Starbucks to close 61 Australian stores

Most Starbucks stores across Australia will close in five days with 685 staff losing their jobs.

The company announced today it would close 61 of its 85 Australian stores. After August 3, only Melbourne, Sydney and Brisbane will have Starbucks outlets.

Starbucks said in a statement that the decision to close 61 “underperforming” locations was made “to concentrate its attention and resources on profitable growth, operational efficiencies and an enhanced experience for customers and partners [employees] globally”.

It was not revealed which stores would be closed first, with an announcement to be posted on the company’s website on July 1.

“Obviously a decision like this is a very difficult decision for any company to make and really more so from a Starbucks perspective because of the impact that we have on our people,” Starbucks Asia Pacific president John Culver says.

“We wanted to make sure we handled these announcements the right way and put our people first.”

Casual staff will also be offered redundancy.

“As part of the decision all partners, whether they have worked for the company for week or multiple years, will be eligible for a redundancy package,” Culver says.

“Depending on length of service and position, it ranges anywhere from a maximum of 20 weeks of redundancy pay that we will be paying. All partners at a minimum will receive at least a week’s notice-period pay as well as two weeks’ severance pay.”

In an extraordinary move, all Starbucks cafes were closed today at 2pm. Rumors began flying early in the day that Starbucks could even be exiting the Australian market.

This meeting comes hard on the heels of the shock announcement last month that Starbucks would close 600 company-operated stores in the US and abolish 12,000 full time and part time jobs.

Starbucks has been dubbed the victim of its own success as the founder moved away from a lovingly created brand, leaving the new management team to pursue aggressive expansion.

The company has doubled in size since 2004, but has been criticized for opening two or more stores near each other. This had immediately decreased revenue by 25% for the existing store.

Founder Howard Schultz fired his chief executive in January and set about closing unprofitable stores and slowing the growth of new ones.

There was an expectation that Schultz had the guts to do the tough things necessary to turn the company around.

However the credit crunch, the consumer downturn and the ongoing impact of people cutting back on luxury items like coffee have combined to stall Starbuck’s turnaround.

While the news will be a huge blow to the Starbuck company and employees in Australia, any closure could provide opportunities for rivals at a time when cafes and restaurants are very sensitive to trends in leisure and recreation time and disposable income. High fuel prices and recent increases in interest rates and taxes have constrained growth in disposable income in recent years, which has led to reduced spending for luxuries like eating out.

Over the past five years, growth in the cafes and restaurants industry has been slow, revenue rising only 2.1% in the past five years to $7633 million in 2006-07, according to IBIS. But the outlook is more positive, with 3.2% growth in turnover expected annually until 2011-12.

For example, in 2002 Australians were eating out 83 times a year, compared with 94 times a year in 2000. Only two years later the main reasons people gave as a reason for eating out were, “special occasion”, “break in routine”, and “meeting friends”. Two years before this “convenience” was the main reason for eating out.

Competition is high and mainly based on price due to the overwhelming number of small operators, resulting in lower profit margins. Competition from foreign-owned franchised operators like McCafes and Gloria Jean’s is also increasing.

Jason Gehrke, director of the Franchise Advisory Centre, says any temporary retail store closure during trading hours to discuss future viability with staff is an indication of how seriously trading in this environment is being taken. ‘I have never seen it before,” he says.