How the Local Competition Defeated a Global Brand: the Case of Starbucks

How the local competition defeated a global brand: The case of Starbucks

By Paul G.Patterson, Jane Scott, Mark D.Uncles

Starbucks was founded in 1997 and floated on the stock market in1992. Then Starbucks expanded its business with astonishing rate, and its number of stores boosts by 40% to 60% per year. By the end of 2007, Starbucks owned 87 stores in Australia. However, something went wrong since 2008. Starbucks decided to close three-quarters of stores in Australia in mid 2008 and the number of Australian stores declined sharply to only 22.

The study analyzes some reasons result in Starbucks’ failure in Australia:

1.Starbucks overestimated their points of differentiation and the perceived value of their supplementary services---Starbucks’ rapid expansion led to standardized products and design, which would definitely meet with cold welcome in Australia, where coffee culture was mature and more attention was paid to unique in-store experience. What is worse, as some opponent started imitating Starbucks, Starbucks’s points of differentiation were further weakened.

2.Declining service quality---As Starbucks continued to expand, it had to hire more employees and baristas without being systematically trained so as to meet the demand of new stores. Since Starbucks focused more on faster service instead of quality of coffee, its service quality was declined.

3.Starbucks looked down upon some golden rules of international marketing---When entering to Australia’s market, Starbucks just provided their same products all around the world and didn’t localize their brand or adapt to the local condition. That is a significant reason that led Starbucks to a failure.

4.Starbucks ran counter to the economic principles of cultural scarcity. Since Starbucks opened increasing number of stores, it became so common that consumers’ novelty wore off. By owning too many outlets, Starbucks became too commercial and its initial appeal of status and exclusivity was gradually lost.

5.The coffee market in Australia has been well developed and saturated. Starbucks entered too late into this highly competitive market, without the first step advantage, its development would be really tough.