Starbucks has announced initiatives in two major markets aimed at reinvigorating its business.

Starbucks is to shed 75% of its stores in Australia, following difficulty penetrating the country’s coffee market, and provide free top-ups in the UK and Ireland in recognition of a consumer downturn. Although these moves could be seen to be a reversal of the company’s global aims and premium image, they should allow Starbucks to provide greater value for money during tough economic conditions.
Starbucks has announced its intentions to close many of its Australian outlets. Of its 85 stores in the country it plans to close 61, leaving outlets in the larger cities of Melbourne, Sydney and Brisbane.

Cafe culture and the strong consumer preference for coffee in Australia are such that the retail coffee market in 2007 was 71% greater than that for tea ($555m compared to $324m). This existing connoisseurship is a major reason for Starbucks’s difficulty in cracking the Australian market in the same way that it has succeeded in many other national markets it has targeted. The tradition for coffee and cafes in Australia means that many indigenous chains already exist and had built up strong reputations before Starbucks became a player in the market, opening its first store in 2000.

Retrenchment back to its core home market is a common response to market downturn for any company operating in consumer industries over the years. However, reducing global presence is a mildly ironic response for a brand that has thrived due to globalization. Still, Starbucks’s program of turnaround measures is necessary precisely because the impending downturn in consumer spending is potentially global in its spread. While premium coffee was well-aligned with previous years of economic boom, the downturn necessitates a rethink.

Part of this rethink includes providing consumers in the UK and Ireland with free top-ups, which hitherto would have gone against the premium image that Starbucks would like consumers to associate with its products. Commenting on its initiative, Starbucks’s CEO Howard Schultz, said: “Starbucks coffee and premium coffee experience has, over time, been an affordable luxury. And at this time, it isn’t for some people.”

The two measures may prove indicative of the need for many brands to offer greater value for money during the downturn, and Starbucks’s foresight on this matter should strengthen its business against the tough times ahead.

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