All six Starbucks cafes in Israel will be shut down at the end of the week, Starbucks Coffee International and Delek Group said Monday, as they announced the end of their brief partnership. All 120 of the coffee chain's employees in Israel will be laid off.
The decision follows months of poor sales and Delek's failure to find an investor to replace it in the venture. Seattle-based Starbucks Corp, the parent of Starbucks Coffee International, said its decision to dissolve the joint venture was driven by "market challenges," an allusion to Israel's severe recession and security problems.
"It was a very difficult decision," said Mark McKeon, president of Starbucks Coffee International for Europe, Middle East and Africa. "Following months of serious discussions and market reviews with the Delek Group, we came to this amicable and mutual decision. Our commitment in the market continues to be strong and long-term, and we will return at an appropriate time."
Delek and Starbucks, through their joint venture called Shalom Coffee Co. - held 80.5 percent by Delek - opened their first Israeli coffee shop in late 2001 with plans to reach 20 outlets nationwide by the end of 2002, but wound up opening only six coffee shops, all in the Tel Aviv area.
Starbucks was hit by the recession and the security situation, but industry analysts have also pointed out its decision to focus on the Tel Aviv region where it faced competition from established Israeli coffee chains such as Aroma, Arcaffe and Ilan's as well as independent coffee shops.
Analysts also blamed the company's lack of marketing. They said Starbucks had been sure its brand name would be enough to attract customers without the need for extensive marketing. "One can't launch a new brand in a competitive market without a comprehensive penetration package," said a senior advertising executive.