Why Can’t Starbucks Crack the New Zealand Coffee Market?

September 3, 2018, 9:25 AM UTC

Starbucks’s partner of 20 years in New Zealand is hanging up its apron.

Restaurant Brands New Zealand Ltd. is letting its licensing deal expire in October to focus on its core fast food operations with chains such as KFC and Pizza Hut. Tahua Capital picked up the domestic Starbucks business for up to NZ$4.4 million or $2.9 million.

Over the years, Starbucks’ retail footprint in New Zealand had shrunk from 50 to 22 stores. In Australia, the number of stores has been shaved down from 85 to 34.

Why is Starbucks (SBUX) having such a hard time in that region of the world? It’s certainly not because of any lack of coffee lovers down under. In fact, it’s likely due to the strong domestic coffee culture. Starbucks’s main target audience in New Zealand is tourists and students—people looking for familiarity and convenience—rather than locals who are after the perfectly pulled espresso shots.

When Italian immigrants brought their espresso makers to Australia after World War II, it brewed up a new passion for coffee on the continent that remains entrenched today. New Zealand claims to have the most coffee roasters per capita in the world, and it has a very healthy dairy industry, accounting for 3% of world dairy production.

The flat white is the most notable export of Australasian coffee culture. Starbucks started selling the drink—one-third espresso, two-thirds steamed milk—in the United States in 2015. And McDonalds started slinging flat whites in the U.K. this year, where one expert estimates the beverage accounts for 10% of all coffee orders. Whether New Zealand or Australia is the true ancestral home of the flat white remains contested.

Starbucks’ international business isn’t all gloomy, though: The chain plans to continue its rapid expansion in China, where it has no major rivals. Starbucks is aiming for 6,000 stores in the country by 2022.

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