Starbucks’ Australian business has posted a financial loss in a major blow to its turnaround plans, raising questions about the coffee chain’s ability to win over a market wary of costly lattes and flavoured Frappuccino.
Starbucks Coffee Australia posted a $5.8m loss last financial year, new documents lodged with the regulator show, in a period marked by rising living costs.
The Australian business, owned and operated under licence by the billionaire Withers family, said in a statement to Guardian Australia it had “reinforced its commitment” to the local market despite the setback.
“The company has faced major macro environment challenges, due to cautious consumer spending amid rising cost-of-living pressures but remains steadfast in its goal to see the Starbucks brand revitalised, with a firm focus on a stronger customer experience, store design and innovative product development,” it said.
The Withers family, which bought Starbucks’ Australian business in 2014, are the former owners of the 7-Eleven network in Australia.
Starbucks’ financial documents refer to an “industry wide decline in customer traffic” starting late last year.
While the chain has long faced questions over whether its flavoured menu could resonate with Australian coffee connoisseurs, it posted its first surplus in 2023, in what it hoped signalled a change in fortune for the business.
That positive result, the first since Starbucks opened in Australia in 2000, was credited to the chain’s growing appeal among younger generations enticed by its cold drink range, which includes iced coffees and cold brews.
While customer numbers are down across the cafe sector, overall coffee demand remains strong, with consumers looking for cheaper alternatives.
Shares in Australian-headquartered home appliance manufacturer and distributor Breville have surged to record highs due to strong sales, with coffee machines among its most popular products.
Cafes are also reporting higher quantities of coffee bean sales to feed those machines, even as their overall trade falls as customers cut back.
The chair of Starbucks’ Australian business, Michael Smith, said while the company was striving for higher profits, its primary focus was on expansion.
“While the size of the statutory loss is disappointing, it does not reflect our core focus, which is on growth,” Smith said.
He said new stores typically generated lower profits until fully established.
Starbucks is seeking to have more than 100 Australian stores in operation next year and has been expanding its drive-through network.
The headwinds facing the Australian business are also evident overseas, with the Seattle-based company reporting falling sales, revenue and profit amid weak demand in the US and in the important Chinese market.
The company’s new chief executive, Brian Niccol, has said Starbucks will simplify its “overly complex menu” and change its pricing strategy so that customers feel “Starbucks is worth it”.
A caramel macchiato, grande, costs US$6.13 (taxes included) in Jersey, £5.70 in London and A$7.15 in Sydney, menu comparisons show, making the Australian option the most competitively price after currency conversions.
Some overseas Starbucks stores have started offering bundled menu deals, such as discounted coffee and croissants, to entice cash-strapped customers who are grappling with high costs for essentials including food, housing and utilities.
Shares in the US-listed company have risen sharply in response to the appointment of Niccol, who was poached from the Mexican food chain Chipotle in August.
But the company has faced environmental criticism after it was revealed that Niccol can choose to commute by private jet from his home in Newport Beach, California, to the company headquarters in Seattle, instead of moving there.
