Why Starbucks actually helps mom and pop coffeehouses.

The conventional wisdom debunked.
Dec. 28 2007 7:35 AM

Don't Fear Starbucks

Why the franchise actually helps mom and pop coffeehouses.

Illustration by Rob Donnelly. Click image to expand.

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.

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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.

Hyman isn't the only one who has experienced this Starbucks reverse jinx. Orange County, Calif., coffeehouse owner Martin Diedrich started hyperventilating when he first heard a Starbucks was opening "within a stone's throw" of his cafe, yet he reported similar results: "I didn't suffer whatsoever. Ultimately I prospered, in no small part because of it." Ward Barbee, the recently passed founder of the coffee trade magazine Fresh Cup, saw this happen scores of times. "Anyone who complains about having a Starbucks put in next to you is crazy," he told me. "You want to welcome the manager, give them flowers. It should be the best news that any local coffeehouse ever had."

Now, lest we get carried away with the happy civic results of Starbucks' global expansion, I hasten to point out that the company isn't exactly thrilled to have this effect on its local competitors' sales. Starbucks is actually trying to be ruthless in its store placements; it wants those independents out of the way, and it frequently succeeds at displacing them through other means, such as buying a mom and pop's lease or intimidating them into selling out. Beyond the frothy drinks and the touchy-feely decor, Starbucks runs on considerable competitive fire. Consider Tracy Cornell, a former Starbucks real-estate dealmaker who found and locked up a staggering 900 North American retail sites for the company in her decade-plus career. "It was sort of piranha-like," Cornell told me of her work for Starbucks. "It was just talking to landlords, seeing who was behind on their rent. All I needed was an opening like that, where the landlord wanted out. I was looking for tenants who were weak."

As much as independent coffeehouse owners generally enjoy having a Starbucks close at hand, most of them seem to have a story or two of someone from the company trying to undercut them. And occasionally a new Starbucks will hurt a mom and pop—even drive them out of business. For example, in 2006, cafe owner Penny Stafford filed a federal antitrust suit against the company, alleging a nearby Starbucks illegally sank her Bellevue, Wash., coffeehouse. Starbucks employees were passing out samples right outside her front door, Stafford claims, even though the company's nearest outlet was over 300 feet away.

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