This Slate article bolsters my belief that Starbucks has actually created the independent coffee shop culture that is now competing with it:
The first time Herb Hyman spoke with the rep from Starbucks, in 1991, the life of his small business flashed before his eyes. For three decades, Hyman's handful of Coffee Bean & Tea Leaf stores had been filling the caffeine needs of Los Angeles locals and the Hollywood elite: Johnny Carson had his own blend there; Jacques Cousteau arranged to have Hyman's coffee care packages meet his ship at ports around the world; and Dirty Dozen leading man Lee Marvin often worked behind the counter with Hyman for fun. But when the word came down that the rising Seattle coffee juggernaut was plotting its raid on Los Angeles, Hyman feared his life's work would be trampled underfoot. Starbucks even promised as much. "They just flat-out said, 'If you don't sell out to us, we're going to surround your stores,' " Hyman recalled. "And lo and behold, that's what happened—and it was the best thing that ever happened to us."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 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.
What prevents Starbucks from pulling the Wal-Mart effect is that they're competing on product, not on price. Starbucks is basically the Olive Garden of coffeeshops -- a consistently upscale experience and wide availability, at some necesssary penalty of price.
However, no Olive Garden can outperform a well-run local Italian restaurant, because the former has to use a standardized product suitable to mass-market distribution and preparation techniques, while the latter can focus on making the best food possible. No Starbucks can outperform a well-run local coffee shop for the same reason.
If a Starbucks comes in and raises consumer awareness for specialty coffee products, it is almsot inevitable that the local shop will benefit from the increased demand.
1) The article's thesis isn't new at all.
2) It also underplays the scope of The Coffee Bean & Tea Leaf, which has more than a handful of stores, in more than a handful of countries. That company is a fascinating story in its own right. I forget the details, but I think the founders were Jews from Southeast Asia who traced their roots in that part of the world to the Dutch East India Company. They've also been successful opening stores in Arab countries.
Sounds reasonable. I hate coffee so it makes no difference to me...
This is old news to us in the NW. In Seattle you generally have a coffee shop on every corner and in some blocks one in the middle also, in really busy parts of downtown a single block can have 6 coffee shops, only 1 a Starbucks.
On my street in Portland I have a Starbucks 2 blocks up and another one 2 blocks over and 3 block up, within a 4-5 Block radius of the two Starbucks there are at least 10 coffee shops that I can think of and I'm probably missing some.
Eric K, I think you just outlined one of the reasons SBUX is struggling. They have managed to cannibalize their own business with their stores. I think that a SBUX store arriving on the scene boosts local and specialty coffee shops (due to people wanting a coffee/being introduced to coffee but not wanting to support the "Goliath") but two Starbucks stores across the street from one another aren't lifting each other.
I live in Seattle and there is a place in Bellevue (across the lake) where you can stand on a street corner and see several Starbucks stores without moving.
So what's new here? Businesses have often found it useful to locate next to their competitors. Where you see one restaurant, you'll probably see a half-dozen. Apparently they'll draw more customers who drive to that cluster and then decide exactly what they want to eat than they lose to competition. Clothing stores clump together in malls, any number of them selling slight variations of the same product, and attract swarms of customers.
There might be exceptions in the case of purely interchangeable commodities where the buyer picks solely on price, but probably the closest thing there is to that is gasoline, and still you'll often come off the interstate to see several gas stations side by side. OTOH, when you get out into the country and away from the major routes, many stations stand by themselves, as far as possible from competition, and usually with exceptionally high prices. How much gas are you going to burn driving ten, twenty, or even fifty miles to get a better price?
But Starbucks only locates in urban areas, so there will always be competitors within a few miles anyhow - and since Starbucks whole business model is to make coffee NOT a commodity, any competitor that can make ONE kind of coffee better than Starbucks can benefit from having Starbucks draw the customers into sight. Or a less pretentious shop may simply sell good, cheap, plain American coffee to those that get sticker shock at Starbucks or don't want to learn a half-dozen new words just to order coffee...
The article puts one through the bullseye. I like starbucks, but I often end up getting my coffee at the bookstore across the street because that's where I rent my movies and it's one less intersection to go through.
Indeed Fred, the article amused me quite a fair amount because in my country, Coffee Bean & Tea Leaf outlets are almost as prevalent as Starbucks.
When Starbucks came to Aust. there was the story going round that they would have to lower their prices because of all excellent cafes already present. I also don't see that much advertising from them, aside from the initial burst, so I'm not sure whether they are having any effect.
JohnLeemk,
Which is your country?
"Starbucks is basically the Olive Garden of coffeeshops -- a consistently upscale experience and wide availability, at some necesssary penalty of price."
Umm...have you ever eaten at an Olive Garden?
JohnLeemk,
Which is your country?
Posted by Fred | January 8, 2008 11:28 PM
Fred,
Good Gravy~ Click his link, he's in Malaysia (apparently)
I think anony-mouse's comparison is a pretty good one.
Since Alex is curious about the experience involved, I have lived in New Jersey, Queens, and Manhattan, as well as suburbs in upstate New York and Texas. I have eaten at many Olive Gardens as well independent Italian restaurants in Little Italy and elsewhere, Carmine's (both UWS and Theater District) and various other Italian chains. I concur that Olive Garden is a large, well-known brand that provides a consistently very nice meal which cannot be as good as La Mela for reasons more complex than "Olive Garden is teh sux0rz." If I was wandering through Little Italy, I would not pine for Olive Garden, but if I was driving through a small suburb in the mid-west and saw one, I might think it a fine dining option.
Similarly, I've been to a ton of Starbuckses and many independent coffee shops as well as small chains.
I know a large population of people who only drink regular drip coffee and complain that Starbucks' coffee is terrible and they prefer Dunkin Donuts or coffee trucks. I know a somewhat smaller population that considers themselves coffee connoisseurs, who drink espresso or coffee in independent coffee shops and will comment mostly on how Starbucks over-roasts/burns their beans (consistency over quality is a common theme in national food chains, not unique to SBUX). I also know a large population of people who drink espresso drinks (latte, mocha, caramel macchiato, etc) at Starbucks and love them.
I personally fall into that last group - I love the mocha, and have never had a better one in an independent place (yes, I've tried many, but I'm sure your personal favorite local coffee shop is so awesome that I'm clearly wrong in my taste preference). What's more, I can count on getting that same great mocha in whatever city I have just flown into, or whatever highway stop I have just pulled over at, without having to ask all the locals which coffee shop has the best espresso roast.
As an Italian American, I think the Olive Garden argument is a little flawed - Starbucks doesn't trade on demeaning national stereotypes to make a buck. The food at Olive Garden may be as good as mediocre, but the whole experience - the decor, the menus, the service - is just painful. The sad reality though is that there are very few even halfway decent Italian restaurants in the US, even most of the family owned ones are pretty awful compared to the mother country.
"Good Gravy~ Click his link, he's in Malaysia (apparently)"
MEH,
Sorry. I never click on anyone's names, so I didn't see that. I don't think it would have killed the guy to just say where he lived though.
"As an Italian American, I think the Olive Garden argument is a little flawed - Starbucks doesn't trade on demeaning national stereotypes to make a buck."
Vanya,
As a non-Italian American who likes Italian food and lives in an area with a large Italian community and plenty of Italian restaurants, I think a lot of these local Italian restaurants have dropped the ball. I think a lot of them started letting the Mexicans cook. Most are still a notch above The Olive Garden, but in fact not as good as this more upscale chain: Maggiano's Little Italy. I went to the new local iteration of this chain in my town, and while it's not cheap, the food is excellent. The decor was also surprising for a national chain: it looks like an old New York restaurant. Check out the pics on the site.
The Maggiano's we have here in Very North Dallas (actually in Plano, TX) plainly sux. The decor may be authentic and upscale, but I'd put either of the prevalent chains (Romano's MG / Olive Garden) above it as far as food is concerned. I haven't been to the Northpark location, or to any non-local one for that matter.
I've only been to our new local Maggiano's once, but the lobster ravioli, salad, bread, and Tiramisu were all excellent.
The food at Olive Garden may be as good as mediocre, but the whole experience - the decor, the menus, the service - is just painful. The sad reality though is that there are very few even halfway decent Italian restaurants in the US, even most of the family owned ones are pretty awful compared to the mother country.
Compared to actually living in southern Italy (or at least spending a long vacation there), undoubtedly. But that will always be someone's complaint when a food style is transferred into a different cultural zone. Shoot, Texans will argue loudly over which area of Texas makes "real" barbecue, and then denigrate barbecure fare elsewhere as definitely not being real. Which doesn't invalidate the barbecue experience for persons who, for any number of reasons including inaccessibility, have never eaten barbecue in Texas.
In terms of good and bad restaurants, the Olive Garden is decent, and perhaps more importantly, consistently decent. (Perhaps this is not true in some areas of the country, for example due to labor availability issues.) "Consistently decent" is especially true if you live in Colorado, where most of the Italian blood is now well into the third and fourth generations and heavily dilluted, and those subsequent generations have largely forgotten how to cook authentic Italian, if they even bother.
(I've also eaten at a Denver-area Maggiano's, incidentally. Good, but IMO most of the price penalty for eating there was the ambience; the food was good but didn't strike me as being of better quality than Olive Garden fare, just a somewhat different variety.)
Which is a long way of saying that I think the Starbucks/Olive Garden comparison holds.
As an Italian American, I think the Olive Garden argument is a little flawed - Starbucks doesn't trade on demeaning national stereotypes to make a buck. The food at Olive Garden may be as good as mediocre, but the whole experience - the decor, the menus, the service - is just painful. The sad reality though is that there are very few even halfway decent Italian restaurants in the US, even most of the family owned ones are pretty awful compared to the mother country.
Check out http://www.cafehunt.com for a list of independent coffee shops on earth.