Starbucks goes cold on Australia

Coffee chain Starbucks says it plans to shut 61 of its 85 stores in Australia.

From 3 August, only people in Melbourne, Sydney and Brisbane will be able to buy the chain's lattes, frappucinos and espressos.

Starbucks first opened in Australia in 2000 but faced tough competition from a thriving cafe culture in major cities.

Local media said that 685 jobs would be lost. Earlier this month, the Seattle-based chain announced the closure of 600 unprofitable US stores.

Retreat?

Founder Howard Schultz said the decision to close the stores was part of a plan to revitalise the chain that is struggling as the US economy slows.

"While this decision represents business challenges unique to the Australian market, it in no way reflects the strong state of Starbucks business in countries outside of the United States," Mr Schultz said.

"There are no other international markets that need to be addressed in this manner."

Mr Schultz, who reprised his role as chief executive in January, portrayed the Australian closures as part of a refocus of operations and not a retreat.

Starbucks has been struggling in the US as consumers hit by the slowdown have cut back their spending on expensive coffee. Rising dairy prices have also raised costs.

There has also been increased competition with the likes of Dunkin' Donuts and McDonald's introducing their own lines of gourmet coffee.

In the first three months of the year, Starbucks' profits fell 28%.

The coffee chain giant said conditions had been especially bad in California and Florida, which account for one-third of its US revenue and have been hit hard by the housing market slump.

It will unveil its second-quarter results later this week.