When Starbucks Comes to Town

The Starbucks Mission: to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

In September 2012 the world’s largest coffee chain arrived in Hanover. Promptly thereafter Dirt Cowboy lost 25% of its business, while Umpleby’s suffered a noticeable decline in its morning sales. Even Toby Fried, owner of Lou’s, has worried that Starbucks may permanently depress his revenue.

That Starbucks existentially threatens local cafes is not news. Since 1999, the global Starbucks footprint has grown from 2,498 to 18,066 locations. The company now commands nearly 4% of all coffee consumption worldwide. Its $13 billion revenue, however, no longer comes from coffee sales alone; Starbucks now sells everything from ice cream, to tea bags, to coffee machines, while the company controls an ever-expanding brand portfolio that includes, among others, Tazo Tea and Evolution Fresh.

Yet Starbucks’ domination does not represent the skillfully managed victory of one company over others, all operating on a level playing field. Rather, Starbucks’ corporate size grants it unprecedented advantages. Small cafes simply cannot contend with a company that cultivates fierce brand loyalty among millions and which, in 2011, spent $141 million on advertising alone. In an ever-growing number of regions, the company has achieved clear monopoly status.

Its economies of scale have also facilitated a particular strategy of saturating local markets with more shops than local demand justifies. Within its annual reports, Starbucks calls this approach “cannibalization”: the company oversaturates a local market and thus causes sales declines in all area shops (including Starbucks’). While a couple Starbucks’ may go out of business, so will numerous local cafes. This, in turn, enables the remaining Starbucks’ to establish monopoly control of the market. Small businesses can only sustain losses for short periods. Starbucks, on the other hand, will permit losses almost indefinitely, as long as monopoly status is eventually achieved. Hanover itself offers evidence of this strategy: Starbucks coffee is sold in Collis, there is a Starbucks café in the Barnes and Noble bookshop, and now, right across the street, Starbucks has opened yet another location. Since September, downtown sales declines have been ubiquitous.

To further assess the local impact of Starbucks, I traveled to the southern New Hampshire city of Keene, where the company first established a café in 2004. Today, Starbucks also sells coffee in the local Target, a downtown Marriot hotel, and Keene’s hospital—one of the region’s largest employers. Unlike Hanover, however, the coffee giant has had little effect on local cafes. Indeed, Judith Rogers, owner of Prime Roast Coffee Co., located on Main Street, says, “They [Starbucks] spend a lot of money on advertising about specialty coffee, and yes they’re advertising their brand but they’re also educating people about how much better coffee could be. So in some respects they’re helping out the entire industry, I think.”

Yet there is a crucial difference between the café market in Keene and that in Hanover. In the former, Starbucks is located in a strip mall, about a mile away from downtown Keene. In Hanover, however, Starbucks is on Main Street. Indeed, regarding Starbucks’ location, Rogers didn’t equivocate: “If they were next door to me, I wouldn’t be very happy.” Jeff Murphy, owner of another small, downtown café, agreed: “The only real threat I could see is if they just decided to put a shop right on Main Street.” The crucial distinction, then, lies in geography: the closer Starbucks is to Main Street, the more real the threat.

This looming danger in Keene has become a reality in Hanover, to which the ubiquitous drop in coffee sales testifies. As Dirt Cowboy owner Thomas Guerra says, Hanover contains a limited market for coffee: “This town is finite. There is a certain amount of cups of coffee that go out.” Charles Umpleby, owner of Umpleby’s Bakery and Café, agrees: “there’s a certain amount of business out there and that’s not really growing so it has to come from somewhere.”

As small businesses shut down, the urban landscape coheres into a bleak homogeneity. Streets in Beijing can increasingly be mistaken for those of New York, Mumbai, and perhaps eventually Hanover. In countless urban areas, the same giant corporations—Starbucks, McDonalds, J.Crew—populate the commercial geography. The richness and heterogeneity of local culture is besieged by accelerating corporate consolidation.

Yet Starbucks’ arrival in Hanover represents more than a simple challenge to the aesthetic and cultural identity of our community; it actually tears the fabric of collective life. According to Lou’s owner Toby Fried, whereas local businesses participate in community life, larger corporations like Starbucks abstain from such engagement. “I don’t think it’s good for the town,” he says. Fried further notes that local businesses are a consistent source of donations for community causes, while Starbucks has a poor track record of such giving.

When I called the Hanover Starbucks for comment, the manager responded, “we cannot comment to the media.” She hung up before I could even thank her.

In Starbucks’ ownership model, Guerra finds a rationale for its disengagement from communities. “Starbucks is a publicly held corporation,” he says. “Like every publicly-held corporation their primary… obligation is to their shareholders. The whole idea of a publicly-held corporation is to pay as little as humanly possible, to spend as little as possible, and put as much money back into the pockets of people who have done nothing.”

According to Guerra, small businesses thrive only through constant engagement with their local communities. Not only does the corporate weight of Starbucks enable community disengagement, it has also facilitated significant tax avoidance. In a recent investigation Reuters discovered that, as of last October, Starbucks had only paid British corporate tax for one of the last fifteen years. In the past three years, moreover, Starbucks saw UK sales of $1.9 billion, while not paying a penny of tax there. Today, ordinary Britons continue suffering massive, austerity-induced cuts in social spending; their national economy contracted .1% last year. This ailing society has nonetheless facilitated obscene profits for Starbucks. Rather than giving back, however, Starbucks further consolidates its global dominance.

“It is this kind of stuff that the big companies do on a continuing basis that I have to admit makes a small business owner wonder why they bother to even try and compete with these chains,” ponders Umpleby. He adds, “The romantic in me answers that what we do is important as it is what contributes to a good quality of life.” Yet in a radically redrawn global economy, the odds are against the Umplebys and the Dirt Cowboys of the world. -Eli Lichtenstein

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8 thoughts on “When Starbucks Comes to Town

  1. Joe says:

    If people want Starbucks they will buy Starbucks. If they don’t they won’t. Just because a company is local doesn’t mean it’s better. The fact that Starbucks is able to cannabalize is proof positive that it fills customer needs better than its competition. Who is the victim here? Certainly not the consumers who are simply voting with their dollars.

  2. Pat says:

    Stop whining…It people want to buy their coffee at Starbucks, it’s their right!!! I’m tired of Hanover trying to control what people (more of take advantage of) do with their money by keeping certain businesses out. (For example, not allowing Pizza Hut to deliver to this area). They know college students don’t really have transportation resources, so we are stuck to this little area, and thus are stuck to going to those businesses in town. If other businesses are struggling…well, step up your game! It’s unfortunate…but you can’t force people to buy only at Dirt Cowboy or Umpleby’s. What people do with their own dollars is their business (pun not intended).

  3. '14 says:

    Consider also that the manager at Dirt Cowboy is a complete dick to his employees. Try interviewing them next and see if you want to keep supporting local businesses. — Someone who has never been to the Main St. Starbucks

  4. Jamie says:

    “UK sales of $1.9 billion, while not paying a penny of tax there” – that their total revenues and companies only pay tax on the profits that they make. Starbucks has been making operating losses for 14 years now in the UK so, legally speaking they are doing nothing wrong. Whether that is ethical is another matter

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