Starbucks Business Issues

This report discusses the business issues faced by Starbucks in Australia, including sales slowdown and competition. It explores the reasons behind the slowdown and offers recommendations for addressing it.

Running head: STARBUCKS BUSINESS ISSUES
STARBUCKS BUSINESS ISSUES
Yishu Liu
Shirato Kamiyama

1STARBUCKS BUSINESS ISSUES
Introduction:
The Aim of this report is to discuss the business issues related with one of the most
important international organization namely, Starbucks which is famous for its offering of
high quality coffee and other snacks, has been facing slowdown of business and planning to
close the outlets or stores in the highly dense area of mainly the market of Australia
(Stories.starbucks.com, 2019). However, this company has been suffering from sales
slowdown associated with which this research will be analysis effective factors (Cnbc.com.,
2019).
Historical information about the company
Starbucks Corporation is USA based coffee company as well as coffeehouse chain. It
was founded in Seattle, Washington in 1971. Recently the company has more than 28
thousand outlets in all over the world. This company is considered to be the main
representative of the second wave coffee that initially distinguished itself from the other
coffee serving venues in America by their quality, test and the customer experience mainly
focusing on continuously growing popularization of directly roasted coffee. The first outlet of
Starbucks was opened in Seattle, Washington by the three partners named Jerry Baldwin, Zev
Siegl and Gordon Bowker. These three friends were inspired for selling high quality coffee
beans along with the equipment by the coffee roasting entrepreneurs namely Alfred Peet who
taught them the style of roasting beans. The first store of this company was located in Seattle
but later moved to Pike Place. During the first year of operation the three founders only
purchased green coffee beans from teeth and then started to buy directly from the growers.
The company had 24.72 billion USD as revenue in 2018 which is constantly changing
positively. The company had expanded to the Australian market in the year 2000 and had
demonstrated a huge amount of growth in the country in the initial years. However, the
growth was stunted after the year 2008 (Stories.strabucks.com, 2019).

2STARBUCKS BUSINESS ISSUES
The circumstances which have led to the need to undertake research:
Despite the fact that the coffee market in Australia has marked effective growth and is
getting support of the vibrant coffee culture of Australia, competitive pressure has been
increased. According to the data published by Ibisworld.com.au (2019), the coffee and café
industry is expecting growth of 2.2% over the five years of 2013 to 2019 which is worth of
$9.8 billion. However, in spite of this progress, no company has able to stand properly in this
market. The main problem of Starbucks Limited is the slowdown of its business in every
market it has captured till date. The circumstances that has led for this research is the news
that the company has been facing fall in stocks and shares for last one year. In the first
seven years in Australia, Starbucks had accumulated $105 million in losses. This has
forced the company to close 61 locations in the year 2008 (Cnbc.com. 2019).
Symptoms of the issue:
The issue of slow down sales growth and worsening performance in the home country
has affected the sales of the company in the international level. The symptoms of this issue
has been seen firstly in the reduced visit of the customers in the locations. Rather they are
spending time at their home brewing their own coffee (Stories.starbucks.com., 2019).
Secondly, the company is being yielded by huge competition in Australia
(Stories.starbucks.com., 2019). Thirdly, the symptoms of this issue slowing down sales is
inability of the company to properly utilize the effect technology. The proper use of the
technology woukld help in the maintenance of the proper sales of the company thereby
implementing the profitability of the company. Finally, the company was never so subdued
with the retail traffic before that it is doing now (Stories.starbucks.com., 2019).
Business problem:
The company has been facing sales slowdown and lowering shares in the last one
year. In Australia, Starbucks have reportedly accumulated losses of at least $143 million

3STARBUCKS BUSINESS ISSUES
since they opened here 14 years ago (Stories.starbucks.com., 2019). Generally, the market
saturation might be the cause of the problem. As the stores do not have minimum range of
distance, it is enhancing the competition among the stores growing the threat of market
saturation. Another business problems is that the company is failing to attract new customers
(Monica, 2018). Holiday beverages, gift cards and other merchandises are not resonating the
customers as planned. Finally the higher cost of the beverages that targets the mid and higher
incoming range of customers are not being proved to be appealing to the customers in the
developing countries like the market of Australia. These business problems need to be solved
by the company as early as possible otherwise in spite of having a profitable situation in the
global business, Starbucks limited with fall in the hands of Dunkin group and McDonald’s,
two most pressing competitors of the company.
The business problem that is being faced by Starbucks in the Australian territories refer to the
problem of incurring losses due to the lack of the proper coordination within the organization
as well as the saturation of the Australian market. The research aims to discuss the issues that
the company has been facing and the factors that have contributed to the present performance
of the company in the Australian territories.
Research question:
1. What are the major reasons for the slowdown of the sales in Starbucks Australia?
2. How coffee shops can make their supply chain sustainable?
3. How the human resource of the company can help to prevent sales slowdown?
4. Can innovative products can save the company from losing position in the market?
5. What can be done to attain sustainability in business growth?
6. How does sales slowdown affect the overall business?
Research objective:

4STARBUCKS BUSINESS ISSUES
The objectives of this research are:
 To conduct a market survey to evaluate the reasons for sales slowdown in Starbucks,
Australia.
 To discuss the ways of implementing sustainability in the coffee shops
 To recommend suitable measures to address the sales slowdown
Literature review:
Internal factors:
The internal factors of the business can effectively create issues may lead to have
sales slow down. According to Kozak (2018), the concept of business survivability depends
upon micro environment. The micro, small or medium enterprises at the driving force of
economic development and their survivability gets influenced by the condition of the internal
situation. In this study, the author has investigated the situation of the business in the
Australian region and found that the company’s ability to stay in the market highly dependent
upon the skills and efficiency of the staff, public relations with the customers, business
Strategies and inability to match the culture of the location where the company is being
operating.
According to Bianchi, Cosenz and Marinković (2015), the strategic planning system
can improve the competitiveness of the company in the region. The authors have used
marketing tools like interview and interrogation and economic analysis of the company
performances in the Russian region. This study has found out that strategic planning process
when not get proper elaboration can affects the policies and process of production in the
organization. These all have affected the strategic planning of Starbucks which has only
focused the higher class of customers rather being accepted by mass. This would help by
discussing the issues that are prevalent in the Australian market and have been influencing
the stunted growth of Starbucks.

5STARBUCKS BUSINESS ISSUES
Human resource:
As pointed out by Noe et al. (2017) the internal factors like employee
motivation or inability to work in cross cultural situation can affect the growth therefore,
when the issue of inability to match the culture of the locations and attracting new customers
on the basis of localization of the products and services get mitigated, the company can
definitely work better. In addition to this DeCenzo, Robbins and Verhulst (2016), have
suggested to focus on the human resource of the companies to create a positive organizational
culture. As mentioned in the Forbes.com (2018), there are incidents of racial discrimination
in the Starbucks stores which has affected the fame of the company. Hence it has successfully
implemented training process for the employees.
External factors
The external factors like high competition in the market and the absence of
technological support affect the business by slowing down its sales. It is highly dependent
upon the country of origin and turbulent market conditions.
The study by Schwens et al. (2018) has focused on the information cost model which
is a valuable factor for surviving in a competitive market of Australia. The connection
between internationalization and performance has been controversial. There are prominent
theoretical arguments that focus on the effectiveness of the business with the multinational
structure can be affected by the degree of the host market diversity organizational adaptation
process and rising cost for technological adaptation can involve strong organizational
complexity.
Similarly the author like Hajkowicz et al. (2016) have stated hat the economic
conditions within the political territories of the country has a major effect on the development
of the issues that are faced by the company in the matters that are related to the business
growth and decline. The majority of the issues that are faced by the company reveal the

6STARBUCKS BUSINESS ISSUES
influence of the economic conditions of the organization in terms of the issues that are
highlighted in the overall economic performance of the organization in the given markets.
The pricing strategy that is implemented within the organization is based on the economic
regulations that are followed within the country.
Effect of sales slowdown:
According to Ollivaud, Guillemette and Turner (2016), there is a close conection
between sales slowdown and investment in the organization. This paper has detailed how the
continued demand weakness can turn to deterioration of the potential investment that affect
the overall business of the companies. Similarly, the authors like Decker et al. (2017), have
focused on the effect of sales slowdown to the pace of labor productivity growth. As the sales
of the company is the first and foremost factor based on which the growth of the company is
measured, when it slows down, the company cannot focus on the growth of the employee
productivity and innovation of new products. In the case of Starbucks, the outlets are being
closed one by one as the sales have been reduced (Stories.starbucks.com., 2019). As pointed
out in the news articles in Forbes (2018), Starbuck is losing its cool image and its identity.
The company’s concept of providing ‘third place’ that used to attract the millennial and
others than its competitors has become cliché. All of these have been imitated by the
compactors like McDonald’s and Dunkin.
Methods of innovation:
Innovation in terms of both products as well as services can help the companies to
grow popularity and sales according to Anzoategui et al. (2016), more focus on the R&D and
technology adaptation can guide the organizations to find ways for growth. The methods of
innovation that was once applied in the company when the third wave of coffee makers from
2000s targeted the quality minded drinkers with the handmade coffee associated with lighter
roasts, Starbucks uses some automatic espresso machines for safety reasons and efficiency.

7STARBUCKS BUSINESS ISSUES
This gave the company addition advantage over the competitors. Similarly, Christensen et al.
(2016), support the view that the company can enhance customer service through applying
technology in retail and production that may attract new customers.
Sustainability through growth:
The sustainability should be maintained within the organization in order to deal with
the various issues that are faced by the coffee shops in the Australian market. The
implementation of the CSR activities helps in the development of the suppliers of the
company as well as the clientele of the organization. Womack and Jones (2015), sustainable
growth include proper use of the resources both tangible as well as intangible. This can lead
the companies to create value and wealth both. On the other hand, Ortiz‐de‐Mandojana and
Bansal (2016) have focused on the organizational resilience through sustainable business
practices. In this regard the company can focus on the proper use of raw materials and apply
localization of the products. More focus on the CSR activities and encourage the local
communities by incorporating those in the business production can attract the local customer
and supply chain. Thus the sales of the will get a fresh impetus and definitely grow.
Conclusion
Therefore, it can be concluded that Starbucks have followed innovative production
and effective service policies to the customers but in the closely competitive market, their
policies somehow are not working. Therefore, sales is facing slowdown affecting the shares.
The research problems and questions have effectively tried to find out the ideas and
perceptions of the authors in different facets so that the company get opportunity to regain its
position.

8STARBUCKS BUSINESS ISSUES
References:
Anzoategui, D., Comin, D., Gertler, M., & Martinez, J. (2016). Endogenous technology
adoption and R&D as sources of business cycle persistence (No. w22005). National
Bureau of Economic Research.
Bianchi, C., Cosenz, F., & Marinković, M. (2015). Designing dynamic performance
management systems to foster SME competitiveness according to a sustainable
development perspective: empirical evidences from a case-study. International
Journal of Business Performance Management 31, 16(1), 84-108.
Christensen, C. M., Dillon, K., Hall, T., & Duncan, D. S. (2016). Competing against luck:
The story of innovation and customer choice. Harper Business.
Cnbc.com. (2019). Why there are almost no Starbucks in Australia. Retrieved from
https://www.cnbc.com/2018/07/20/starbucks-australia-coffee-failure.html
Cnbc.com. (2019). Why there are almost no Starbucks in Australia. Retrieved from
https://www.cnbc.com/2018/07/20/starbucks-australia-coffee-failure.html
DeCenzo, D. A., Robbins, S. P., & Verhulst, S. L. (2016). Fundamentals of Human Resource
Management, Binder Ready Version. John Wiley & Sons.
Decker, R. A., Haltiwanger, J., Jarmin, R. S., & Miranda, J. (2017). Declining dynamism,
allocative efficiency, and the productivity slowdown. American Economic
Review, 107(5), 322-26.
Forbes.com. (2018). Starbucks Gets An A In Crisis Management. Retrieved from
https://www.forbes.com/sites/shephyken/2018/05/10/starbucks-gets-an-a-in-crisis-
management/#66d23d9e7998
Hajkowicz, S. A., Reeson, A., Rudd, L., Bratanova, A., Hodgers, L., Mason, C., & Boughen,
N. (2016). Tomorrow’s digitally enabled workforce: Megatrends and scenarios for

9STARBUCKS BUSINESS ISSUES
jobs and employment in Australia over the coming twenty years. Australian Policy
Online.
Ibisworld.com.au. (2019). Cafes and Coffee Shops – Australia Industry Report | IBISWorld.
Retrieved from https://www.ibisworld.com.au/industry-trends/market-research-
reports/accommodation-food-services/cafes-coffee-shops.html
Kozak, M. (2018). Determinants of business survivability: Literature review. International
Journal of Synergy and Research, 6, 183.
Monica, P. (2018). What's wrong with Starbucks?. Retrieved from
https://money.cnn.com/2018/01/26/investing/starbucks-earnings-stock/index.html
Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2017). Human resource
management: Gaining a competitive advantage. New York, NY: McGraw-Hill
Education.
Ollivaud, P., Guillemette, Y., & Turner, D. (2016). Links between weak investment and the
slowdown in productivity and potential output growth across the OECD.
Ortiz‐de‐Mandojana, N., & Bansal, P. (2016). The long‐term benefits of organizational
resilience through sustainable business practices. Strategic Management Journal,
37(8), 1615-1631.
Schwens, C., Zapkau, F. B., Bierwerth, M., Isidor, R., Knight, G., & Kabst, R. (2018).
International Entrepreneurship: A Meta–Analysis on the Internationalization and
Performance Relationship. Entrepreneurship Theory and Practice, 42(5), 734-768.
Starbucks.in. (2019). Company Information | Starbucks Coffee Company. Retrieved from
http://www.starbucks.in/about-us/company-information/
Stories.starbucks.com. (2019). Starbucks. Retrieved from
https://stories.starbucks.com/stories/2008/full-list-of-australia-store-closures/

10STARBUCKS BUSINESS ISSUES
Womack, J. P., & Jones, D. T. (2015). Lean solutions: how companies and customers can
create value and wealth together. Simon and Schuster.