I got two questions about the strategy management about Starbucks in Australia market. Please find the questions in attach files. Please answer the questions in a report format with Harvard Reference Style. In addition, there is a reference available in attach files as well, feel free to use it and other references if there are any available.

Word Count: 1500 words

1.Explain why Starbuck's global expansion strategy failed in Australia and compare this to success on other markets You should use a formal analysis method such as Rumelt's criteria (or equivalent) e.g. External environment, Internal environment, Feasibility and Competitive Advantage. 2. Analyse Starbuck's Australian expansion based on Porter's 5 forces (or equivalent) of Power of Suppliers, Power of Buyers, Intensity of Rivalry etc. Instructions / Rules 1. The report should have appropriate headings and subheadings. 2. In your report include references to other websites and articles. 3. This work should be in one document such as Microsoft Word. This assignment should be typed using Times New Roman font size 12, single spacing with appropriate headings and attention to spelling and grammar. The report should not exceed fifteen (15) pages (excluding the list of references). Starbucks - mid 2013 Starbucks Starbucks is one of the world's leading iconic brands, and is one of the major examples and beneficiaries of globalisation. A roaster, marketer and retailer of coffee, Starbucks purchases and roasts coffees that it sells, along with handcrafted tea, other beverages and a variety of food items. Starbucks has been a publicly listed company (listed as SBUX on the NASDAQ) since 1992; having grown from a single store in Seattle in 1971 to the global giant it is today. Starbucks employs around 160 000 staff in 9405 company-operated stores and 8661 licensed stores globally across 61 countries (Starbucks 2012). Starbucks helped to shape the United States (US) coffee market from a relatively immature industry built around low-quality coffee served at diners and cafes. Starbucks' success has been centred on the company's core competencies, which can be defined as high-quality coffee and products at accessible locations and affordable prices, provided in an environment for sharing the coffee-drinking experience. Over time, the business has expanded both in terms of geography and product range, whilst maintaining the company's core competencies. In 1992, Starbucks listed at a share price of USD 0.53 (split-adjusted 1) . In June 2013 it was trading at USD 65.97. The company expanded rapidly, and experienced consistent year on year growth until 2007. From July 2006 to March 2009, however, the SBUX share price dropped 78 per cent. This change in fortunes raises a number of important questions. Why did Starbucks experience such a decline from July 2006 to March 2009? Was it a victim of its own success? Did its strategy evolve with the market or were there other contributing factors that led to the decline? Can it all be attributed to the global financial crisis (GFC) in 2007-08 and its associated reduction in consumer demand? Starbucks early history Starbucks began in 1971 with the opening of a coffee-roasting store called Starbucks Coffee, Tea and Spice in Seattle, US. The partners shared a love of fine coffees and exotic teas and believed they could build a clientele in Seattle much like that which had already emerged in the San Francisco Bay area. The store did not at first offer fresh-brewed coffee by the cup, but samples were sometimes available for tasting. Over time the store began to sell fresh-brewed coffee by the cup and began to more closely resemble the modem-day stores. Howard Schultz first encountered Starbucks in 1981 and was struck by the business philosophy of the partners. It was clear from their discussions that Starbucks stood not just for good coffee, but rather for the dark-roasted flavour profiles that the founders were passionate about. Top-quality, fresh-roasted, whole-bean coffee was the company's differentiating feature, and a founding value. It was also clear to Schultz that Starbucks was strongly committed to educating its customers to appreciate the qualities of fine coffees, rather than just conforming to mass-market appeal. The company relied largely on word of mouth to attract customers to its stores, and then relied on the quality of its product to give patrons an experience that would encourage them to return. Howard Schultz was hired as Director of Marketing in 1982, and has been the CEO of Starbucks since 1987. From the outset, Starbucks did not see itself as a 'coffee' business, but a 'service' business that offered customers an experience, rather than just the opportunity to buy a cup of coffee. Its model was built on the European coffee tradition, with which America at the time was unfamiliar. Coffee in the US was generally percolated brewed coffee. In the US, Starbucks changed the coffee-drinking habits of a nation as Americans discovered the difference between Arabica and Robusta beans, and developed a taste for a better brew than that promised by the supermarket retail giants of Maxwell House, Sanka, Folgers and Chock Full o'Nuts (Stealing Share 2013). 1. 'Split-adjusted' prices take into consideration the effect of a split (or increase in the number of shares on offer) on the total number of shares or units outstanding, in order to compare the security's current price to its historical price in a consistent form of valuation. Page 1 of 16 Business strategy Starbucks mission is 'to inspire and nurture the human spirit----one person, one cup and one neighborhood at a time'. The brand was built with a number of key attributes-the customer should be greeted within five seconds, there would be eye contact, the customer's name would be remembered, and visiting the store was a place to relax, socialise, read, surf the internet and be seen. Advertising and promotion were not to be the primary communication vehicles. Starbucks' philosophy is based on the understanding that a positive emotional experience will generate word of mouth and lead to customer loyalty. Starbucks also values ethics and good business practices, and is acknowledged as a leader in this field, being voted one of 2012's most ethical businesses by Ethisphere magazine (2013) for the sixth year running. Ethisphere recognises global companies that not only promote ethical business standards and practices internally, but also exceed legal compliance minimums and shape future industry standards by introducing best practices today. Starbucks now offers a broad portfolio of products ranging from fresh juice bars to pastries and fresh coffee served across a range of channels from coffee shops as well as pre-packaged varieties for home consumption. Starbucks generates the vast majority of its profits from selling ready-made coffees, and as such this analysis will focus predominantly on the cafe and coffee shop industry. Cafe and coffee shop industry overview Value chain The simplified coffee industry value chain shown in Figure 1 shows the standard stages for the overall industry. This simplified value chain is applicable to all forms of coffee, from instant coffee, beans and ground coffee sold in supermarkets and grocery shops, through to that brewed in coffee shops. Figure 1: Value chain for the cafe and coffee shop industry Key trends and challenges in the cafe and coffee shop industry Over the past five years, the industry has benefited from social trends such as busier lifestyles, heavier workloads and longer working hours. These factors have boosted demand for ready-made food and have presented opportunities for cafes serving snacks and light meals, as time-poor consumers look to cut down cooking time and make better use of their free time. Additionally, public concern about health and nutrition has increased over the past decade, leading to increased scrutiny of the amount of fat, sugar and salt in foods. This shifting focus encourages industry players to alter their product mix to cater to consumer preferences. Average global per capita consumption of coffee in pounds (weight) has experienced a slight decrease over the last 30 years, but is projected to remain relatively stable until around 2016 (IBISWorld 2011). Global industry profitability has come under pressure from a variety of sources, including rising coffee prices. The world price of coffee has risen sharply in the past few years due to growing demand and supply shortages. Stable consumption of coffee in the US and growing demand in Europe, the Middle East and Africa (EMEA), China and the Asia-Pacific (CAP) have put a strain on the world's coffee exporters. Also, consumption has shifted towards more expensive, premium blends of coffee which has caused the average price of coffee to rise. Adverse weather in some of the world's primary growing areas has also placed a strain on supply. In addition to rising coffee prices, key retailers in the industry have experienced the rising cost in wages, electricity and insurance. Figure 2 illustrates the key cost components for the US industry. As the global market has matured, the demand and expectation for high-quality coffee has fuelled competition and wage growth for cafes as they opt to employ highly skilled and expensive baristas to cater for consumer tastes. Page 2 of 16 Competitive landscape It is difficult to provide an analysis of the competitive landscape on a global scale as each market is of a different size and has factors specific to its geography. As such, this analysis looks at three countries and the competitive landscape of eachthe US, China and Australia. United States The coffee shop market in the US is mature, but still growing, with estimated revenue of approximately USD 10 billion in 2012. The industry is highly concentrated with the top 50 organisations generating 70 per cent of total industry sales (First Research 2011).Consumers spend an average of USD 2.45 for an espresso-based drink or USD 1.38 for a cup of brewed coffee. The majority of Americans (65%) drink coffee at breakfast, 30 per cent report drinking coffee in between meals, while 5 per cent say they drink it with meals other than breakfast (Harvard School of Public Health 2012). Industry volatility is highly contingent on factors affecting income levels, such as taxes and unemployment levels. In most of the developed world, there was a decline in disposable income and discretionary spending during the GFC and coffee, as a non-essential product, was one of the first and hardest hit products. As shown in Figure 3, revenue from the coffee and snack shops industry in the US has risen consistently, except during 2009 when revenues fell. Page 3 of 16 Approximately 85 per cent of coffee drinkers make their own coffee at home, with modern consumers having access to a wide range of ways to brew quality coffee and espresso drinks in their own home. In the US, sales of coffee machines are forecast to expand by an additional six million units annually by 2017, predominantly driven by coffee in 'pod' format (i.e. 'pre-packaged ground coffee beans in their own filter"), which is set to overtake traditional filter coffee models (Euromonitor International 2013). The expansion in the home-brew market has potential to impact the revenues of coffee shops as fewer consumers buy coffee in shops (First Research 2011) in favour of making their own beverages. 3 As already noted, the US coffee and snack shop industry is worth approximately USO 29 billion in revenue. The specialty coffee market is intensely competitive, in terms of product quality, service, convenience and price, and Starbucks faces significant competition in each of its channels and markets. Starbucks is the dominant player, followed by Dunkin' Donuts and other smaller competitors (including McDonald's and Panera Bread) as shown in Table 1 .These major chains also cater to the takeaway coffee market. Dunkin' Donuts operates 10,500 stores across 31 countries and McCafe products are sold through all of McDonald's 34 000-plus locations around the globe. Both Dunkin' Donuts and McCafe retail their beverages at a lower cost than Starbucks. However, they predominantly offer the coffee as a takeaway product, as opposed to Starbucks, where the focus is on the customer experience, and enjoying time spent in the coffee shop. Table 1: Overview of US cafe and coffee shop chain industry Name Starbucks Market share 32.6% Overview Starbucks is a roaster, marketer and retailer of coffee. Starbucks has been a publicly listed company since 1992, having grown from a single store in Seattle in 1971 to over 17 000 stores in 2012. Starbucks employs around 160 000 globally across 61 countries (Starbucks 2012). Over time, Starbucks has continued to grow its product range, and has also continually expanded into new geographic markets. Dunkin' Donuts 16.1% The first Dunkin' Donuts was opened in 1950 in Quincy, Massachusetts. Today, there are over 10 500 Dunkin' Donuts stores located in 50 countries worldwide, with sales of USD 6 billion in 2011. Seven thousand stores are located in the US and the company is run predominantly as a franchise business model. It is known for its doughnuts and coffee. Over the years, Dunkin' Donuts has introduced new products such as bagels, muffins and breakfast sandwiches. In order to compete with the specialty coffeehouses, Dunkin' Donuts has expanded its coffee offerings to include flavoured coffees, lattes, 'coolattas' (frozen drinks), flavoured hot chocolate and teas. Sales growth for 2010 and 2011 was 2.3 per cent and 2.8 per cent respectively. Page 4 of 16 McDonald's * McDonald's is becoming an emerging competitor in the industry in the US since it first upgraded its coffee in 2006. McDonald's has a larger customer demographic than Starbucks as McDonald's with its well-established menu offerings caters to families with children, teenagers, adults, and senior citizens. While customers are stopping for a quick breakfast, lunch or dinner, they may also get a specialty coffee to go. Panera Bread * Panera Bread was founded by Louis Kane and Ron Shaich in 1981. It was originally named Au Bon Pain Co., Inc., and later changed its name to Panera Bread Company in 1998. Today, there are more than 1600 Panera Bread bakery-cafes in the US. Panera's product line consists of baked goods, artisan and specialty breads, customroasted coffee and espresso drinks, soups, salads, made-to-order sandwiches and gourmet pizzas. Panera's ambiance of casual dining is the closest competitor to Starbucks. Like Starbucks and Caribou Coffee, Panera Bread offers free Wi-Fi to its customers. Panera's pricing is designed so customers perceive good value with high quality food at reasonable prices. Sales for 2011 were estimated at USD 1.82 billion. * N o t e : Comparative market share data is not available for the same product lines as Starbucks and Dunkin Donuts, due to the diversity of products at McDonald's and Panera Bread. Source: Adapted from IBISWorld (2011), 'Coffee & snack shops in the US', Market Research Report 7222l b, February; Dunkin' Donuts (2011), Dunkin' Brands Prospectus, Dunkin' Brands Group !PO Documents, 11 July (accessed August 2013); Panera Bread (2012), 2012 Annual Report to Stockholders, 18 April (accessed August 2013). Wikipedia (2013), 'Coffee pods and capsules' (accessed August 2013). Note: For the purpose of this case study it is assumed that the 'cafe and coffee shop' and 'coffee and snack shop' industries are the same. Page 5 of 16 China The Chinese coffee market has grown at the rate of 15 per cent annually in recent years and is expected to expand from its current size of USD 11.27 billion to USD 160.94 billion over the course of the next IO years. The countries of Europe and North America have average per capita coffee consumption in excess of 400 cups annually. Japan's per capita coffee consumption is roughly 200 cups annually. In contrast, in the predominantly tea-drinking nation, Chinese per capita coffee consumption is less than five cups per year. The growth in the Chinese market is illustrated in Figure 4, which shows that consumption of both instant and fresh coffee grew steadily between 2000 and 2007. Since 2007, coffee consumption has continued to grow, but at a lower rate of CAGR compared to the 2000 to 2007 period. This declining rate of CAGR growth is driven by a large reduction in the consumption growth of instant coffee. The rate of CAGR post 2007 has also declined slightly for fresh coffee consumption as the market moves along the industry life cycle. From 2000 to 2012 the number of coffee shops in China rose to over 14 000, with the pattern of growth closely following that of consumption. Starbucks is the largest competitor in the Chinese market, with McDonald's ranking second in total coffee sold (Euromonitor International 2013). Other competitors include Costa Coffee, South Korean-owned bakery chains Paris Baguette and Tous Les Jours, and Hong Kong's Pacific Coffee. Pacific Coffee has approximately 55 outlets, mostly concentrated in Shanghai, Beijing, Shenzhen and Guangzhou. Britain's Costa Coffee has positioned itself as a more premium product to Starbucks, and has more luxurious shop environments, including more sofas and plush seats. Starbucks plans to expand to 1500 stores in China by 2015. Costa Coffee has stated that it will have 2500 cafes in China by 2018. Even McDonald's has entered the market, opening small coffee outlets on street comers across the country. All of these developments have been driven by a surging demand for coffee in China, as noted above (O'Brien 2013). For most of the last decade, Nestle and Starbucks have occupied very different realms in the structure of China's coffee consumption. Nestle produces Nescafe, which controls 75 per cent of the instant coffee market in China (Li 2011). Instant coffee comprises between 80 and 90 per cent of all coffee consumption, according to Li (2011). Starbucks, meanwhile, has been focused on expanding its footprint in the Chinese market through the opening of new stores. Unlike Nescafe, which is cheap and can be found in most Chinese grocery stores, Starbucks has traditionally offered more expensive products sold Page 6 of 16 exclusively through its stores. In short, Nescafe has been a ubiquitous brand-available to the masses-and Starbucks has been a lifestyle brand-targeted at upper-middle-class, white-collar workers. Page 7 of 16 Australia 4 The industry has a low level of market share concentration and is highly fragmented and includes a large number of single establishment, owner-operated cafes. IBISWorld (2013) estimates that the four largest industry players account for less than 15 per cent of industry revenue and this is not expected to change over the next five years. The key competitors in Australia are Gloria Jean's Coffees, the Coffee Club and Michel's Patisserie (refer to Table 2). However, these businesses have limited market power and are basically powerless to influence the industry in terms of price or product trends. The strong independent coffee culture in Australia, which places an emphasis on quality instead of quantity, has restricted the influence and growth of chain stores. Starbucks is considered to be the fifth largest competitor in Australia. Starbucks today Starbucks global performance Despite Starbuck's expanding global presence as mentioned in the industry overview, revenue from the Americas still represents 75 per cent of total revenue, followed by Europe, the Middle East and Africa (EMEA) with 9 per cent, and China and the AsiaPacific region (CAP) at 5 per cent. The remaining 11 per cent of revenue relates to non-geographic specific channel development of products sold through retailers and grocery stores (Starbucks 2012). Starbucks operates across four core business divisions: company-owned stores, licensed stores, retailers (e.g. supermarkets) and online. Company-operated stores are the largest source of revenue for Starbucks, representing 79 per cent of net revenues in 2012. Licensed stores account for 9 per cent of total revenue through product sales and royalty and licence fee revenues. Licensees provide access to desirable retail space, and are generally prominent retailers with in-depth market knowledge and access (Starbucks 2012). Table 3 shows the number of stores by type from 2008 through to 2012. 4 Defined here as cafes and coffee shops in Australia. Although many of the Starbucks stores are currently company operated, the company has recently shown a preference to open more licensed stores. Licensed stores usually have margins three or four times higher than those of company-operated stores, so a greater proportion of licensed stores will have a tendency to increase overall margins (Trefis 2013). As shown in Table 4, total net revenues increased 14 per cent to USD 13.3 billion in the fiscal year 2012, primarily due to a 7 per cent increase in its global comparable store sales, 50 per cent growth in channel development and 20 per cent growth in licensed store sales. Starbucks value chain Starbucks uses a highly specialised value chain in order to provide its special brews to customers around the world. Starbucks sources high-quality coffee beans from coffee-growing areas of Latin America, Africa, Arabia and the Asia-Pacific region. While over 60 countries grow coffee, Starbucks only purchases from a select group of 25, with the majority sourced from growers in Guatemala, Colombia and Indonesia. Starbucks is the only company in the industry that sources its own high quality green coffee beans, paying a premium price for both the quality and ethical sourcing of the beans. The coffee beans are shipped to one of five company-roasting facilities in the US, as well as a recently opened facility in India-a product of Tata Starbucks Ltd. Tata Starbucks Ltd, a 50:50 joint venture between Starbucks Coffee Company and Tata Global Beverages Ltd, was formed in January 2012. Tata Global Beverages is a global beverage business and the world's second largest tea company. Tata Coffee is a subsidiary of Tata Global Beverages, and is Asia's largest coffee plantation company and the third largest exporter of instant coffee in India. As part of the roasting process, Starbucks produces its many iconic blends of coffees. At the retail end of the value chain, Starbucks has introduced a number of innovations to improve customer service, including: a Starbucks smartphone app that offers product information and order processing; an enhanced point-of-sale system that dramatically reduces the speed of processing transactions; and a loyalty program. Growth strategy Starbucks is currently focused on diversified growth through stores, products, brands, channels and geographies (Starbucks 2012). Thirteen hundred new stores are expected to open in the coming years with a focus on China and the Asia-Pacific markets. Figure 5 shows the store expansion of Starbucks over time within the US and other geographic markets. In 2009, Starbucks decreased its number of stores in the US and other locations. The company had planned to open 900 new stores outside of the US in 2009 but instead announced 300 store closures in the US since 2008 (Cain Miller 2009). At that time, Schultz wrote an email to all staff outlining the challenges confronting the business in terms of a breadth and magnitude unlike anything he had ever seen before. They saw traffic in their US stores slow, and strong competitors entered the market. Of greatest concern to Schultz was that, while in the past Starbucks had always been forward-thinking and agile in its decision making and execution, the company had allowed its success to make it complacent (Starbucks 2009). Since 2009, Starbucks has focused on domestic cost-cutting in the US-closing underperforming stores and generating savings from improvements in efficiency and supply-chain distribution. At the same time, the company has been steadily expanding around the world, especially in China. As well as organic growth, Starbucks' success has been the product of a number of strategic acquisitions (including Seattle's Best, Torrefazione Italia, Teavana Holdings, Evolution Fresh and La Boulange), as well as a strategic alliance with Green Mountain Coffee Roasters (GMCR). These will be discussed further under product and channel development. Product development Starbucks has a long history in developing its product range to cater for consumer demand and the changing industry landscape. Beverages sold through its company-owned and licensed stores remain the major source of income, generating 75 per cent of total revenues. However, same-store growth through this channel is difficult as it is a largely established market. The other channels represent an avenue for growth, and below are some examples and initiatives by which Starbucks is attempting to leverage this potential. Starbucks is continuing to focus on product innovation to drive expansion through a variety of new products including iced teas and flavours. Starbucks employs over 70 people to focus on product innovation, while at the same time it focuses on collaboration across the organisation. Starbucks stores offer a choice of: regular and decaffeinated coffee beverages; a broad selection of Italian-style espresso beverages; cold blended beverages; a selection of premium Tazo brand teas; packaged roasted whole-bean and ground coffees; 5 Starbucks VIA Ready Brew (instant beverage) soluble coffees ; Starbucks coffee and Tazo Tea K-Cup portion packs (pods); juices and bottled water. Starbucks stores also offer an assortment of fresh food items including pastries, prepared breakfast and lunch sandwiches, oatmeal and salads. Starbucks has recently begun displaying the nutritional content of its food on its packaging. Each Starbucks store varies the mix of beverage-making equipment and accessories that it sells depending upon the size of the store and its location. To complement the in-store experience, US company-operated Starbucks stores also provide customers with free access to wireless internet. Aside from the core coffee business, Starbucks has also expanded into the tea industry. Starbucks has been selling its Tazo Tea range through Starbucks stores, grocery stores and online and recently opened the first Tazo Tea store in Seattle's University Village. In 2012, Starbucks acquired Teavana Holdings for USD 620 million, to support the future expansion of the tea store concept, highlighting management's intentions to tap into what they believe to be a USD 40 billion market (Trefis 2013). In addition, Starbucks acquired Bay Bread LLC, the parent company of the La Boulange chain of bakery restaurants for USD 100 million in June 2012. The baked goods from La Boulange will replace previous food products. With the acquisition of La Boulange, Starbucks says it hopes to popularise the French bakery experience in the US, the same way it brought the experience of the Italian espresso bar to the masses. To cater to changing consumer preferences and tap into the USD 50 billion health and wellness category, Starbucks acquired Evolution Fresh for USD 30 million in November 20ll (Cannold 2011). Starbucks expanded distribution of the product to New York City and Boston in 2012, increasing its availability to 4000 locations nationwide. Using a similar distribution channel mix as Starbucks' original beverages, the coffee chain plans to offer bottled, cold-pressed juices in approximately 8000 locations by the end of 2013. Channel development Starbucks' channel development segment consists primarily of packaged coffee and tea such as VIA Ready Brew and K-Cup packs, which are then sold in grocery and retail stores, as well as through Starbucks-owned stores. Revenues for this segment grew 50 per cent to USD 1.3 billion in 2012, and Starbucks believes they could both represent billion-dollar businesses. The segment already has more than 100 000 distribution points across 20 countries, and management expects the segment to double the international footprint by 2015. Starbucks extended its agreement with GMCR in May 2013 to continue to produce its K-Cup range to be compatible with GMCR-owned Keurig machines. In a press release (Starbucks 2013b), Howard Schultz said sales of Starbucks coffee K-Cup packs rose more than 75 per cent in March compared to the prior year and grew nine times faster than the overall coffee category during 2012 and has become a category that now accounts for more than 25 per cent of total coffee sales in the retail channel. While Starbucks will remain the exclusive licensed super-premium coffee brand on the Keurig K-Cup and Vue platforms, under the new agreement, the company will add Seattle's Best Coffee, Torrefazione Italia coffee, Teavana Teas, and Starbucks Cocoa to the brands offered on Keurig. Starbucks acquired the Seattle's Best coffee chain stores in 2003 for USD 73 million, which for many years occupied the lower end of the coffee market, with a similar product mix to that of Starbucks. However, Starbucks has established a clear position for Seattle's Best as a mid-tier market operator, offering a narrow product assortment with a simple set of coffee blends. Starbucks (2013a),'Starbucks VIA instant coffee' (accessed August 2013). As part of the acquisition strategy, Starbucks purchased Torrefazione Italia LLC, which offers high-end coffee beans sold exclusively through grocery stores. Starbucks completed the purchase of the company in 2003 and had closed down all of its physical stores by 2005. Starbucks is planning to direct its coffee-shop customers to supermarkets and to bring supermarket shoppers into the coffee shops through its Starbucks rewards program. However, coffee shops will remain the core of the company's business. This strategy is focused on doing more with what it currently has: We will reward customers who buy Starbucks products in the grocery store with opportunities to get rewards in our stores and vice versa ... That's a sea change in our ability to integrate these two channels of distribution (Schultz quoted in Jargon 2010). Geographical expansion Starbucks has achieved strong global expansion, growing to a presence in 61 countries since opening its first international store in Tokyo in 1996. In order to expand in new geographies, Starbucks has a history of selecting and using a locally based company to gain access to the new market and operating environment. This is achieved either through acquisition or, in some cases, a strategic alliance. These alliances, combined with Starbucks track record of selecting appropriate sites to support business, has proved a winning formula, with enormous growth achieved in most geographies entered. Starbucks is planning to be aggressive with its expansion in 2013 as it looks to open new restaurants in the US, China, Mexico, Costa Rica, India and the Nordic region. In total, the company will add 1300 new stores in 2013, up from 1057 in 2012. The Americas and China/Asia-Pacific will account for about 600 each. Starbucks' global store count is expected to increase to more than 20 000 by 2015, from 18 000 in 2013. In the US, not all of the proposed 600 set-ups will be traditional Starbucks coffee stores, and it is expected that a number of Teavana and Evolution juice bars will be part of the new additions. The company is focused on China as a key market as it looks to grow the store count to 1500 in the region by the end of 2015. Starbucks entered China in 1998, and is currently its largest growth market. Starbucks China offers pastries and drinks that are smaller to suit local tastes, and a green tea Frappuccino has been introduced. In the first fiscal quarter of 2013 the China/Asia Pacific segment alone achieved sales of USD 214.3 million, an increase of 28 per cent over the previous year with store growth in the region rising 11 per cent, contributing to the 6 per cent same store growth worldwide (Trefis 2013). One of the major exceptions to Starbucks geographic success was Australia. The coffee industry in Australia is estimated at AUD 3 billion a year (2012), with AUD 1 billion of that consisting of takeaway cups. It was already mature when Starbucks opened its first store in Sydney in 2000. The retail market is tough, with intense rivalry and returns of just 4 per cent per annum net profit. In mid-2008, Starbucks' management announced that it would close 61 of its 84 Australian stores. The closures took place swiftly-within one month. Losses were enormous, including 685 jobs and AUD 143 million (AAP 2008). Just 23 Australian stores were left operating in prime locations. In the case of Australia, Starbucks did not adjust its product to local conditions. McDonald's, however, varies its menu depending on local culture and local tastes. In India, it sells the McCurry Pan. In Japan, the 'Ebi Filet-0' is available-a shrimp burger. In Turkey, McDonald's offers kebabs. It is important to understand the regional markets, and try to understand the peculiarities of local culture. Also unlike McDonald's, which opened one or two stores in a 'slowly, slowly' approach, to stimulate demand and create a sense of scarcity, Starbucks saturated the Australian market with 87 stores. As a result, Starbucks was viewed as a mass brand, as opposed to the specialty image it desired. In addition, Starbucks may have overestimated the value proposition of its service, as well as the customer-perceived value of its services. First, given the availability of high-quality coffee and world-class baristas in the major cities, many customers failed to understand why Starbucks charged more for its products. The second issue was that service suffered as the number of stores grew at a fast pace and began employing younger, less-experienced staff. ln the US, Starbucks had focused considerably on staff training and development, something it was not able to achieve as effectively in the Australian market. The third issue was failing to adjust its product to suit Australians' coffee tastes, which lean more towards Europe. This led to the fourth issue, a perception by the Australian market that the brand, due to its rapid expansion over just a few years, was forcing itself onto an unwilling public. Starbucks did not advertise in the mass media (part of its core philosophy in the US) and, as a result, failed to effectively communicate its brand to the market. Finally, the Australian Starbucks' business model was simply unsustainable, given the cost of rental space in Australia, with the company choosing to own its stores, rather than using a franchise model, which added to financial pressures. Similarly, the issues Starbucks faced with its American consumers, especially during 2008, were that they had built a reputation for innovation, leading the way in transforming the coffee shop industry and experience, and had created a customer expectation that this trend would continue. Every organisation that takes the lead in any market through innovation i n product or experience will have to continue to change, adapt and evolve. However, Starbucks believed 'more' meant instant coffee, or that it means the convenience of having a Starbucks in the supermarket or at a bookstore, neither of which provided the Starbucks 'experience', on which much of its success was based. However, since 2009, Starbucks has been able to recover its share price strongly, achieving an increase of almost six times over the past four years. These results can be attributed to Starbucks' focus on its strategy of driving geographical and product expansion