Starbucks coffee yet to turn a profit in Australia

Nearly 20 years later, Australia is still a tough sell for Starbucks, despite a growing presence and rich backers.

Starbucks is yet to book its maiden profit in Australia. Picture: AFP

It is the coffee chain that has swept the world, but Australia is still relatively resistant to Starbucks’ charms.

The local arm of the brand that is seemingly ubiquitous across North America and is growing rapidly in China is also expanding but still made a loss in the most recent financial year, according to financial accounts just lodged with the corporate regulator.

Starbucks Australia, now controlled by the name behind another big chain in 7-Eleven billionaire Russell Withers, made a $5.04 million loss in the year to June 30, 2019, slightly more than the $4.9 million loss it recorded a year earlier. A tax benefit of $1.4 million allowed it to claim a $3.6 million loss for the year, slightly more its result in 2018.

The business did manage to increase its revenue by $16 million to $86 million for the year increases in inventories expenses, employee salaries and wages and rental and utilities costs kept it from recording a maiden profit.

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But the business keeps expanding, with the financial report for Starbucks Coffee Australia Pty Ltd revealing the chain opened eight new stores across Australia in the 12 months the report covers, bringing the total number of Starbucks stores in Australia to 45.

At that number, Starbucks is close to having doubled in size here in the past five years even if profits still remain elusive for the chain that at global level at least counts the likes of Australian billionaire fund manager Hamish Douglass as a fan of its global expansion strategy with China a particular focus.

However, the most recent financial results in Australia are still a vast improvements on most of the history of Starbucks trading here.

Starbucks’ US operations were hit with controversy in 2018 following the arrest of two black men in one of its cafes. Picture: AFP

The US giant entered the Australian market in 2000 but within eight years at racked up losses of $143 million in total and had received about $72 million in loans from its US parent, the support of which the Australian arm had needed to survive.

By 2008 there were reportedly 84 Starbucks stores in Australia, but with the business having made a loss of $27.6 million the previous year management decided to cut back its exposure to the market drastically by shutting 61 stores and sacking 685 staff.

In 2014, the Withers family led by Russell Withers — he is a member of The List — Australia’s Richest 250 with estimated wealth of $2.09 billion — took ownership of the Starbucks brand in Australia via a trademark and technology licence agreement with the chain’s US managers.

At the time of the deal, his Withers Group chief executive Warren Wilmot said the business planned to focus on company-owned rather than franchised stores and had the aim to “make Starbucks the most successful coffee chain in Australia.”

Withers introduced America’s 7-Eleven concept to Australia in 1977 in Melbourne’s Oakleigh and has since overseen its growth into what is now claimed to be the biggest convenience and independent fuel retailer on the country’s eastern seaboard.

As revealed in The Australian in July, 7-Eleven tripled its profit last year to close to $120 million from $3.4 billion.

Comment was sought from Starbucks Australia management.