Business Strategies: Aussie coffee shops see off Starbucks

It may be too late for some parts of Malaysia and Singapore, but Vietnam and Hong Kong may well take heart from the fact that an announcement made late last night in Australia - but early in the day in the US - that Starbucks is to "restructure its business in Australia" is an admission that the world does not want to be subsumed into a a giant Starbucks outlet.

The announcement said "There are currently 84 Starbucks locations throughout the country, including Brisbane, Canberra, Gold Coast, Melbourne, South Australia, Sydney, and Tasmania. 23 stores will remain open in Brisbane, Melbourne, Sydney and surrounding areas to serve customers in those communities."

The precise locations of the closing "stores" is to be announced by 5pm Aussie Time tomorrow.

For Starbucks, it's been an eight year slog to try to re-write the way Aussies take their coffee. Just because Australians spell programme with one m, doesn't mean they are ready to surrender to American tastes just yet - and the local Italian coffee shop is a central part of the community. A Starbucks, or other coffee chain, is not.

One of the features of Australian commercial life is that small shops and cafes are often owner run in premises that they own. This means that they are able to fix the one cost that most often drives small businesses to the wall - the cost of accommodation. It means, for example, that when brash new competitors with deep pockets come along, they will not be booted out because they can't afford the rent that the newcomers are offering. It means that newcomers, with their expensive renovations and fittings, and paying higher costs for their premises are already operating at a much higher cost level. Add in the tradition of families working in the shops for profit, rather than employing managers and requiring them to deliver profits on top, and family-run coffee shops are actually in a strong position.

It is interesting that the towns that Starbucks will stay in are those with large rental districts, in which traditional coffee shops are being forced out of centres due to high prices.

It's not just Australia that is rebuffing Starbucks. Even at home in the USofA, Starbucks announced the closure of a number of "stores" then, at the beginning of July, it said the batch would be bigger than first announced. The new target was 600 closures (up from just 100) within a nine-month period - and the timing would be due to "finalising third party agreements." That may be read as saying "as soon as we can get out of the leases without a penalty that exceeds our anticipated losses."

The US closures do not affect franchised outlets which are being called upon to deliver new drinks, to take new coffee machines and to increase their throughput of coffee by keeping flasks on hotplates for shorter times - throwing away kept coffee more frequently.

The Australian closures are within a wholly owned subsidiary.

A significant difference between the traditional coffee shops and Starbucks, and the reason for the continued success of the former, may be rooted in that word "store." For Starbucks, it's not about the coffee. It's about delivering product. For the owner of the coffee shop, who sits with you in the quiet times and remembers your preferences no matter how busy he is, it's because you are a part of his community, and you are a part of his. That's not a store. It's a cafe. And despite all the comfortable sofas, the trendy names and the wifi, the truth is that given a choice many, many people would rather sip their coffee in that cafe than in a chain-store.