Hard News by Russell Brown


Because it's about time we had another coffee post

Thank you, Nathan Field, senior equity analyst at Gareth Morgan Investments. I needed a laugh, and you have delivered one in latte size.

Field has a guest column in the business section of today's Herald, in which he muses on the failure of the Starbucks chain in New Zealand.

"Anti-Starbucks sentiment is especially prevalent in New Zealand," declares Field, "where the brand has never really taken off."


Restaurant Brands, owner of the Starbucks New Zealand franchise since 1998, has understandably had enough. The company has made no secret of its desire to offload its 38 Starbucks stores.

A reason New Zealand has never embraced Starbucks is that we are a nation of shameless coffee snobs. Twenty years ago, we considered it the height of sophistication to add a dollop of clotted cream to a mug of drip coffee.

An upmarket brew was Greggs Red Ribbon Roast. But now, in cosmopolitan 2011, we turn our noses up at anything less than espresso.

We're hardly true aficionados like the Italians or the French. In fact, given the popularity of flat whites and lattes in New Zealand, it's not clear whether we've developed a genuine taste for espresso, or we've simply found a socially acceptable way to drink lots of warm, frothy milk. Dairy is in our DNA, after all.

But regardless of the underlying motives, Kiwis are now very particular about their caffeinated milkshakes.

Uh, dude. I'm not sure if there's a kind way to break this to you, but "caffeinated milkshakes" are basically what Starbucks sells. Those sugar-and-fat things in the tall cups don't look or taste like any espresso I ever had.

But, Field declares:

... the Seattle-based Starbucks doesn't give a white chocolate mocha about New Zealand's coffeehouse snobbery. It wants the big markets: the Americas, Western Europe, and the mother of all growth opportunities, Asia.

So far, the sales numbers in India and China are encouraging. Other nationalities, it seems, do not have the same hang-ups about Starbucks that Kiwis do. The market has taken note.

Well, I'm pretty sure that Restaurant Brands cares about the very large sum of money it invested in the franchise.

And, more to the point, it's hard to see how "sales numbers" in India can really be "encouraging" when Starbucks -- despite trying since 2007 -- does not operate any outlets in India. This month, it announced another attempt -- this time in partnership with the Indian food conglomerate Tata -- but it might be wise to wait until it is actually doing any business before declaring victory.

Seriously, this man is an analyst?

But if, as Field declares, "[w]e like our trim flat whites to be served by tattooed hipsters and surly short-film actresses, ideally from windswept coffee carts. It makes us feel edgy; less predictably suburban," then we're in good company.

Starbucks also failed miserably and memorably in Australia. Australian professor of economics Nick Wailes observed thus at the time :

“There are a number of important business lessons that can be learned from this situation,” advised Wailes. “Unfortunately, Starbucks failed to truly understand Australia’s cafe culture and has become an example of the big corporate machine it originally tried to differentiate itself from.”

“Part of the problem is that Starbucks original business model just doesn’t translate across markets. Starbucks original success had a lot to do with the fact that it introduced European coffee culture to a market that didn’t have this tradition. Australia has a fantastic and rich coffee culture and companies like Starbucks really struggle to compete with that,” Wailes concluded.

Starbucks has also failed in other countries with a strong café culture -- Israel, Austria, Switzerland. And Italy? Seriously, just forget it.

Field's not done with making things up:

The company was serving up espresso long before Kiwis even knew what the word meant.

Hardly. There have been commercial espresso machines in New Zealand since the 1950s. Starbucks didn't sell a cup of coffee to a member of the public until 1986, and even then under the name Il Giornale.

It was far, far too late for Starbucks in New Zealand by 1998. The revolution was happening here in the early 1980s, courtesy of DKD and the various Wellington operators -- in interesting, characterful places, where you were served by the owners. There are now specialist coffee roasters the length of the country. The Vibiemme Domobar machines for the home -- sold from Italy around the world -- were jointly designed by Espresso Engineers of Grey Lynn. (Declaration: we built a plumbed Domobar Super into our renovation budget.) That's how serious we are about this. 

And it's catching. The modern New Zealand and Australian approach to coffee and cafes is feted in London, where there is a miserable lookalike Starbucks on every second corner.

Locally, Starbucks largely clings on in locations where it is spared the need to compete with owner-operators -- shopping malls -- or where it can offer a familiar haven to tourists who don't know where to go. I've patronised Starbucks in places like Singapore, because it is clearly the least-worst option for a long black.

But in an open market? Starbucks cafes are comfortable but characterless, their food selection is limited and -- most of all -- the coffee is mediocre and sometimes even stale-tasting. Its milkshake-style drinks are really coffee for non coffee-drinkers.

It's not even that quality cafes can't operate beyond the owner-operator model. In Wellington, Mojo serves startlingly consistent coffee across a cluster of locations. You always feel like they care. Perhaps, as Field says, Starbucks couldn't care less about New Zealanders. If so, that would go some way towards explaining why we care so little about Starbucks.

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