifestyle cafe. At the time, it was a blue ocean strategy and they had the market to the themselves, but now it has moved to a red ocean there are lots of competitors and everyones trying to kill everyone else.

I dont see them having any point of difference today. Its a global brand, but it has no cache in this market. Australians dont necessarily love global American brands, Patterson said.

And while its true that the independent coffee shops by far account for the biggest slice of the market in Australia at almost 84 per cent, plenty of Aussies also buy their flat whites from Gloria Jeans Coffees and McCafe, as marketing expert Anna Jones pointed out.

The coffee culture in Australia is so unique. People love their local coffee shop and always pick that over a chain brand, but I do think the Australian population is changing, and lots of people live here who werent born here, Jones told IRW.  

The question is as new people come in, could that start to change the coffee culture in Australia? You just have to look at chains like Gloria Jeans that have lots of stores and volume to see theres definitely a market thats okay with that,” she said.

 

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