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Starbucks to shut 61 stores in Australia

Bloomberg  |  Sydney 

Backs away from a market it entered eight years ago; to close three-fourths of its stores.

Starbucks Corp, the world's largest coffee-shop chain, will close three-fourths of its stores in Australia within the next five days, backing away from a market it entered eight years ago.

Chief Executive Officer Howard Schultz cited “challenges unique to the Australian market.” The Seattle-based company’s business in other international markets remains strong, he said in a statement e-mailed today.

The decision to shut 61 of Australia's 84 Starbucks cafes by August 3 is the first mass closure outside the US since the July 1 announcement that the company would close 600 US outlets, eliminating as many as 12,000 jobs. The chain faces a European-style coffee culture dominated by neighborhood cafes often selling stronger brews at lower prices.

“The coffee culture was reasonably developed when they came into the country,” said John Roberts, a professor at the Australian Graduate School of Management at the University of New South Wales. “Quality coffee and a coffee culture were what Starbucks had to compete against in Australia.”

The 23 Australian stores spared are in Brisbane, Melbourne and Sydney, the nation's three largest cities. Starbucks said Jason Ball, its store development manager, will be made managing director on Sept 1.

‘Difficult, Yet Necessary’: “We believe that this difficult, yet necessary, decision to close stores in Australia will help support the continued growth of our international business,” Schultz said in today's statement. “There are no other international markets that need to be addressed in this manner.”

The chain opened its first Australian store in July 2000 in Sydney's central business district, eventually expanding to the states of Queensland, Victoria, South Australia and Tasmania.

Schultz, the 54-year-old founder and chairman, resumed the position of chief executive officer in January to revitalise Starbucks' cafes. He has slowed the pace at which stores are opened, introduced a loyalty-card program, and altered sandwich recipes as he tries to recapture the charm he says Starbucks lost amid a rapid expansion.

The company's earnings have declined as cash-strapped consumers facing record gasoline prices pull back on gourmet coffee and other luxuries.

“Mortgage pressure from higher interest rates and the petrol price at the pump have taken the edge off the consumer,” said Rob Patterson, managing director of Adelaide-based Argo Investments Ltd, which looks after $3.8 billion in stocks. “It wouldn't be surprising to hear coffee shops are under pressure.”

Waves of Immigrants: Australia's taste for coffee is a byproduct of the waves of immigrants arriving on the country's shores following World War II. European migrants — predominantly Greeks and Italians — were first to establish the culture, which was later embraced more widely beginning in the 1980s.

“Australia, in the more metropolitan areas, has quite a sophisticated coffee culture,” said Paul Bassett, the Sydney-based winner of the World Barista championships in 2003. “There are some places making really good coffee and doing it better than Starbucks.”

Coffee in Australia has developed an almost cult-like following, particularly in Melbourne — a city of trams, sidewalk cafes and European-style architecture.

Specialty Coffee: “Specialty coffee is growing at a far greater rate than regular coffee,” said Bassett, a judge and board member of the technical standards committee for the World Barista championship. “Consumers are developing a more discerning taste.”

Coffee lovers in Melbourne, Victoria's capital city, typically patronise smaller, boutique-style coffee shops wedged into narrow shop fronts and the city's many lanes. Locals offer advice on the “best coffee”, with many traveling out of their way for a favored cup.

Barista, at the bottom of the 101 Building at the “Paris end” of Collins Street, often has customers lining for up to 15 minutes during the morning rush.

Melbourne's local newspaper, The Age, publishes a coffee guide for aficionados, rating coffees throughout the city.

“The feeling amongst many cafe owners was that they were initially concerned at losing market share to Starbucks but believed their product offering was superior,” said Robert Forsyth, the former chairman of the Sydney-based AustralAsian Specialty Coffee Association.

Starbucks shares have dropped 47 per cent in the past year. The stock dropped 1.3 per cent to $14.32 yesterday in Nasdaq Stock Market composite trading.

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First Published: Wed, July 30 2008. 00:00 IST