US coffee shop chain Starbucks has announced plans for a dramatic and immediate retreat from the Australian market in stark contrast to the company’s past strategy of aggressive international expansion.
The restructuring involves the closure of 61 of Starbucks’ 84 Australian locations. It will result in 685 job losses and refocus geographically on Brisbane, Melbourne and Sydney.
Starbucks, which has been operating in Australia since 2000, says the decision to scale back its Australian operations was a result of underperforming stores.
Starbucks chief executive Howard Schultz has said the store closures will not be replicated in other international Starbucks operations.
“While this decision represents business challenges unique to the Australian market, it in no way reflects the strong state of Starbucks business in countries outside of the US,” he said.
The company, which operates more than 15,000 coffee shops around the world, has also announced the closure of 600 stores in the US, with up to 12,000 job losses.
Mr Schultz said the Australian closures would help support continued growth in other international businesses. Starbucks believes stagnant sales are a result of the need for greater customer service coinciding with slower consumer demand in the developed markets.
While Starbucks operates on a largely equity-based model of owning and managing its own stores, other global coffee chains have taken a different approach to global expansion.
Whitbread-owned Costa Coffee has used an international franchise model as its main vehicle for low-risk expansion. Costa has 750 stores in the UK, an international franchise business across Europe, the Middle East and India, as well as joint venture agreements in Russia and China.
The company sees its joint ventures in Moscow, Shanghai and Beijing as the future of its global expansion, said Costa head of international brand Mark Kitson.
“We are focusing on high-growth large-scale global markets with young, aspirational consumers because that is where we see the most future potential,” he said.
Ernst & Young retail analyst Jonathan Foster said the economic downturn has created constraints on capital, which in turn means retailers are looking for shorter investment horizons.
“We’re seeing a lot of retailers turning to Russia, which delivers good returns in the short to medium term and has exciting population dynamics and consumer spending growth. And it is now politically stable with low taxation and a growing middle class,” he said.