Why 7-Eleven’s sale is good news for Starbucks Australia

The boss of Starbucks Australia is hoping the coffee chain will get renewed attention and investment in dozens of new stores from its billionaire owner Russell Withers now that he has sold his 7-Eleven empire in Australia.

Withers, who with his late sister Beverley Barlow built their fortune over decades growing the 7-Eleven chain in Australia, last November agreed to sell the 750-store network for an undisclosed sum to its Japanese parent, 7-Eleven International. Withers also owns Starbucks Australia which expects to expand to more than 100 stores by next year.

Starbucks Australia CEO Chris Garlick (left), billionaire Russell Withers (middle) and 7-Eleven Australia CEO Angus McKay. Withers is the owner of both businesses, but recently sold the convenience store chain.

“The family were very successful in being long-term in their views for building that business around the 7-Eleven brand in Australia for 46 years ... They’ve got exactly the same attitude to Starbucks,” said Chris Garlick, the chief executive of Starbucks Australia, which recently turned a profit for the first time in 23 years.

“I think our recent performance has validated the belief they have that the brand has got a really strong place here, and encourage[s] them about what the future looks like for us as well.”

Starbucks entered the Australian market in 2000 but expanded too aggressively, and in 2008 had to slash two-thirds of its stores and fire about 2000 staff. Withers purchased the chain of 27 stores in 2014. It has since grown to a network of 72 outlets around the country.

Before the 2023 financial year, Starbucks reported a loss of $5.5 million and, before that, $13.3 million, as lockdowns hamstrung the hospitality sector.

Starbucks’ drive-thru in Warrawong, NSW: drive-thru stores are a key part of the coffee chain’s growth strategy in Australia.Credit: Pixel Collective

Garlick said Starbucks’ best-selling products are still the classic Australian favourites: flat whites, lattes and cappuccinos. Frappuccinos are also in high demand, as are seasonal items such as pumpkin spice lattes and gingerbread lattes during Christmas.

“Our consumer is very aware of what’s being offered overseas as well. If there’s a product that’s hugely popular either in Asia or in the US or the Middle East, then our customers will know about it the same time we do. They’ll be coming to us and saying, ‘when are you going to launch it here?’”

Most of Starbucks’ 72 outlets are on high streets and in major shopping centres, but 20 of them are drive-throughs in more suburban areas such as western Sydney’s Mount Druitt, which Garlick said was a strong-performing store.

“We know from a commercial point of view that that format works quite well for us … Drive-through businesses [are] a really important part of our strategy. That’s the way we see ourselves scaling over time.”

Angus McKay, 7-Eleven Australia’s chief executive, and the broader management team will stay on after the company changes hands to 7-Eleven International. He said the business is in “incredibly good shape” and the sale would not dramatically change the chain’s strategy.

“They want to invest in us,” McKay said, noting the Australian chain already rolls out about 35 new stores every year. “I’m anticipating they’re going to want us to go even harder … the acceleration factor is potentially enormous.”

“We now have access to a much deeper supply chain from a new product perspective, and specifically, I’m really excited around what they can help us do on food,” he said. “Because of their Japanese heritage, the attention to detail and quality is something that we will benefit from.”

McKay described Withers as a “healthy, energetic man” for whom 7-Eleven had been a huge part of his life but now had “different things he wants to do”.

7-Eleven Australia came under scrutiny after this masthead revealed in a 2015 investigation with ABC’s Four Corners evidence that the convenience store chain was engaged in systemic wage theft and doctoring of payroll records.

7-Eleven Australia has sold the business to its Japanese parent, 7-Eleven International.Credit: Mark Merton

In late September that year, Withers and then-chief executive Warren Wilmot resigned from the company’s board. In total, the chain has paid more than $320 million – including $98 million in a class action settlement – to franchisees and workers, and to fix its systems and processes.

McKay, who was hired in 2016 to help the franchise business recover from its wage scandal, said the issues had since been rectified.

“It happened, it happened on our watch, we owned it … We’re now making sure it can never happen again.”

Starbucks was also caught in the wage scandal that engulfed 7-Eleven. A former payroll officer of both brands told a Senate committee in 2015 that head office were “unethical” and “unsupportive” when she raised concerns about expired visas and payroll issues.

In September last year, Starbucks back-paid more than $4.5 million to nearly 2500 employees underpaid across 2014 and 2020 and signed an enforceable undertaking with the Fair Work Ombudsman after conducting a payroll review in 2020 and finding underpayments.

Ombudsman Anna Booth said Starbucks had been co-operative with the Fair Work Ombudsman and had since demonstrated a commitment to fixing and preventing underpayments.

Starbucks has been hit hard by a global boycott against the brand after the US company moved to sue its workers’ union over a now-deleted pro-Palestine social media post. Starbucks, which is headquartered in Seattle and listed on NASDAQ, lost $US11 million in market value between mid-November and mid-December.

Garlick said it was predominantly Melbourne-based stores that had been affected by protestors. “We have had some of our stores impacted but this has been contained and not widespread across our broader network,” he said.

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