There are a number of different reasons why Cataracts failed in Australia and will be spoken of in more detail over the course of the report. Since World War II, Australians have developed a taste for coffee that many of the European migrants that moved to Australia brought with them.
Cataracts first began in 1971 its main goal was to offer a coffee experience that no other coffee shop has done before.As stated in the case study, Cataracts emphasis on customer service included eye contact and greeting each customer within 5 seconds, cleaning tables promptly and remembering the names of regular customers. Cataracts was to reinvent the sense of romance atmosphere sophistication and sense of community and also create a third place’ in people’s lives. This third place’ would be somewhere between home and work where they could sit and relax and have a coffee. Unlike America, Australia already had a thriving coffee industry when Cataracts entered into Australia in 2000.
It is fair to describe Australia’s coffee culture and industry as a mature and sophisticated market, and as stated in the case study, eating a morning cup of coffee from a CafeГ© was already a ritual for many a Australian consumers. Australia’s overall market is worth well over $3 billion dollars, $1. 8 billion of this relates to the coffee retailing market. In Australia every year over one billion cups of coffee are consumed in cafes, restaurants and other outlets nation wide.
Summary There are a number of different coffee brands in Australia and there are over 1400 cafes and restaurants serving a variety coffee types.Australia generated $9. 7 billion in income during the 2006 and 2007 due to the sales of coffee.
Even with such a high number of sales, success in the coffee industry is not a guarantee. Coffee shops have a very small margin of profit, and many cafes fall into the category of about four per cent profit. Due to the high level of coffee drinkers in Australia, for a coffee shop to be successful in the market they will have to go out of their way to make a better coffee than any competitor.
A coffee show needs to have sold around 15 kilos of coffee per week. The national average is around keg/week, and so for them to make any profits the coffee shop has to have better than normal sales to succeed. Considering Australia already had an established a coffee industry, such as Gloria Jean’s with it’s the domination of the higher price or high street part of the coffee retailing market, and Ben McDonald’s ‘MeccaГ©’ dominating the convenience side of the coffee market in Israeli, Cataracts had an uphill battle from the beginning. Cent years is Cataracts beginning to feel the effects from non-traditional competitors. As with McDonald’s, Cataracts main strength in their market is owning property in the best location and having the highest convenience of store location. Unlike in the US, And even in the US, Cataracts formula has gone on an idea that people will not visit the coffee shop unless it is convenient, however this is a wrong assumption of the market as many coffee consumers will go out of their way to go to their coffee shop that serves great coffee.This was a weakness for Cataracts when they entered into the Australian coffee market as Australians generally have a very high quality taste for coffee and will go out of their way to find the coffee shop so they can get their regular coffee even at the detriment of convenience. In 2000 Cataracts opened its first store in Sydney, one due to the need and ability of Cataracts to expand into international market and two, due to the over saturation of Cataracts in the US with Cataracts having a 62% ownership of the specialist coffee shop market in North America.
After the first Cataracts door was opened in Sydney, Cataracts continued to expand over New South Wales and then Nationwide in the following years. Cataracts was moving headstrong into Australia with 87 stores open by 2000 which enabled Cataracts to control by seven per cent share in the Israeli coffee market coffee. And in 2000 89% percent of Australians were aware of the of the Cataracts coffee shops, as Cataracts was on average selling twice the amount of coffee than any other coffee shops in Australia.
And in recent years and there have been a number of problems that Cataracts has had in Australia. Due to the record petrol prices and interest rates around the world, Cataracts company earnings have declined dramatically. As much of the world is having monetary problems, consumers have had to pull back from the consumption of many luxury goods. In the past two years in Australia, sales fell to 50% and the refits dropped 28%. There have been many actions taken by the owners of Cataracts to try and help to rectify the problems that it has been having.
Some of these rectifications have been to shut down every store in America at the same time for 3 and h hours to help a train their staff to be better a customer service. A few more rectifications have been to add more food varieties into the Cataracts Stores and also the launch of Cataracts discount cards the ‘Cataracts Express’ and also providing high speed WY-If connection for the consumers to use while drinking their coffee. There have been many people who have said that during the massive growth of Cataracts around the world, they begin to focus more on expansion than on customer service.Considering that customer service was the very thing that was at the heart of the Cataracts unique value proposition, this loss of focus on customer service has led to the decline in sales for Cataracts. Service Marketing Issues As Stated previously, one of the main reasons why Cataracts failed in Australia is due to the fact that they lost sight of their customer orientated focus. This has a lot to do n the US simultaneously for three and half hours for staff training, this unfortunately was too late for Australia.On July 29, 2008 Cataracts announced to the public that it would be closing off 61 of its 84 Australian shops or 73% by August 2008. With this massive loss of Cataracts Stores in Israeli not only did it cost a Cataracts Company, but it also costs Australian citizens 685 Jobs.
In 2008 was the time when many became aware of Cataracts decline in business due to the store shut downs, but what many didn’t see was that by 2007 Cataracts was already hemorrhaging business.Over the seven years Cataracts was operating in Australia they accumulated losses of around $143 million. One of the main reasons why Cataracts was able to hold on for the eight years that they were in Australia was because of its US parent companies support. Even though Cataracts close down many of its shops, they still kept over and 23 stores around Sydney Melbourne and Brisbane. However many have passed them important question that is 23 stores enough to support itself in the long-term in Australia?Even though Cataracts management and owners have stated to the public, “this decision presents business challenge is unique to the Australian market and in no way reflects the state of Cataracts businesses in countries outside of the United States”, the American market has also suffered. In the US by September 2008, 600 stores Nationwide have had closed or are pending closure and with this massive number of closures over 1200 workers or seven per cent of Cataracts global workforce has been affected.
What Happened ? There have been many opinions on why Cataracts have failed in Israeli and in some instances these opinions are correct.Due to the global financial crisis that appends recently in 2007 and 2008, people have been tightening their belts so they can save money. However the SGF is believed to not be the primary cause of the Cataracts problems. Since Cataracts collapse in 2008 it has come under much scrutiny by the Australian and consumers and media stating that it is a watered down product and consists of buckets of milk. As stated in the case study “these are not the labels you which used to describe the coffee that aspires to be seen as a gourmet product. Some of the scrutiny that Cataracts has come under in recent ears has been quite harsh and has included the cost of the product with some stating that it is one of the most overpriced products the world has ever seen (Marinating) and also the third place’ theme where consumers can come between work and home and still feel like they belong has been ridiculed by some stating, “why would you want to sit around a pretend lounge room drinking a week and expensive coffee when you can go around the corner and have the real thing? (wanes 2008) Competition Due to the uniqueness of many of the Australian coffee companies including Gloria Jean’s, the coffee club etc.
Any Australians were unimpressed by Cataracts lack of other Australian owned cafes. When Cataracts entered Australia, much of the coffee that they served including the standard short blacks, latte, cappuccinos etc. Could be received from every other Australian coffee shops and also Cataracts coffee lacked a unique flavor. Many Australians found this lack of uniqueness boring, and so did not go out of their way to get Cataracts coffee.Due to the increasing market level of competing cafeГ© chains such as The Coffee Club, Gloria Jean’s, and even MeccaГ© as well as many locally owned independent cafes in he suburban area, much of the research conducted has stated that these coffee shops marketing is one of the main reasons why the Cataracts chains in Australia failed. Post World War II, coffee was seen as a luxury good to many, however in recent years Australians seem to no longer consider coffee a luxury item and instead coffee he has become more of an affordable part of the daily routine.
Andrew McKay vice president of the Australia coffee traders’ association stated in 2008 “l just think of the whole system, the way they serve, Just doesn’t appeal to the culture we have here”. Their Own Fault? Much of the scrutiny that Cataracts has come under has been due to its own bad management. Some of the problems that Cataracts has placed upon itself is that instead of having different stores and different customer experience per store, Cataracts instead decided to standardize the in store design and in certain instances and staff have been told to reach a certain amount of sales per hour.Due to staff having to serve X number of customers per hour, it has given them less time to engage with the customers and so causing the admonishment of Cataracts service laity. In the defense of Cataracts however, some of these actions were forced upon them due to emerging competitors seeking to imitate Cataracts in more ways than Just its service. Many of the merging competitors imitated Cataracts in many different ways and this eroded many of Cataracts point of differentiation.
Also many of the problems that Cataracts has had over the past few years has been due to its massive increase in shops worldwide. By increasing at such a massive rate, there is a constant need for employees. The need of baristas meaner having to employ less experiences baristas etc. The question that has to be asked in this instance is, can a 17 year old high school student really compete with a 30 year old when it comes to passion about coffee?Points of Differentiation Cataracts was the first coffee shop had to call in the idea of for third place’, meaning of that it is kind of like a third home to the consumer where they can come to between work and home and still feel at home. Even though Cataracts was the first to coin in the idea, the third place’ idea is easy idea to copy an even easier to better fermentation that Cataracts originally had over its competitors, including the Cataracts idea of free access to WY-If Internet and all the other ideas about Cataracts mentioned previously, these ideas are still quite easy to imitate.The likely number one reason why Cataracts has become such a massive international coffee phenomenon is due to it being the first of any coffee shop in America and internationally to offer such services.
And as stated previously many of these ideas if not all of them are quite easy to imitate, and so Cataracts lost many of its points of differentiation. The Downfall in Customer Service By the end of a drive in Israeli, Cataracts had almost completely lost its core promise of serving superior coffee in comfortable surroundings with the best service, and so able to Justify its premium price.Cataracts eventually switched to vacuum packed coffee and so denying the customers the shop filling aroma that the coffee bears offer. Not only did they switch to vacuum packed coffee bears, but they also changed the coffee machines to automated espresso machines.
This was done to move customers more quickly through the lines as the machines are able to work 0% faster. This however had a large affect on the consumers view of Cataracts, as people wanted to see the coffee been made the traditional way and so also getting the full flavor and smell.However the new coffee machines that Cataracts used had strong negative implications on the taste and also, as stated, the effecting view that the consumers had for Cataracts. The last point of differentiation that Cataracts had over its consumers’ was the ability to adjust of the European coffee business model and also the original European coffee traditions and Americanism as well as international as it.
The irony of this being that this was the very thing that made Cataracts successful in the first place and also was the very thing that led to its downfall.Resolving the Issues Due to Cataracts failure in Israeli the wise choice that Cataracts made was to close their stalls down and mostly pull out of Israeli. The CEO of Cataracts who is also the president and chairman, Howard Schultz, stated that the challenges presented in Israeli it unique, however he also stated that the restructuring and the transformation of the international operations should hopefully see in the future Cataracts success in Israeli. ” when we look at the opportunities that we have, coupled with some of the mistakes that have been made and the headwind of the economy, we believe strongly, unequivocally in the model, in the brand, and have great confidence that we can return a much higher long-term value to the shareholders,” Schultz told analysts. (sousaphones. Com. AU, 2008) There have been a number of changes that Cataracts have initiated with their company.
This also includes of the introduction of a new food platform as they seek to tap into the market of the health wise and wellness trend.As stated in the previous paragraph, Cataracts had changed their coffee bags to being airtight and so however has changed this recently, and is also looking at ways to reduce the smell of their food platforms as they want to keep the aroma of the coffee in their shops while also having food that does not overpower the coffee. “When we went to automatic espresso machines, we solved a major problem in terms of speed of service and efficiency.At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Morocco* machines. This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista.
” – Howard Schultz email With many of the problems that have been stated previously, there have also been many pros to these.Some other pros to the automatic coffee machines that Cataracts now uses is that the drinks a more consistent from store to store, there is a much smaller chance for Barista the error, unlike the manual machines which have he possibility for poor calibration. These new automated machines have made it so that there are less “bad shots” and also baristas are able to multi tasking, instead of having to monitor each shot, baristas can also be steaming milk or preparing the next dinky while the machine prepares a perfect shot of coffee.Possible Outcomes There are quite a number of possible outcomes that have come from the Cataracts failure in Israeli.
The main lesson that Cataracts owners and many companies around the world will learn from this failure and is that a consumer orientated equines such as Cataracts, whose main core competency is based around emphasis on customer service and creating a third place in people’s lives has made the mistake of becoming too commercialese and mainstream.With all of Cataracts failures, such as losing their core competency of being the best in customer service, Cataracts will have learnt that a business that took off as strongly as they did has to remember to keep the core competencies that they held in the beginning as they are the points that made them successful, and with the loss of these core competencies comes failure. *Thank you for reading my report*