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Mon, Aug 04, 2008 - Page 10 News List

FEATURE: Australian coffee culture grinds Starbucks’ profit

MCDONALD’S OF COFFEE With its strong coffee history and plentiful Italian espresso shops, the land down under appears too sophisticated to fall for Starbucks’ java jive


Starbucks hit a roadblock trying to export its business model to Australia, a robust coffee culture where customers already knew the difference between a macchiato and an affogato, local traders say.

The US giant announced last week that it would close 61 of its 84 Australian outlets by yesterday, saying “challenges unique to the Australian market” were behind the decision, which cost almost 700 jobs.

The statement from Starbucks’ head office in Seattle did not say what made Australia different, but did point out: “There are no other international markets that need to be addressed in this manner.”

Starbucks Asia Pacific president John Culver was more forthcoming about why the company was on the retreat in Australia, eight years after opening its first store in Sydney.

“I think what we’ve seen is that Australia has a very sophisticated coffee culture,” he said in a newspaper interview.

A wave of post-war immigrants from Turkey, Greece and Italy means that for decades Australians had been enjoying the “coffee experience” Starbucks virtually created from scratch in the US.

Both Sydney and Melbourne have Italian enclaves lined with cafes where old men sip espressos at outdoor tables through the day and trendy young couples gather in the evening for a caffeine fix.

Starbucks’ idea of making itself a “third place” in customers’ lives between home and work was a novelty in the US, where in many small towns cafe culture consisted of filter coffee on a hot plate.

But Melbourne cafe owner Jeremy Jenkins said the situation was different in Australia, where baristas have been plying their trade at steaming espresso machines since the 1950s.

“People come in our cafe because they know us and they know they’ll get good coffee, we’re part of the local community,” he said.

“Starbucks is a McDonald’s coffee experience. It’s not about the quality of the coffee, it’s about convenience and location,” he said.

Starbucks also closed 600 stores in the US early last month in a move widely seen as a response to belt-tightening among customers less inclined to spend money on luxuries like coffee in tough economic times.

Commentators have suggested similar problems hit Starbucks in Australia, but the lines outside the Met Cafe in central Sydney on a recent windy winter’s day indicated many customers were not yet ready to sacrifice their coffee hit.

Met Cafe owner Brendan Smart said Starbucks had expanded too quickly in Australia.

“A few years ago there weren’t that many of them and they seemed to be going OK, but then all of a sudden, they were everywhere,” he said. “Some city blocks had three Starbucks on them — it’s crazy.”

Smart said many customers had told him they did not want to buy their coffee from a corporate giant and those who had tried Starbucks were not impressed by the product, saying it did not compare with the numerous local brews available.

“What we do isn’t rocket science, I’m the first to admit that, but you’ve got to have a passion for coffee that involves everything from grinding the beans to operating the machine,” he said. “You go into Starbucks and it’s full of teenagers behind the counter. I’d question whether they have that passion.”

Starbucks now plans to streamline its operation to 23 stores in Australia’s largest cities Sydney, Melbourne and Brisbane.

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