Why Starbucks is Not Wal-Mart

“In its predatory store placement strategy, Starbucks has been about as lethal a killer as a fluffy bunny rabbit.”

– Taylor Clark at Slate.com

Ever since Starbucks burst onto the national scene in the 90s, the coffee super-corp. has been viewed as the coffee world’s equivalent of Wal-Mart – a mega chain that sweeps into town and stifles the competition, killing off independents and taking over as the only store on the block.

While that image was something the coffee superchain may have aspired to and even cultivated, the reality was something far different, according to hundreds of independent coffee houses across the country. As Starbucks connived and plotted to exploit existing coffee markets by opening stores next door to or across the street from existing, successful coffee shops, they often found that their predatory marketing practices had just the opposite effect. Rather than sinking smaller coffee houses in its wake, Starbucks’ marketing strategy has been the rising tide the lifts all boats. In fact, the Specialty Coffee Association of America says that mom and pop coffee houses actually increased in number by about 40% between 2000 and 2005, while Starbucks tripled in size. Even more impressive, the failure rates for new coffee houses is just 10%, compared to a 60% three year failure rate for restaurants overall. And if you ask coffee shop owners in close proximity to Starbucks coffee shops, most will tell you that having a Starbucks next door has actually been good for business.

Why Starbucks Has Been Good for the Coffee Shop Business
So, if Starbucks has been pursuing a Wal-Mart marketing strategy, why are they failing to drive their competition out of business? In his article over at Slate.com, Taylor Clark proposed a couple of good reasons:

– Starbucks doesn’t offer competitive pricing. Wal-Mart and other so-called Big Box stores come into town and undercut prices on goods offered by local vendors. Starbucks made a corporate decision in their early days to position their product as an upscale premium cup of coffee that was worth its premium price. Simply put, Starbucks is more expensive than the competition.

– Starbucks is a sort of gateway drug to quality coffee. People may be drawn in by the national ads and reputation, but once they’ve been introduced to frou-frou coffee by the big dealer on the block, they’ll often branch out and try other brands and types of specialty coffee.

I’ve got a couple of other reasons:

– Starbucks, in positioning itself as the Evil Coffee Overlord, actually makes the little independents more attractive to a huge segment of the population. The stories of corporate greed have turned off a lot of people, and even more are turned off by the thought of paying $5 for a cup of coffee when they can get one – that’s often better and fresher – for $3 across the street.

– Starbucks has become the coffee shop equivalent of the Holiday Inn. The breezy upscale atmosphere that is the homogenized Starbucks experience is anathema to a lot of younger and older coffee drinkers who enjoy the cozier atmosphere of their local mom-and-pop store.