Out of Control Policy Blog

Starbucks: Lethal as a "Fluffy Bunny Rabbit"?

Though perhaps a less frequent target than Wal-Mart, whiny do-gooder types love to slam Starbucks as a vampiric predator preying on mom-n-pop stores to sustain its global expansion. Problem is it's not true, according to researcher Taylor Clark:

Ever since Starbucks blanketed every functioning community in America with its cafes, the one effect of its expansion that has steamed people the most has been the widely assumed dying-off of mom and pop coffeehouses. Our cities once overflowed with charming independent coffee shops, the popular thinking goes, until the corporate steamroller known as Starbucks came through and crushed them all, perhaps tossing the victims a complimentary Alanis Morrisette CD to ease the psychic pain. In a world where Starbucks operates nearly 15,000 stores, with six new ones opening each day, isn't this a reasonable assumption? How could momma and poppa coffee hope to survive? But [L.A. Coffee Bean and Tea Leaf storeowner Herb] Hyman didn't misspeak–and neither did the dozens of other coffeehouse owners I've interviewed. Strange as it sounds, the best way to boost sales at your independently owned coffeehouse may just be to have Starbucks move in next-door.

That's certainly how it worked out for Hyman. Soon after declining Starbucks's buyout offer, Hyman received the expected news that the company was opening up next to one of his stores. But instead of panicking, he decided to call his friend Jim Stewart, founder of the Seattle's Best Coffee chain, to find out what really happens when a Starbucks opens nearby. "You're going to love it," Stewart reported. "They'll do all of your marketing for you, and your sales will soar." The prediction came true: Each new Starbucks store created a local buzz, drawing new converts to the latte-drinking fold. When the lines at Starbucks grew beyond the point of reason, these converts started venturing out–and, Look! There was another coffeehouse right next-door! Hyman's new neighbor boosted his sales so much that he decided to turn the tactic around and start targeting Starbucks. "We bought a Chinese restaurant right next to one of their stores and converted it, and by God, it was doing $1 million a year right away," he said.

. . . .

[...] In its predatory store placement strategy, Starbucks has been about as lethal a killer as a fluffy bunny rabbit. Business for independently owned coffee shops has been nothing less than exceptional as of late. Here's a statistic that might be surprising, given the omnipresence of the Starbucks empire: According to recent figures from the Specialty Coffee Association of America, 57 percent of the nation's coffeehouses are still mom and pops. Just over the five-year period from 2000 to 2005–long after Starbucks supposedly obliterated indie cafes–the number of mom and pops grew 40 percent, from 9,800 to nearly 14,000 coffeehouses. (Starbucks, I might add, tripled in size over that same time period. Good times all around.) So much for the sharp decline in locally owned coffee shops. And prepare yourself for some bona fide solid investment advice: The failure rate for new coffeehouses is a mere 10 percent, according to the market research firm Mintel, which means the vast majority of cafes stay afloat no matter where Starbucks drops its stores. Compare that to the restaurant business, where failure is the norm.

Like the common Wal-Mart refrain, here's yet another case where the conventional wisdom is way off base.

Leonard Gilroy is Director of Government Reform


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