Starbucks and small business

June 24, 2009

The popularly-held belief that Starbucks kills mom-and-pop shops is a fallacy, says Temple University history professor Bryant Simon.

“In fact, Starbucks created the market for the small coffee shop,” says Bryant, whose new book “Everything but the Coffee: Learning about America from Starbucks” is due to be released in October.

Simon argues that 20 years ago you couldn’t find a “good” cup of coffee anywhere, until Starbucks came along and “created a desire and a taste for specialty coffee” that eventually gave birth to the corner specialty coffee shop.

In his column for TheBigMoney.com (Frappuccinos Work for Mom and Pop), Jonathan Weber argues that the closing of a Starbucks store in Missoula, Montana is no cause for celebration by small coffee houses. “It’s dangerous to assume that what’s bad for the chains is good for the mom-and-pops,” writes Weber, who maintains the loss of jobs from the Starbucks closure will hurt local businesses. “In this economy, a store closure is nothing to cheer about.”

A Slate article from 2007, titled “Don’t Fear Starbucks,” details the saga of a small Los Angeles-based coffee chain that discovered the intrusion of Starbucks was actually the best thing for its business.

Yet the perception of Starbucks driving out small businesses endures, as evidenced by a 2006 lawsuit against them by another Seattle-based coffee shop that claimed Starbucks “illegally maintains its monopoly by barring other coffeehouses from prime downtown high-rises in Seattle and Bellevue through exclusive leases with property owners.”

Belvi Coffee owner Penny Stafford, who launched the suit, claimed Starbucks ran her and other local shops out of business by “buying coffee sellers and flooding neighborhoods with new Starbucks stores that even cannibalized the sales of existing Starbucks shops.”

Bryant Simon

Simon says that while Starbucks was very predatory in the late ’80s and early ’90s, in what he refers to as its “early period,” that this aggression was primarily directed at small chains that operated a handful of stores in big metropolitan areas like Boston, Chicago and San Francisco. “It didn’t care about the mom and pops.”

According to Simon, Starbucks would use its power to get the best location and sign really long leases that would essentially restrict landlords from also renting to competitors.

“While it doesn’t kill the small coffee shop, it leaves them on a side street in a smaller town a little off the main drag where you get the densest amount of traffic.”

Simon believes a lot of the anti-Starbucks sentiment that exists today comes more from a fear of homogenization than from anything Starbucks is doing.

“There’s a long history of anti-chainstore feeling in this country and I think it’s the general perception that Starbucks is everywhere and so it must come at the cost of something else,” he says, pointing to movements in small communities like Benicia, California, which are trying to enact bylaws to make it tougher for Starbucks franchises to operate. “They made the association between seeing it everywhere and not seeing what they thought they wanted (more mom and pops) and blaming Starbucks for that.”

The irony now is that Starbucks is actually closing stores, while the smaller chains and mom and pops are fairing pretty well.

“Starbucks can no longer offer what they initially promised and it’s the small coffee shops that are doing a better job,” says Simon, about appealing to coffee connoisseurs – the same customers that helped them grow so rapidly in the beginning.

Simon points to the Chicago’s Intelligentsia as an example of a smaller chain that is “out-coffeeing” Starbucks by servicing that high-end specialty coffee niche. Last year Starbucks announced it was closing 600 stores in the U.S. and has since made a number of changes to reclaim some of the market lost to independents.

Simon sees this as an attempt by Starbucks to “reclaim that initial authenticity,” as he asserts the chain has been forsaken by its high-end coffee drinkers and is not a destination for people “who are really interested in cool.”

Do you think Starbucks is a small-business killer? Post your comments below:

12 comments

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Very well defended…. putting balanced views by giving both perspectives, commendable effort!!!

Posted by Abhinav Sharma | Report as abusive

Simons said that he sees the Starbucks going to “reclaim that initial authenticity the point is , would it be the effectives path to asserts the chain has been forsaken???
we’re really hope so…

Didn’t fastfood chains like Mc Donalds, Burgerking and Pizza Hut face the same problems when they started business? Like you said there’s a long history of anti-chainstore feeling in this country. I believe that if you want a quick decent cuppa joe then Starbucks is the place to go, but for a gourmet coffee you go to the smaller coffee shops.

I have worked with hospitality clients for 20 years and in almost every situation, competition in food service is good. Variety tends to drive more business for everyone. The folks who complain that competition drove them out of business usually did not put out a very good product to begin with.

In my experience the Starbucks baristsas, while friendly and cheerful, usually do not know how to make a good espresso any better than smaller shops. Perhaps returning to their original business model will be good for them, if their original market was the connoisseurs.

Posted by Alex | Report as abusive

I don’t know about them killing the “Mom and Pop” Stores, but I do know that their coffee has always been cheap, burned and crappy tasting beans for a premium price.

Posted by bob | Report as abusive

Starbucks started just the same way any other “Mom & Pop’s” coffee shop starts…determination, hard work, great product. They quickly became successful because they care about what their customers want!

Posted by Michael Elliott | Report as abusive

The statement ‘Simon argues that 20 years ago you couldn’t find a “good” cup of coffee anywhere, until Starbucks came along and “created a desire and a taste for specialty coffee” that eventually gave birth to the corner specialty coffee shop.’ is clearly untrue.
In the 70s and 80s coffee shops abounded, good ones, often attached to a small book store where customers could browse books and drink good coffee.

Posted by jimscafe | Report as abusive

Simons is wrong when he argues it was only in certain U.S. cities that Starbucks acted aggressively. I know first hand several “mom and pop coffee shop owners in England who were verbally threatened and intimidated by Starbucks in the UK. I expect this policy is worldwide and still continues.

Posted by David Warner | Report as abusive

care about what their customers want? don’t you know the basis of economics?

profit.

Posted by valerie | Report as abusive

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I appreciate this commentary based on fact. To me it seemed Starbucks was taking hits that were unfair. Starbucks offers health insurance to all their employees even part-time employees because the founder, who’s Dad became an unemployed truck driver and the family suffered greatly from loss of insurance. HE REMEMBERED WHERE HE CAME FROM. This is why I do go to Starbucks and pay a little extra at times. I also go to Dunkin Donuts but notice the employees barely speak english and have tip jars out. This concerns me. I’m all for Mom and Pop shops surviving too, but balance is key.

I’m not a fan of all chain stores and do embrace diversity, but Starbucks has been a haven for me on my lunch hour to conduct my creative business via wi-fi in a comfortable chair. What I like about Mom and Pops is the ability to show one’s art work in their arena, and again the uniqueness of the place. My only concern some Mom and Pops I’ve come across were cleanliness, and lack of support from owner when trying to hang a show and advertising THEIR coffee shop WIDELY to bring in customers for more support to them, as well as to see my art.

Posted by suzanneartist | Report as abusive

“care about what their customers want? don’t you know the basis of economics?
profit.”

I don’t understand this comment as a small business owner profit is important to me too as I would be out of business otherwise. No profit, no job. And if your product or service sucks you could be in trouble. . .

Posted by suzanneartist | Report as abusive