Starbucks International plans to dissolve its partnership with Delek Fuel in the coffee chain business in Israel, and withdraw the right to use the Starbucks brand name.

Press reports are linking the news to the recent near-collapse of Burger King Israel with the common denominator of bad management and poor marketing strategies.

Delek Fuel, which holds 80% of Starbucks-Israel shares, is expected to continue operating the chain of cafes but under another name. “Dissolving the partnership will save Delek money-losing royalty payments, and it will no longer be forced to use the expensive raw materials insisted on by Starbucks,” says Globes.

Israel’s coffee market is very competitive. Penetrating the Israeli market based on the reputation and financial stability of a world-recognised name is a wise move indeed, but it lacked a follow up for identifying the preferences of the local consumers and the chain’s behaviour in a competitive environment. Starbucks-Israel, which is obliged to carry out the directives of Starbucks International, failed to offer local clients the coffee they like and prefer.

Delek has not met the terms of the original agreement with Starbucks: instead of opening 20 branches in the first year, only six were opened, “which lost much more than stipulated in the business plan.” Abandoning the plan to open a branch in Jerusalem, following a terrorist attack, resulted in lay-offs, “caused a panic among management, which reached the store managers who were left without authority.”

Delek sources said that the strategy of using questionable locations was one of the main problems with Starbucks’ attempt to penetrate the Israeli market, while admitting that they should have set up small branches, mostly in outlying areas, and that “Starbucks’s inflexible standards forced them to offer weak coffee, which is unsuitable to Israeli tastes.” The overall poor management and the frequent replacements of top management at Starbucks-Israel all contributed to the recent development. recently published a feature analysing the causes of Starbucks’ problems in Israel. To read it, click here.

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