Chris Berg - August 3, 2008
GLOBALISATION has pulled millions of people in developing countries out of poverty. It has sent goods, services and people around the world, linking humanity into a vast network of communications and commerce that has ultimately benefited everyone.
But, still. In the case of one American coffee giant, globalisation deserved to fail. Starbucks makes really bad coffee.
Starbucks is almost entirely pulling out of Australia — closing 61 of its 84 stores. In Melbourne, just five of the 16 stores are tipped to remain.
Sure, the company is closing stores across the world. But while the closure of 600 stores in the United States sounds like a big deal, it is trivial when you consider that there are nearly 12,000 Starbucks outlets in that country.
The demise of the coffee giant's Australian ventures speaks volumes about the challenge of globalisation.
The lesson of Starbucks' Down Under fiasco is simple. Globalisation is a bit overrated. It's much harder than everybody seems to think.
So why has Starbucks worked in the US but largely failed in Australia? The secret of the company's success in the American market wasn't that it sold coffee. It sold coffee culture.
It is remarkable how alien quality coffee was to US consumers. As late as the 1980s, the National Coffee Association was producing advertisements just trying to convince people that coffee could keep them awake. And what small prestige the drink held in the US was occupied by the old "cup of joe" — cheap, stale and reheated sludge poured from a pot.
No wonder that when Starbucks came on the scene in the 1990s, Americans eagerly embraced it. Starbucks coffees may be weak, poorly made and overly reliant on syrups to mask their flavour, but they are certainly better than what had previously been available.
The other aspect of Starbucks' appeal in the US has been its establishment of the cafe as a social hub. From a Melbourne perspective, the typical Starbucks may seem somewhat sterile and too over-eager to appear "comfortable". But it is one of the peculiarities of the US that the idea that a cafe could be a social venue was quite new, at least outside the circles inhabited by the cultural elite. Comfy chairs and pleasant, if bland, music have been just as important a part of the Starbucks product as its coffee.
But when Starbucks came to Australia to bring coffee and the cafe culture to the masses, it found that we already had it. Particularly in Melbourne, we have better coffee and more relaxing cafes than anything that Starbucks brought with it.
Undeterred, the firm simply dumped what seemed to work in America into this country. When Starbucks opened an outlet in Lygon Street — a store that has since sat empty surrounded by bustling cafes — it became an amazing example of just how comprehensively a company could fail to understand its target market.
The inability of Starbucks to adjust its product to local conditions is illustrated even more clearly when we compare it to the international strategy of that other evil American behemoth — McDonald's. Where Starbucks offers almost the same products around the world, McDonald's varies its menu depending on local culture and local tastes. In India, they sell the McCurry Pan. In Japan, the "Ebi Filet-O" is available — a shrimp burger. In Turkey, McDonald's offers kebabs. Some of these products may sound stupid — and Canada's "McLobster" sounds filthy — but their existence shows that McDonald's understands the importance of understanding its regional markets, and tries to understand the peculiarities of local culture.
The failure of Starbucks in Australia tells us a lot about globalisation too. It isn't enough — as some anti-globalisation activists seem to assume — for an American company just to blanket a foreign market with a mediocre product.
Multinational corporations actually have to offer something better than the local alternatives if they want to succeed.
This is true as much for products such as films and television as it is for syrupy coffee and fast food. Clearly, Hollywood films are better than Australian films on some level.
Audiences flock not just to the high-cost blockbusters but also to independent American movies well before they consider seeing a local production. Hollywood knows that a movie has to be entertaining before it can be successful.
If Starbucks can teach us anything, it is that in the global marketplace, turning up to compete just isn't enough. You have to be really good.
Chris Berg is a research fellow with the Institute of Public Affairs and editor of the IPA Review.