Thursday, April 22, 2004


When Starbucks entered the Australian market in 2000, they charged a rather excessive 60c Australian for an extra shot of espresso. A tall latte cost $3.45, which meant that a double tall latte cost $4.05. In the competitive Australian cafe business, this seemed a bit excessive, and it wasn't too surprising that a few months later they cut the cost of a second shot to 25c, so that a double tall latte cost $3.70. Presumably Starbucks thought that they could thus sell more double shot coffees than before and make it up in the volume. (This strategy has been tried elsewhere. In the UK the price of a second shot was recently cut from 40p to 15p).

However, going into an Australian Starbucks yesterday, I discovered that the cost of an extra shot has been cut further. To zero. So a double tall latte now costs $3.45, the same as an ordinary tall latte. So Starbucks cannot now make it up in the volume. Ot at least they can't if all it does is cause people who would have ordered a single shot latte to now buy a double shot latte. Clearly to make it up in the volume they have to sell more cups of coffee in total. Which means that they presumably have to win business off their competition.

And competition appears intense. Australia traditionally had a more traditional southern European (actually Italian) coffee culture. Regular readers will know that I have thought that although Starbucks are successful in Australia, this traditional coffee culture might make it hard for chains of Starbucks clones to come into being the way that they have in other countries without traditional cafe cultures. However, I think I may have been wrong. Starbucks clones now are strongly in evidence in Australia, and the cafe culture is becoming Starbucksified. It may be the competition from such clones that has caused Starbucks to lower some of their prices.

But more on that tomorrow.

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