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Starbucks has swung to a modest profit for the first time in its history of operating in Australia, ending a record of consistent unprofitability across two decades – all thanks to Generation Z’s obsession with iced coffee.
The US coffee chain’s local arm made a profit of $3.15 million in the 2023 financial year, a marked improvement on its loss of more than $5.5 million the year before, and $13.3 million the year before that, according to its financial report lodged with the Australian Securities and Investments Commission.
Starbucks in Boston: The Australian arm has turned a profit for the first time.Credit: AP
The profit was driven by higher sales: revenue rose 35 per cent to $157.3 million, double-digit growth that significantly outpaces the industry average of 4 per cent.
Food industry consultant and Titanium Food director Suzee Brain said Starbucks had at long last found traction with Australian consumers through the younger generation.
“For many, many years, you can historically read that Starbucks has failed in Australia because it didn’t connect with the coffee-centric culture of Gen Y and Millennials – they’re all coffee snobs, wanting to get barista-style, premium espressos, piccolos, all that sort of stuff … that didn’t resonate greatly with chains,” she said.
But the emerging cohort of Gen Z customers have different consumption habits – for instance, they tend to eat five smaller meals rather than three meals – and Starbucks has managed to successfully capture this market, Brain said.
“Starbucks has really nailed the cold-drink sector, the cold brews, the iced coffees, the Frappuccinos, the iced teas, which also come at a higher price point.
“It looks like they’re finally actually nailing what it means to be a young coffee drinker in Australia.”
Turnover per store has also improved, from just under $2 million in 2022 to $2.35 million in the 2023 financial year, which Brain said might be due to more efficient store layouts or prime locations.
While COVID lockdowns resulted in the coffee chain copping a $13.3 million loss in the 2021 financial year, the post-pandemic habits of remote work and remote study have also encouraged people to linger at cafes for longer, Brain said.
Starbucks Coffee Australia declined to comment, citing the unavailability of its chief executive, Chris Garlick, who is overseas.
‘Still behind the eight ball’
Starbucks entered the market in 2000 and expanded at an aggressive pace that far outstripped Australian appetite for the brand. By 2008, it had accumulated more than $140 million in losses and was operating off $72 million in loans from its US parent company. The global financial crisis forced Starbucks to close two-thirds of its local outlets and fire nearly 700 staff.
In May 2014, Starbucks sold its 24 Australian stores to the Withers Group, which owns convenience and petrol retailer 7-Eleven, with the aim of turning it into “the most successful coffee chain in Australia”. Under the Withers Group’s control, it has been steadily rebuilding its store footprint, opening eight new stores in the 2023 financial year to take it to a total of 67 stores around the country.
Billionaire Russell Withers, who built his fortune from 7-Eleven, owns Starbucks’ Australian operations.Credit: Andrew Meares
While the Australian chain is now profitable, its expenses have also increased over the past 12 months. The company is now in a net asset deficit of more than $22.3 million, far outweighing its $3.2 million profits.
This figure represents only 2 per cent of its $157.3 million in revenue, which Brain said was below the industry average of 8 per cent to 16 per cent. “They’re still behind the eight ball as a really profitable model,” she said.
The financial report, audited by PwC, included a “going concern” section that suggests the business may require “sufficient financial assistance” in the future.
“The directors have obtained a letter of support from R.G. Withers Trust that it will provide sufficient financial assistance, as and when is needed, to enable the company to continue its operations and fulfil all of its financial obligations now and into the future for a period of at least 12 months from the date of these financial statements.”
Starbucks Australia did not pay any tax for the 2023 or the 2022 financial year.
In late September, the Fair Work Ombudsman revealed Starbucks Australia had back-paid more than $4.5 million to baristas, supervisors and assistant managers between 2014 and 2020 across 52 stores and entered into an enforceable undertaking after failing to pay the correct overtime entitlements to part-time staff.
In 2015, this masthead revealed Starbucks was also caught in the wage scandal that engulfed 7-Eleven. A former payroll officer of both brands told a Senate committee that head office was “unethical” and “unsupportive” when she raised concerns about expired visas and payroll issues.
Then-ombudsman Anna Booth said Starbucks had demonstrated a strong commitment to fixing underpayments.
The US multinational is a $180.6 billion behemoth listed on the Nasdaq stock exchange. Its most recent set of results beat expectations, with overall revenue up 11 per cent to $US9.4 billion ($14.4 billion).
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