Wednesday, July 30, 2008


Announcement to Customers 29th July 2008

Starbucks has been a part of the Australian market since 2000. There are currently 84 Starbucks locations throughout the country, including Brisbane, Canberra, Gold Coast, Melbourne, South Australia, Sydney, and Tasmania. 23 stores will remain open in Brisbane, Melbourne, Sydney and surrounding areas to serve customers in those communities. The list of stores that are scheduled for closure will appear on this site by 5pm July 31st after all affected stores partners (employees) have been personally notified.

Losing nearly three quarters of their stores isn't the worst of it. It sounds like Starbucks is abandoning whole cities. If the company has to flee the Gold Coast - one of Australia's most famous tourist destinations - they're in worse shape than I thought.

I've had my doubts about Starbucks succeeding in Australia. There were, and are too many alternatives - from the small cosy places and fancy cafés to existing chains like Coffee Club and Gloria Jeans. The coffee is better elsewhere, there's more room to sit (or cuddle or seduce), and meals are available as well. The competition also have better aesthetics, while Starbucks expect their customers to order their coffees like they order their Big Macs and their KFC. As for the produt: my first and last impression of their brew (sipped in 2001 in Salt Lake City) was that it was coffee-flavoured froth. I haven't tasted it since then.

It's the staff who get my sympathy. From The Age:

Several former Melbourne employees, mainly aged in their teens to early 20s, said after a meeting at Little Bourke Street's Mantra Hotel, that they were shocked by the sudden nature of the announcement.

One former employee of the Lygon Street store in Carlton said he was upset former employees had been given less than a week's notice despite Starbucks making the decision to close the store two weeks ago.

"All the stores were just cannibalising each other, all the bigger stores were just taking money from the smaller ones," Ilias, 22, said.

Perhaps I'm not reading the press release correctly. Let me put on my amateur MBA hat. The sensible thing now would be to reduce the number of stores - I know Starbucks is cash-strapped in the States, and they're cutting back there. But I would try to keep at least one restaurant in each of the CBDs, and spread the rest around. It seems a little extreme that they can't make a profit from one single franchise in Adelaide or Perth (both +1 million cities).

The sensible thing would be to spread themselves widely, concentrate on one or two stores in the city centres, and if possible spread (or re-spread) to the suburbs. Instead they've been engaging in Darwinian selection with their franchises - crowding hem together, and letting them fight each other. That seems to be the Starbucks business model - I've heard it happen in the States, and in the U.K. Alas, the result is not the survival of the fittest, but the malnourishment of the population. No wonder the company is failing, and leading to massive retrechments. The soon-to-be-unemployed have my sympathy, but the management can go Starbuck themselves.