Starbucks is to close 61 of its 83 Australian outlets, retreating to a core in the east coast capitals. It is being described as another measure of a tightening economy, but I suspect it more to do with a less than adequate retail offer.
A cup of coffee is worth around three cents. That is the commodity price of the beans, quoted every day along with gold, oil and hog jowl futures. For Starbucks to charge north of $3 a cup, they need to surround those beans with service, ambience, theatre and novelty. Put simply, they don’t do it well enough.
That’s particularly true in Melbourne, the city that benefited most from the wave of post war European migration, where great coffee and enchanting coffee experiences are around every corner.
Starbucks founder Howard Schultz brought some magic to American coffee. Before Starbucks — an era known as B.S. — most coffee in the US was a grab-it-and-go cup of over-roasted, over-brewed rubbish made from Robusta beans. The cup that Schultz sold was made from higher quality Arabica beans. He also offered abominations like caramel flavouring (not that I want to show any prejudice here) that proved highly popular.
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There was also theatre. Espresso coffee was made by visible Baristas using noisy machines and the customers were able to feel part of the process. Schultz wanted Starbucks to become the third place in people’s lives, alongside home and work.
And it did. To start with, Starbucks was selling not coffee but elevated status. Bryant Simon explains in the Christian Science Monitor that in America, “just by buying the coffee and speaking the company’s made-up lingua franca, you became a cup-carrying member of the upper class. And that made Starbucks, overpriced as it was, an affordable form of statusmaking.”
But its very popularity was problematic, with Starbucks’ ubiquity compromising its image of cool. It became, gasp, ordinary.
Starbucks grew to around 15,000 cafés worldwide but after Schultz stepped aside, it began to lose its way. When companies grow beyond the loving attention of the entrepreneur, words like efficiency start to creep in. The old Starbucks experience was being lost. Schultz stepped back in early this year, and the company is undergoing the pain of reinvention. They also recently announced the closure of 600 US outlets.
Starbucks is struggling in Australia because it deserves to struggle.
Australians have long known that great coffee and compelling café experiences are everywhere. Starbucks tried to impose their US version of coffee on us. Anyone confronted with a vase-sized container of watery coffee when they ordered a strong latte soon learnt what Starbucks could not, or would not, offer.
Alongside Starbucks has been Gloria Jean’s, offering something similar but far more responsive to Australian tastes. As Starbucks opened 83 stores, Gloria Jean’s developed a local offer, went down the franchise path and opened 400. Now the Scottish hamburger chain is rolling out McCafés. For those who enjoy syrup flavoured coffees, the novelty was lost as they became widely available. I have recently seen a café offering Tiramisu-flavoured latte. I think that would be a coffee made to taste like a coffee flavoured dessert. Go figure.
Starbucks might hide behind a slowing economy, but the simple fact is the coffee is rubbish.
Rob Lake publishes Brandish — a newsletter about retail intelligence.