Why Starbucks Failed In Israel (7 Reasons Why)

Starbucks is a highly successful global coffee brand, with 32,900 stores worldwide. Yet it failed quite spectacularly in Israel, opening six stores in 2001 and closing all of them within two years of opening.

Despite having all the facilities to set up an outlet, Starbucks was unable to increase their occupancy rate, despite being in prime locations.

But in 2015 Starbucks’ plan to enter the Australian market fell apart when the country’s competition regulator, the Australian Competition and Consumer Commission, ruled that Starbucks’ planned expansion to the country would be illegal because they were giving preferential treatment to their coffee shops in Australia.

While Starbucks is not planning to enter the Israeli market for the time being.

Why Starbucks Failed In Israel

Starbucks failed to investigate markets and customer behavior before entering the market. They focused on what was important to them without fully understanding the market. Because of this, they didn’t understand how customers would use their product and that their product wouldn’t succeed in the Israeli market.

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1. Starbucks Couldn’t Compete With The Local Cafe Culture

Israeli coffee culture is very strong and Starbucks couldn’t compete with them. Customers also have a strong loyalty to their favorite coffee, and Starbucks wasn’t able to offer them anything.

The reason coffee from Starbucks is not very popular in Israel is because the coffee tastes different than coffee from Israel.

There isn’t a huge coffee market as a result, and people prefer to have coffee at the bar and not in an iced coffee cart.

2. Starbucks Coffee Was Too Expensive

To increase the revenues for itself, the company lowered prices on its products. This way, it could compete with coffee shops in its area.

3. Customers Didn’t Catch On To Starbucks Culture

Israeli Starbucks never caught on with its exotically-named drinks and seasonal promotions.

4. Customers Didn’t Care For The Taste Of Starbucks Coffee

According to “The Israel Yearbook,” the first coffee served at Ben-Gurion Airport was sold in Israel to one of the first groups of Soviet Jews.
And on July 4th, 1979, the first coffee served in Israel was sold to Jews from Argentina.

As for the Italian and Turkish coffees, they come in very small packages, while for the people who work at the embassy, the Italian coffee is their standard coffee. For them, a cup of good coffee is not a glass of ice water – it must be strong and have its own flavor.

Americans thought they were getting a watered down version of their coffee and their European customers couldn’t stand it.

5. Israelis Don’t Drink Much Coffee Anyway

Israelis drink very little coffee and instead drink iced drinks, and coffee is very expensive due to their high taxes.

This is another situation where the number of times an attribute occurs is not the same as the number of times the phrase occurs. In this case, we have one pair of opposite adjectives, and one pair of opposite nouns.

There probably was room for another coffee chain in Israel and probably even in Jerusalem, but not for rapid expansion. Israeli people were used to coffee which was different from that of Starbucks, but not more so than other places.

6. The Local Partnership Didn’t Work Well

The Israeli market is very competitive, and Starbucks is having trouble winning over the Israeli people. There are Israeli entrepreneurs who prefer to see Starbucks as an American company, and Starbucks is having trouble meeting the standards of Israeli companies in the home market.

The Delek Group, a major shareholder in Starbucks, had its shares in the coffee chain sold off in 2004, and its relationship with the company ceased.

7. Starbucks Failed To Study And Adapt To The Local Market

Starbucks made the mistake of believing that it could start a cafe just like any other, and assumed that Israelis would not mind waiting half an hour for a cappuccino.

Starbucks failed to perform adequate research on the customer expectations in Israel in advance; as a result, they could not meet the expectations.

The failure to adapt once it became clear that the global Starbucks model wasn’t working in Israel took a while.

What They Could Have Done Instead

In 2015, Starbucks closed its Israeli stores as the company said the Israeli government was discriminating against its Jewish customers.

In Israel, Aroma is a success because of the quality of its products, its reputation, and its ability to adapt to the market.

If Starbucks decides to return to the Israeli market, it will have to identify its target demographic and build the stores around the preferences. This would mean changing its menu and prices.

If you want to learn more about Starbucks: https://www.facebook.com/Starbucks/
Starbucks uses Facebook to build brand awareness and foster meaningful connections with their customers. Check out their latest posts to learn more.

To know more about Starbucks, you can check out our other posts like, when is Starbucks happy hour, if Starbucks refreshers have caffeine, and why Starbucks is successful.

Conclusion

One of the most often discussed cases where a company gets it wrong, is the case of Starbucks. The American company was in Israel and found that it was not a success. The main reason that this happened was not having researched the market.

Starbucks has been working on a return to local markets for decades, but for some reason, they never did. They just kept the same formula, and it didn’t work.