Why Starbucks is crashing in the US, but booming in Australia

What was once a backseat plea from my daughter for a McDonald’s Happy Meal has morphed into a passenger-side appeal for a Starbucks Strawberries & Cream Frappuccino, apparently the must-have drink of the moment.

Chances are, if you’re a fellow parent of a tween or teen, you’ve found yourself facing similar pleas in recent times. The American-based coffee chain many of us Millennials once scoffed at for trying to make it in our unashamedly coffee-snobbish country is now the epitome of cool among our kids.

After decades of struggling to cut through, Starbucks is now booming in Australia thanks to tweens. Credit: Bloomberg

On TikTok, thousands of videos about the best flavour combinations and limited edition products – like the Halloween-themed pumpkin spiced latte – have amassed millions of views from around the world, particularly in Australia and especially among teens and tweens.

According to my 12-year-old, her appreciation for their sickly sweet iced beverages is because they are “bussin” (translation: delicious), and worth every cent of their slightly exorbitant price tags (between $5 and $11). If you’re as dedicated as some youngsters in Perth, where Starbucks opened its first store last month, the drinks are even worth lining up for at 3am.

With this virality has come something many of us assumed Starbucks would never manage to achieve in Australia – success.

Last month, the company reported a “pronounced traffic decline” for the 2023-24 financial year, and a decline of 6 per cent in North America and 14 per cent in China for the quarter ending September 2024. In a letter posted on the company’s website, CEO Brian Niccol attributed the loss to a combination of factors, telling employees that under its current model, Starbucks can “feel transactional, menus can feel overwhelming, product is inconsistent, the wait too long or the handoff too hectic”.

In Australia, though, despite consumers being faced with the same “overwhelming” conditions, business has boomed. For the first time in its two-decade history of operating Down Under, Starbucks reported a profit last year, with revenue rising to $157.3 million. Overall profit was modest at just $3.15 million, but it was a marked jump from losses of more than $5.5 million in 2022 and $13.3 million in 2021.

A massive increase in sales powered this transition from red to profit. Average industry growth is about 4 per cent; in 2023, Starbucks’ reported growth in Australia was at 35 per cent. For a company that accumulated $105 million in losses in its first seven years in Australia – resulting in the closure of 61 stores – this reversal of fortunes seems miraculous.

Food industry consultant Suzee Brain says there were many reasons behind Starbucks’ struggle to cut through, including Australia’s long appreciation of quality coffee and independent cafes.

“Coffee drinking falls into three distinct buckets,” Brain says. “Premium operators – bespoke roasters with a small number of stores – state chains and national brands like McCafe.”

“Starbucks was trying to compete against the premium operators and state chains, but their product was only really aligned with the national brands. Premium and state chain customers would never swap to an American coffee beverage. This is what really slowed them down,” Brain says.

Even now, the turnaround has little to do with changing coffee habits and much more to do with its iced and flavoured drinks.

As Brain explains, “Starbucks hasn’t really done anything differently, they’ve just got lucky that we’ve had a generational change in ... customers.”

These new customers, she says, have substantially different dining and drinking habits to the rest of us, opting for a string of smaller snack-sized meals over the standard breakfast, lunch and dinner, the custom of those in older cohorts. This includes a preference for handheld foods – sushi, burritos and liquid “meals” such as smoothies, bubble tea and frappuccinos.

“It’s under the $10 price point, it’s social, it’s quick, they can hold it in one hand and their phone in the other, it ticks a lot of boxes for how they’re living their lives,” Brain says.

There’s not much we parents can do about the Gen A and Gen Z desire for a syrup-and-whipped-cream fix, but for the coffee snobs among us (myself included), we can still drop them off at Starbucks before heading to the bespoke roaster down the street for the good stuff.

Shona Hendley is a freelance writer based in Victoria.

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