Why Starbucks fail in Australia

Describe about The Report for "Why Starbucks fail in Australia".

Introduction

Recently, Starbucks announced that it would be closing down its outlets in Australia. There may be several reasons for Starbuck's failure in the country. Competitors and low entry barriers, Australia coffee culture and American coffee culture, Australia’s multiculturalism, and the expansion, financial report, and share price may be some of the causes of Starbuck’s failure in the country (Works 2016). Other reason may be that it failed to deliver to its customers an organic experience. Firstly, entries barrier are one of the major factors why most of the companies fail to start a business in a country. Secondly, Starbucks failed to understand the coffee culture of Australia. According to Zhenjia (2012), “Australia has a very sophisticated and the collective belief is that its origins are European.” In America, one may have a morning coffee at home and then another in the afternoon at Starbucks. In contrast to America, in Australia, a person is to sit and enjoy his/her coffee. He/she must sit for long hours and drink coffee. Thirdly, the multicultural society of Australia may be another reason for Starbuck’s failure. Australia has immigrants of Second World War. While one may prefer small boutique shops, other may prefer high standard in quality. Lastly, Starbuck’s expansion strategy did not work favorably for the company. The share price and financial report of the company fell, and this prompted the company to close most of its outlets in Australia.

Literature Review

Economic barriers are defined as the cost that a new entrant in business must incur that was otherwise not suffered by the incumbents. Barriers to entry determine the intensity of competition in a market. Barriers are a deterrent for the companies which are newly set up. The first journal assesses the impact that independent retailers have due to chain stores in the coffee market in Melbourne. According to Adams et al. (2016), the continual expansion of retailers and chain stores has proved to be a imperative feature in the present world. Independent shop owners in Melbourne argue that chain stores result in the homogenization of independent communities. Chain stores pay low taxes and low wages, take money from the local economy, and decrease employment. Melbourne is the preferred location for most of the retail chain owners. However, Starbucks could not compete with the local vendors because of the Australian taste and preference for local coffee shops.

According to Lofstorm et al. (2014), examines the exit and entry patterns in a homogeneous market. It investigates the impact of the entry of a company on market structure and firms. The article shows that the independent coffee market influences the chain market and increases its probability. The independent and chain markets operate in such a way that it seems as if they are in different markets. Heterogeneous customers may be a reason for this differentiation.

According to Morris (2013) low entry barriers have adverse impact on an entrant in the market. The entry barrier affects the strategy of a firm to a great extent. Product differentiation and product scope are the defining factors for a business set up. Due to low entry barriers, a lot of companies can enter into the market. As a result, the existing companies would face more competition. However, Starbucks, despite having a successful chain market could not be successful in Australia. The management must strive to fit between market strategies and barriers. The proposition and model affect two components of the marketing strategy of a company (Morris 2013).

Jiang et al. (2014) analyzes the growth and development of Coffee Shops and Cafes in Australia. The demand and supply rates grow due to low entry barriers. The personal decision of an agent has no influence on the market and price. In fact, prices are decision-making signals in competitive markets. Producers earn more when the prices are high. High market prices also increase the scope of profits. The commonality of goods increases market competition. Freedom in entry and exit results in profit and vice versa (Jiang et al. 2014). 

Statistics show that the barriers to entry and exit are low compared to other industries. New businesses can enter smoothly into the caffeine industry. According to the author, the restrictions are sometimes imposed artificially by the existing businesses to reduce competition. The structural barriers include network effect, high set up costs, high R&D costs. Artificial barriers comprise predatory pricing, limit pricing, switching costs, advertising and predatory acquisition. The low rate in barriers imposed on the businesses leads to an increase in competition (Clifford 2012).

The new entrants in a market pose a threat to the competitive environment. Barriers to meeting high investment requirements, strict rules and regulations, need for specialized knowledge help in reducing risks (Knox 2015). Moreover, obstacles overcome if there is a chance for earning more profit. New entrants play a significant part in changing the dynamics of an industry. According to Porter's model, the threat of new entrants changes the competitive environment and impacts the profit of a firm. The risk exists more because the new entrant may take over an existing business firm. Entry barriers make it difficult for a company to establish its presence in the market. However, a low entry barrier makes it easy for any business to enter into the market. Since a lot of entry barriers were imposed on the market, Starbucks could not even enter the market correctly.

As stated by the author, competitors in the Melbourne coffee industry pose a great threat to Starbuck in expanding its business. The nature of the business and the availability of different kinds of coffee beans make the industry eligible for business. Starbucks has offered a range of choices for its customers, but it could not appeal the coffee drinking people of Australia. Starbucks failed to realize that differentiation must be continuously addressed. Moreover, Starbucks must compete with other companies in the industry. Barista, Vittoria Coffee, Di Bella Coffee, McDonalds’s McCafe, Zarraffas Coffee, Muzz Buzz, Gloria Jean’s Coffee are some of the competitors of Starbucks (Brooks 2012).

References

Adams, B., Hayes, R. and Lampe, R., 2016. Unmoved by Chains: Entry and Exit of Australian Coffee Shops.

Brooks, B.W., 2012. Starbucks: maintaining a clear position. Journal of the International Academy for Case Studies, 18(3), p.39.

Clifford, M.N. ed., 2012. Coffee: botany, biochemistry and production of beans and beverage. Springer Science & Business Media.

Jiang, F., Li, S. and Wen, J., 2014. Empirical Study on the Relationship between Entry Barrier and Market Performance [J]. Review of Industrial Economics, 1, p.002.

Knox, A., 2015. Coffee nation: an analysis of jobs in Australia's café industry. Asia Pacific Journal of Human Resources.

Lofstrom, M., Bates, T. and Parker, S.C., 2014. Why are some people more likely to become small-businesses owners than others: Entrepreneurship entry and industry-specific barriers. Journal of Business Venturing, 29(2), pp.232-251.

Morris, J., 2013. Why espresso? Explaining changes in European coffee preferences from a production of culture perspective. European Review of History: Revue européenne d'histoire, 20(5), pp.881-901.

Works, H., 2016. Starbucks Mission: Social Responsibility and Brand Strength. Education.

Zhenjia, Z.H.A.N.G., 2012. Study on Competitive Advantages of Starbucks Surfers' Paradise Coffee Shop. Management Science and Engineering, 6(3), p.16.