MGT303A Project: Exploring Starbucks' Market Failure in Australia

This research project investigates the reasons behind Starbucks' market failure in Australia, despite its global success. The study explores the mature and sophisticated Australian coffee culture, which already had thriving local cafes emphasizing relationships over product. The research uses a deductive approach, employing descriptive, casual, exploratory, and quantitative research designs to identify internal and external factors contributing to the failure. Hypotheses are formulated based on existing theories, including cognitive biases related to overconfidence in new markets. Data collection involves surveying Australian coffee consumers to gather insights into their preferences and perceptions of Starbucks. The research aims to answer questions about Starbucks' market exploration and understanding of the Australian coffee retail landscape, providing a comprehensive analysis of the factors that led to its unsuccessful venture.

Running Head: WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET
Why Starbucks coffee is failed in the Australia Market
Name:
Academic Affiliation:
Date:

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 2
Table of Contents
1.1.0 Background.........................................................................................................................2
1.1.1 Problem statement...............................................................................................................3
1.1.2 Literature Review................................................................................................................3
1.1.4 Causes of business failure...................................................................................................4
1.1.5 Existing Literatures on the business Failure in Australia’s Market....................................5
1.1.6 Business failure theories.....................................................................................................6
Cognitive Biases.......................................................................................................................6
2.0.0 Research Objectives and Questions........................................................................................7
3.1.0 Research Approach.............................................................................................................7
3.1.1 Deductive research approach..............................................................................................8
4.3.5 Suggested questions..........................................................................................................11
5.0.0 References.............................................................................................................................14
Appendices....................................................................................................................................17
Appendices 1: Project schedule................................................................................................17

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 3
1.0.0 Introduction
Organization expansions into new markets always come with significant benefits such as
increased profit collection, improved market command and better competitive advantages.
However, some of the organizations tend to face market failure in their new expansion. Market
failure refers to the economic situation whereby there is an insufficient distribution of goods and
services thus leading to the failure of an organization (Eisikovits & Markelevich, 2016). Market
failures are always associated with different factors such as information asymmetries, principal
against problems, externalities, and time-inconsistent preferences. It is significant for economics
to understand various market failures to determine corrective measures. Therefore the following
proposal is based on identifying the major reason that led to the market failure of Starbucks in
the Australian market.
1.1.0 Background
Starbuck was funded in 1871, and the first site was located in Seattle’s Pike Place
Market. The store came into public in 1992 with already around 140 stores since its store-growth
rate was about 40-60% per year. In the early 2000s, Starbucks was opening seven stores per day
across the world, thus becoming the largest coffee store in the world with more than 15,000
stores across 44 countries. The tremendous growth of Starbuck across the counters is attributed
to the ability not to sell the only coffee but also customers experience.

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 4
1.1.1 Problem statement
Consequently, Starbucks successfully Americanized European coffee, an aspect that was not
achievable by other coffee houses. With that growth rate, Starbucks announced its desires to
venture into the Australian market in 2000; however, until a today a large number of people still
wonder why the world largest coffee store failed in the Australian Market (Kang & Choi, 2015).
Starbucks was able to open up 84 stores in Australia; however, by 2008 the company announced
its plan to close down about three-quarters of the Australian based stores, a decision that is
attributed to declining on the global economic constraints characterized by high fuel prices
(https://myassignmenthelp.co.uk/freesample/why-starbucks-fail-in-australia). The high fuel cost
affected the consumers’ purchasing power especially on luxurious products such as coffee, thus
led to the failure Starbucks’s market failure in Australia.
1.1.2 Literature Review
1.1.3 Australian Retail Coffee Industry
Australian coffee culture dates back during the 1980s when Greeks and Italians arrived at
the shores after World War II. Over the past decades, Australians have embraced and enjoyed
different coffee lifestyles and experience created by Starbucks in the US; therefore, unlike other
countries, Austrians did not need an introduction to the coffee concept. Australia coffee culture
is described as mature and sophisticated thus even by the introduction of Starbucks in 2000;
there were already some thriving urban coffee cafes (Gedik, Erdonmez & Atılgan, 2016).
According to Australians coffee culture, coffee is more about the relationship than the product
itself; thus why the global Starbucks had difficulty in replicating the intimacy that had been

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 5
created by the Australian based coffee shops. More importantly, most of the Australians tend to
enjoy their coffee in a stronger and straighter state rather being disguised with other flavors.
Australians are among the highest coffee consumers in the world with a large population
consuming coffee away from home. Kolk, (2012) found out that about 1 billion of coffee cups
are consumed in various destinations such as cafes, restaurants, and outlets per year since there
are about 14,000 cafes and restaurants serving coffee in Australia by the end of 2006/2007. The
large coffee sales translate to about $1.8 billion GDP in the Australian market. Despite this
success of coffee business in Australia, the high consumption is not a guarantee to the success of
any coffee business that's why Starbucks was unable to withstand the Australian coffee market.
Liu, (2010) denotes that Australia coffee retail is particularly tough thus for any global coffee
retailer to succeed, it has to offer better coffee experience than the local competitors.
1.1.4 Causes of business failure
Business failure varies from internal to external factors. The internal factors are likely to
be seen and include capital, management incapacity, the inadequacy of talented employees,
while on the other hand; external factors are not likely to be seen. These include government
regulations, social and cultural aspects, consumer behavior and unfavorable market and climatic
conditions. According to the European Federation of Accountants, business failure results from
the following aspects: poor management, inadequate cash flow management, impending debts,
and unfavorable government regulations. From this, the researcher thus develops a stretch
hypothesis for the study:

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 6
H1: there is a relationship between the internal and external factors with the Starbucks
business failure.
1.1.5 Existing Literatures on the business Failure in Australia’s Market
According to Mbat & Eyo (2013), every business venturing into new market faces
numerous barriers such as economic barriers. The economic barriers refer to the cost that a new
entrant must incur already existing business entities do not incur that. The continual growth of
coffee stores over the past deceased has been an imperative aspect in the present world. In
Australian, coffee shops act as homogenizer of independent communities as they can pay low
taxes, and reduces unemployment level. Starbucks was unable to compete with the local coffee
outlets as most of the Australians preferred the taste of the local coffee that was only obtained
from the local coffee shops.
Morris, (2013) explored entry and exit strategies of the organization into homogenous
markets. The investigations aimed at identifying the impact of entry of an organization on the
market structure. The results of the article showed that there is a direct impact on the
independent coffee market and the chain market increased the profitability of the organization.
According to, independent coffee shops operate in different market strategies; thus
heterogeneous customers have a reason for the product differentiation. Low entry, barriers allow
numerous organizations to enter into a market and have negative impacts on the new entrants as
their strategies are influenced. The new entrants always face stiff competition from the existing

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 7
companies, thus disrupting their strategies. Product differentiation is the core factor for most of
the new business setup; since it has the capability of standing out in the market.
Tran, Lee, Furtado, Smyth, & Henry (2016) carried an investigation to analyze the
development and growth of coffee shops in Australia market. From it is identified that coffee
demand and supply growth rate is determined by the low entry barriers thus allowing the
congestion of coffee shops in the Australian market. In most cases, the market price is always
determined availability of purchases. However, the decision making signals in such a
competitive market does not influence the profit-making of the organization.
1.1.6 Business failure theories
Cognitive Biases
Cognitive biases theory has both positive and negative on the probability of business
failure. The theory focuses on the overconfidence of new entrants the market. Most of the
business entities laws pose over 70% confidence in succeeding in the new market thus leading
them to have unrealistic business forecast. Such business always acts in confidence in allocating
resources on wrongly interpreted information. (Parker 2012). According to socially constructed
confidence tends to deprive business entities the required resources thus increase the chances of
business failure. For the above discussion the researcher constructs the following hypothesis:
H2: there is relationship between Starbucks overconfidence in the new markets to its
market failure in Australia.

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 8
2.0.0 Research Objectives and Questions
The research focuses on identifying the major reasons that led the successful coffer
retailer: Starbucks to fail in the Australian market. To fully explore this objective, thus the
researcher will have to answer the following research questions:
a) How well did Starbuck explore the Australian market?
b) How well Starbuck did understands the Australian coffer retail market?
3.0.0 The Research Approach to be applied
This chapter focuses on the research approach to be used methodology used to explore
the reason they led to the failure of Starbucks coffee store in the Australia market.
3.1.0 Research Approach
Innuer, (2019) denotes that research approach help in collecting relevant and accurate
information required in understanding any research topic and are categorized either as deductive
adductive or inductive approach. The deductive approach entails the development of a hypothesis
based on the already existing theories and then later developing a research strategy to test the
hypotheses to either accept or reject the hypothesis. The inductive research approach is perceived as
an approach that aims at generating new theory based on the already existing data. Lastly, the
adductive research approach addresses the weakness posed by both the inductive and deductive
research approaches. The current paper will be based on a deductive approach since the paper

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 9
focuses on answering the research questions through developing a hypothesis from the existing
theories such as customer theory, production theory, and resource view based theory
3.2.0 Research Design
The study adopts the descriptive, casual, exploratory and quantitative research design.
The combination of this design allows the rescuer to identify factors that led to the failure of
Starbucks in Australia. According to Kennedy (2015) qualitative research focuses on customer’s
behaviors and expenses as well as the organizational function, thus allows the researcher to
explore what is little known to enhance understanding of the topic. Thus the researcher used a
qualitative method to explore the experience faced by stuck during their stay in Australian
market.
3.2.1 Casual Research
The study will adopt a casual research approach. The casual research approach is a
systematic investigation that enables the researcher to identify the cause-effect relationship. The
approach will focus on the analysis of why Starbucks coffee does not capture the attention of
Australian and why it has failed in the Australian market. The approach thus will create the
relationship between a various market variable and the Starbucks coffee to answer the research
questions.
4.1.0 Methodology
According to Weakeer, (2012) research methodology refers to the inductive method that
we used since the purpose of the current paper is thus to unfold the phenomena behind the failure
of the Starbuck without manipulation of data.

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 10
4.2.0 Population
The population of the study will entail Australian coffee customers. The perceptions of
these customers will help the researcher to obtain relevant reasons behind their dislike to
Starbucks’s coffee that led to its market failure. The researcher will focus on customer above 18
years old and will be accessed through various coffee shops in Australia.
4.2.1 Sample and sample design
Sample size will be calculated through the use of Yamane’s formula since the targeted
population is more than 10,000. n=N/ {1+N (e) 2} where
n: sample size
N: Total population for the city
e: precision
n= 250
The participant will be recruited through a simple random sampling method (Liu, Yang & Cai,
2012). Simple Random Sampling process provides each individual in the population the equal
chance to participate in the process, thus eliminates the possibility of biasness.
4.3.0 Data collection
Data collection part is significant in every research process as it focuses on collecting real
data to be used in analyzing and identifying factors that led to the failure of Starbuck's failure in

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 11
Australia market. The study will employ a mixed method to acquire qualitative and quantitative
factors.
4.3.1 Research technique
Research techniques refer to the tools applied in collecting the raw data during the
research data collection process. Research techniques vary and include an interview,
questionnaire, survey, experimental, observation among many others.
4.3.2 Survey questionnaire
The research technique will be survey based on face-to-face and postal/email
questionnaire. Liu, Yang & Cai (2012) states that the survey questionnaire can reach a large
number of people in a more relative cost and retrieve rich information that can answer the
questions of the research. The questionnaire will be designed to contain some Linkert-scale to
allow the researcher to scale some of the perceptions.
4.3.3 Validity and reliability
The validity and reliability of the survey questionnaire will be tested by sending some
samples to the professional entrepreneurs who will have to reject or approve the content of the
survey questionnaire. Reliability will be tested through the internal consistency of the survey
questionnaire and evaluated through test and retest correlation (Bashir & Marudhar, 2018).
4.3.4 Implantation plan

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 12
The implementation of data collection will be conducted into two phases. The first face
will focus on the Starbuck's top management to collect their views on the reasons that led to the
failure in Australian market despite the fact of having high growth and expansion rate in the
world and success in other international markets. The survey questions will be distributed
through the mail since some of the participants will be geographical unreachable. The second
phase will focus on collecting the insights and views from the local coffee retailers to collect the
reasons that led failure of Coffee even though coffee is one of the consumed beverages in
Australia.
4.3.5 Suggested questions
For Starbucks’s Top Management
1. What were the main considerations before you ventured into the Australian Market?
a) Australian economic growth
b) Acquiring new markets
c) Others (please specify)
2. Before venturing into the Australia market, how did you perceive your performance in the
next two years?
a) Excellent
b) Good
c) Bad

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 13
3. During your experience in Australia, how easy was it to find support and advice?
a) Very easy
b) Easy
c) Difficult
d) Very difficult
e) Do not; know
4. Which of the following entities provided you with business support?
a) Australia local authority
b) Australia Government
c) Australia customers
d) Trade professionals
e) Australia suppliers
f) Others(please specify)
5. What do you think led to the failure of Starbucks in Australia market?...................
6. Why was it difficult to address the challenges?...........................................
For other participants s
1. Did you ever integrated with Starbucks coffee retailer

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 14
Yes
No
If yes, how was the experience?
a) Good
b) Very good
c) Bad
d) Very bad
If no, why didn’t you have a chance?
………………………………………………………………………………………………………
…
2. How was the Starbucks coffee compared to the local coffee
a) Good
b) Very good
c) Bad
d) Very bad
3. How would you rate the performance of Starbucks between 2000 and 2008?
a) Good
b) Very good
c) Bad
d) Very bad
4. Why do you think Starbucks failed to thrive in the Australia market?.............................

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 15
4.4.0 Data Analysis
Data analysis aims relating the Australian market factors and the failure of Starbucks in
the Australian market. There are two data analysis methods: inferential and descriptive methods.
To fully relate the collected data, the analysis will entail both quantitative and qualitative data
thus will be analyzed through a descriptive method such as SPSS.
5.0.0 References
Eisikovits, N., & Markelevich, A. (2016). Academic - Business Collaboration: A Market
Failure. SSRN Electronic Journal. doi: 10.2139/ssrn.2885498

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 16
Gedik, E., Erdonmez, S., & Atılgan, N. (2016). Influence of Turkish coffee culture on the design
of small home appliances: Turkish coffee makers. New Trends And Issues Proceedings
On Humanities And Social Sciences, 2(1), 135-142. doi: 10.18844/gjhss.v2i1.290
Kang, M., & Choi, J. (2015). Study on Mutual Relationship between Color Marketing and RTD
Coffee Industry in Korea - Consumer Perception of Cup Coffee Sold in Retail Stores
-. Journal Of The Korean Society Of Food Culture, 30(2), 182-189. doi:
10.7318/kjfc/2015.30.2.182
Kolk, A. (2012). Towards a Sustainable Coffee Market: Paradoxes Faced by a Multinational
Company. Corporate Social Responsibility And Environmental Management, 19(2), 79-
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LIU, P. (2010). The Effects of International Shocks on Australia's Business Cycle*. Economic
Record, 86(275), 486-503. doi: 10.1111/j.1475-4932.2010.00637.x
Mbat, D., & Eyo, E. (2013). Corporate Failure: Causes and Remedies. Business And
Management Research, 2(4). doi: 10.5430/bmr.v2n4p19
Parker, S. (2012). THEORIES OF ENTREPRENEURSHIP, INNOVATION AND THE
BUSINESS CYCLE. Journal Of Economic Surveys, 26(3), 377-394. doi: 10.1111/j.1467-
6419.2012.00728.x
Bashir, J., & Marudhar, M. (2018). Reliability & Validity of the Research. Scientific Journal Of
India, 3(1), 66-69. doi: 10.21276/24565644/2018.v3.i1.23

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Innuer, W. (2019). Comparative Study of Arthrodeses by "Single Posterior Approach" and by
"Double Anterior and Posterior Approach". Case Medical Research. doi: 10.31525/ct1-
nct03876275
Kennedy-Clark, S. (2015). Reflection: Research by design: Design-based research and the higher
degree research student. Journal Of Learning Design, 8(3). doi: 10.5204/jld.v8i3.257
Liu, H., Yang, Z., & Cai, H. (2012). Study on the Transmission Data Collection Technique of
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10.4028/www.scientific.net/amr.546-547.1453
Morris, J. (2013). Why espresso? Explaining changes in European coffee preferences from a
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D'histoire, 20(5), 881-901. doi: 10.1080/13507486.2013.833717
Tran, H., Lee, L., Furtado, A., Smyth, H., & Henry, R. (2016). Advances in genomics for the
improvement of quality in coffee. Journal Of The Science Of Food And
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https://myassignmenthelp.co.uk/freesample/why-starbucks-fail-in-australia

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Appendices
Appendices 1: Project schedule

WHY STARBUCKS COFFEE IS FAILED IN THE AUSTRALIA MARKET 19