This is a proposal for a research that would be conducted for understanding the failure of Starbucks in Australia. This research would be conducted in order to understand the causes of the failure of Starbucks, which is the largest Coffee Chain in USA, in the market of Australia. The objectives of the research are identification of reasons of failure, competitive forces, understanding cultural differences and Australian consumers.
The research explores various events related to the case and conducts a strategic analysis on the case of Starbucks which includes PEST analysis, Porter’s five forces analysis and SWOT analysis of Starbucks. The proposal suggests the use of case study analysis as the primary research methodology that would be used for the case.
The researcher proposes the research to begin with a literature review in which narrative analysis would be conducted on the case of Starbucks to understand cause of failure of the company in its expansion plan in Australia. It would also delve into some theoretical concepts about market entry strategies.
The research proposal suggests taking an approach of multiple case studies and cross-case comparison in which three main cases including Starbucks, McDonald and Gloria Geans would be studied individually as well as cross-case analysis would be performed between them. Further, from the interpretations of the research findings, the research proposes a development of a strategic market entry plan for which the format is presented at the end of the proposal.
This research project would explore the reasons of failure of Starbucks, the largest coffee store chain of USA, in Australia.
Failure of organizations in new markets is not a new thing to happen. There have been many such failures such as Bes Buy which was a success in USA but failed in China and Turkey, Groupon which was a hit in most Asian countries but not in China, and McDonalds that performed miserably in Trinindad and Tobago. The Starbucks which is the largest Coffee store chain of USA also failed miserably in the Australian market despite having most Coffee lovers. This research aims to understand what are the problems faced by organizations when entering a new market. In particular, it would explore the causes of failures taking the case of Starbucks in Australian market.
Starbucks store was first opened by Jerry Baldwin in 1971 with one store in Seattle Washington. By 1971, cafe community environment found in Italy was brought to United States. The CEO Howard Schultz had later opened his own Italian coffee house Il Giornale after separating from Starbucks and later purchased 6 Starbucks locations in 1987 and fused Starbucks with his Italian bistro locations. The company saw a rapid growth by the year 1992 and by 1997, the company grew tenfold. Starbucks is the largest coffee house chain in the world today with over 21,000 stores spread across the globe. It is considered as 2nd most valuable fast food brand in America and carried a worldwide brand value of $25.8 billion (LEE, 2010).
In the year 2000, the organization planned to expand into Australia which was a market with consumers liking coffee. It opened 84 stores in Australia for serving espresso coffee to Australian consumers. However, Australia was already a saturated market with over 6000 independent cafes that created a culture of strong espresso coffee experience. The stores did not get much acceptance from local citizens and by 2008; Starbucks had to close down 61 of its stores.
This research aims to explore the case of Starbucks to understand the causes of failure of Starbucks.
Objectives of this research are:
To identify the reasons of failure, secondary documents talking about the case of failure of Starbucks would be explored and critically analysed in the literature review (Barnett-Page & Thomas, 2009).
A Porters forces analysis on Starbucks would held in understanding the overview of the competitive forces on the organization while entering Australian market (Bryman & Bell, 2011).
In order to understand the cultural differences between America and Australia, secondary research sources like journals and research studies would be explored and critically analysed in the literature review (Baxter & Jack, Qualitative Case Implementation for Novice Researchers Study Methodology: Study Design and , 2008).
In order to understand the preferences of Australian consumers of Coffee products, secondary research sources like journals and research studies would be explored and critically analysed in the literature review (Barnett-Page & Thomas, 2009).
Based on the insights gained from the case study analyses, certain recommendations would be made for the company which could have helped the organization prevent failure in the target country (CRESWELL).
The strategic plan would be developed based on the learning obtained from cross-case analysis and it would ne generalized and can be used for any fast food company that is planning to enter Australian market. This strategic plan would include information on external analysis, entry mode decision and marketing plan.
After World War 2, European immigrants from Greek and Italy introduced Espresso Coffee to Australia and over the years, it became a ritual for the Australians who drank coffee every morning. The Coffee culture was more established by Australians during 1980s and by the year 2000, the Coffee culture of Australia became mature. The Coffee culture of Australia patronized the small boutique style of Coffee restaurants.
Coffee industry of Australia was started in 1889 but its major expansion started by the year 1982 when the industry was revamped with small plantations in Woombah. In early 1990s, other plantations were also started and up to 20 hectares of agriculture were established by employing mechanical harvesters. Currently, the industry has 4 principal stages including growing, harvesting, processing of green beans and roasting and distribution. 70% of the Australian Coffee market is owned by Nestle ( NSW, 1999).
There are four main types of Coffee shop establishments in Australia including licensed cafes, Bring your Own Cafes, licensed BYO cafes and unlicensed cafes. There is a very tough competition that exists between restaurants, taverns, pubs and coffee clubs in the region. Competition is mainly exercised with differentiations in pricing, product quality and customer service. Key factors that make Coffee establishments succeed in Australia include:
Most of these success criteria were not met in the case of Starbucks that entered the Australian market in the year 2000. The company was unaware of the local preferences of taste for pure espresso and brought in its milk rich coffee preparation that did not work with Australian consumers. This clearly suggests that there were no adjustments made in the service provided as per the taste of Australian consumers before the stores could be operated in Australia. Moreover, the company did not wait to gain experience with local market by operating few stores or one store but launched the complete chain with multiple store opening in multiple cities diluting its value on its own pushing their goods on Australian consumers. The stores were so much in quantity with so less demand for the Coffee at the price points that did into attracts Australian that the stores could never operate in full capacity making losses in the Australia market leading to its failure (Australian Government, 2012).
Australia has certain industry barriers that may have been over-look by the company while they made planned for a huge entry into the new market. In order to understand if this was the case, a mapping may be done between the business environment of Australia and the company strategies adopted for market entry. Some strategic tools may be useful for evaluation of a new market before any market entry decision is taken by any of the organization such as porter’s market forces and PESTLE analysis. Moreover, in order to understand where the company stands in this environment, a SWOT analysis of the organization may be required (Meester, 2012).
Political: fast food industry is considered as an essential sector by Australian government as the industry contributes significantly to its GDP. 32% of the revenues from food come from fast food industry. Federal government has the power to influence the political climate of the country. Starbucks had received positive support from government which is why it was able to launch large number of its stores within a short time span.
Economic: The economy was growing at the rate of 2.9% prior to 2009 but over the years after that, economy has faced a downturn. The food service industry was one major industry that contributed most to the economic benefits of the country. Thus, at the time, Starbucks planned to enter Australia, food services growth opportunities were attractive (Bryman & Bell, 2011).
Social: Australian consumers show strong alignment towards their local culture and have ethical and racial groups and communities following specific traditions. The population can be considered as cosmopolitan largely. People show lifestyle differences that are affected by variations in environment and fro immigrations of people in the country. Although, English is primary language, multilinguism exists in the country. Promotion of social welfare has been promoted by the government and supported by the people. Youth of the country are the most important diners and consumers of fast food restaurants. Australia has the 11th largest fast food consuming youth. Australian consumers seek healthier fast food options and are open to spending premium for the same (Downey, 2007).
Technological: Australia is one of the most connected nation and regional organizations invest largely in technologies to get to their consumers as well as suppliers. 59% of the consumers in the market prefer to reach the services through an online platform in Australia.
Bargaining power of customers
Bargaining power of the consumer was strongest in the case of Australia and most of the consumers of fast food industry were the independent youth.
Bargaining power of suppliers
Bargaining power of suppliers was less as Starbucks had their supply chain well established all over the world.
Threats from new entrants
New entrants could easily enter the Coffee shop market but at the same time, Starbucks was a huge organization that could not competed easily by new players.
Threats from competition
The region already had 6000 Coffee shop establishment from local brands, local restaurants and large fast food chains like Gloria Jeans and McDonald that were hard to beat.
Threats from substitutes
The industry has four key alternative models including licensed cafes, Bring your Own Cafes, licensed BYO cafes and unlicensed cafes (Choy, 2014)
The Australian market was supportive for fast food market from government
The country has a youth loving coffee and were greatest spenders of fast food industry
The company had various different modes of entry that it could have chosen from franchisee, wholly owned subsidiary and so on
The youth of the country are largest consumers of Coffee in the world
Local Coffee shops were matured and well developed with an environment that suited the taste of local consumers.
There were over 6000 Coffee shop establishments in Australia that Starbucks have to compete with
The culture of the Coffee shops in Australia is well established and the consumers are used to a very high level of experience that was difficult for Starbucks to replicate
Starbucks has the capability to take quick steps for implementation of their strategies
Starbucks was sound in finances and was well established Coffee chain all over the world with positive goodwill
To overcome internal challenges, Starbucks had only a basic awareness for planning and implementation of a sound expansion plan
The company did not have any experience of operating in the Australian market prior to its expansion (Downey, 2007)
The outcomes of the research would include the following:
An analysis of the case of Starbucks in Australia would reveal the mistakes that were done by the company that lead to its failure in the market
Recommendations for the fast food chain that could have helped the company avoid its failure in the region
General recommendations on establishing an entry plan and strategy for any fast food company while entering Australian market
A general market entry strategic plan would be formulated for the entry of fast food company in Australia
Philosophical worldviews can affect the selection of a research design and the methods of analysis. Based on the worldviews that are assumed by a research for a study, appropriate research designs, inquiry strategies and research methods may be selected. Common worldviews can affect the decision of a researcher (Law, 2003). A philosophical trinity is formed through an understanding of what exists, if a researcher knows it and if it is valuable based on which philosophical paradigms may be chosen by a researcher. Epistemology can assist a research in determining own philosophy about the concept of knowledge while ontology is about the concept of being that explores the first base of philosophical trinity by answering what it is (Scotland & Scotland, 2012).
The common worldviews that can be assumed by a researcher include:
Positivism which assumes an existence of an objective truth and takes a deductive or theory testing approach to methodology. If the researcher assumes this paradigm then a quantitative approach of research may be taken in which a research would prepare a questionnaire, conduct survey and perform a statistical analysis. However, in the current research, the researcher is not sure about what is a reality and thus, this approach may not be taken(Soini, Kronqvist, & Huber, 2008).
In the interpretevist approach, knowledge is assumed to be subjective and the same is required to be explored by taking an inductive or theory building approach. This may involve methods like ethnographic study, interviews and analytical exploration of qualitative information(Chawla & Sondhi, 2011). A research which involves exploration of a concept in order to understand the causes of certain formations of events, this research view may be appropriate. In this view, the researcher does not assume any truth but would like to identify perspectives on a phenomenon. As the researcher in this case is unaware of an objective truth and is going to explore the idea from different subjective perspectives, interpretevist worldview is the foundation of the research design. This research would not take primary sources and thus, an analytical approach would be taken to construct a research design for the study (Raddon, 2010).
A research design involves a set of plans and procedures that are used for defining specific research methods that are applied to a research study considering certain assumptions. There can be three types of research designs that can be used for any study and these include qualitative, quantitative and mixed research. In this study, qualitative research design would be used as it is the most appropriate strategy of exploration for cases where human perceptions have to be understood in a broad context or an area which does not have enough theories that can be tested directly (Creswell J. W., 2002).
Case study are used when one event or a set of events that are related are required to be explored to be able to describe and explain them. The data that is analysed in this approach is mostly obtained from secondary sources like documents like journal articles, research reports, and physical artefacts or from primary sources like interviews and observation. In this research, the data would be obtained from secondary sources (Flyvbjerg, 2006).
A typical case study that is used for the purpose of learning about a phenomenon uses a common protocol that acts as a guide to form research methodology. As per this guide, following inquiries may be made in a case study about the studied concept:
Significance of the phenomenon being studied and research questions to be answered and these are is already discussed in the beginning of this proposal
Determination of the units of analysis and the purpose of research
Data collection technique which in this case study is the secondary document exploration
Case description which explores the major events of the case study
The findings from the study can be analysed using different methods like case perspectives, cross-case comparison and narratives. In this case, the researcher would use cross-case comparison and narratives as the methods of analysis(MEYER, 2001).
This research would be conducted using a multiple case study analysis in which two cases of Gloria Jeans and McDonalds as establishments in the Australian fast food market would be explored and the lessons would be applied to the case of Starbucks to understand the causes of failure as well as come up with recommendations for making the entry strategy better that could have prevented the failure. Each of the case studies would include the following content for analysis (Gray, 2012):
Gloria Jean’s: The case study would include the understanding of the strategy that the company used for entering the Australian market and a SWOT analysis would be conducted for the specific company.
McDonald: The case study would include the understanding of the strategy that the company used for entering the Australian market and a SWOT analysis would be conducted for the specific company.
Starbucks: This case study would explore the causes of failure of Starbucks with respect to the strategic errors made by the company. This would include a complete exploration of all the stages of the market entry.
Based on the learning from the case studies, a strategic entry plan would be developed for a fast food company in the Australian market. Each of the case studies would include the discussions in narrative forms about major events including history, strategic decisions, changes adopted, organizational background, and target consumer groups (Dalal & Chhillar, 2012).
After individual case discussions, a cross-case analysis would be performed in which patterns of differences and similarities in the three cases would be identified (Ausburn, Martens, Washington, Steel, & Washburn, 2009).
This cross-case analysis results would be interpreted to understand the causes behind failure of Starbucks including strategies, decisions and approaches that went wrong. This would also form the base for formulation of a strategic plan for entry of a fast food organization in Australia (MEYER, 2001).
The strategic plan that would be prepared for the fast food company entry in Australia would include following elements:
External Analysis through the porters five forces analysis and PEST analysis of Australia
Entry Mode Decision from acquisition, Greenfield venture, exporting, strategic alliances, licensing or franchising. Exporting is the fastest entry mode that can be gained with least risk and is appropriate for organizations that have less local knowledge. Franchising is another fast and low cost, low risk method with less control but there is a risk that the franchisee can actually become a competition at later stages. Acquisitions are used for established operations and are a high cost strategy which may also face issues in integrating with the home unit. Partnering or strategic alliances can be formed with existing local organizations operating in the target market such that both expenses and risks are shared between two entities. It has a higher cost for the expanding organization than franchisee and may also face issues with integration between two organizational cultures. A Greenfield venture involves a launch of a wholly owned subsidiary which requires a complete understanding of the host country market. In this mode of entry, the process is slow, involves huge investment and has high unknown risks(Grinnell & Unrau, 2010).
Marketing Plan which would include details of strategies to be used for segmentation, preparation, targeting, positioning, and execution(Meester, 2012).
Various ethical issues that would be taken care of by the researcher in this research include:
The data obtained on the basis of which the research would include the analysis, would be acquired only from authentic academic sources like journals, books and other research reports
If the secondary data obtained requires a consent to be taken from the original author then the same would be obtained by the researcher to ensure integrity
The researcher would ensure that the data that would be used for the research would only be relevant to the subject of research and would contribute to attainment of its objectives in some way(Golafshani, 2003)
The analysis done would not be biased by the personal opinion of the researcher but only a critical analysis would be conducted based on the insights obtained from secondary sources(Denzin & Lincoln, 2011)
All the sources would be explicitly stated in the research document and no part of the data would be modified in any manner by the researcher for conducting analysis to ensure data validity(Dodd, 2003).
A major limitation of this research is that it does not include any primary data that could have revealed some useful insights on the subjects. Such an analysis could have been done by reaching out to people who was the part of the establishment or who were the consumers who did not accept the brand in Australia.
Another limitation of this research would be that it would not include the views of experts of the industry but would only be based on the data obtained from past research documents that would be critically analysed by the researcher to understand the case.
This research aimed to understand the causes of the failure of Starbucks in Australia. It uses a literature review and narrative analysis on the case of Starbucks in order to understand the causes of failure. The research included a multiple case study analysis in which cases of McDonald and Gloria Geans that are already successful fast food establishments are taken t understand the reasons of their success. A case of Starbucks would then be taken in order to understand the causes of failure as well as apply the learning from other cases to come up with recommendations on improvement of strategy of Starbucks that could have helped it save its position in Australia. Based on the learning obtained, a market entry strategic plan would be presented for any fast food organization to enter into the Australian market ensuring that failure does not occur. The strategic plan would include sections on external analysis, entry mode decision and marketing plan.
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