Want A Thriving Coffee Shop? Open Next To A Starbucks

The funny thing about Starbucks is it’s helped to create a coffee culture filled with a significant number of people who don’t actually like Starbucks—which means that, despite conventional wisdom, it’s actually a good thing to be a mom & pop coffee shop with a Starbucks nearby, writes Slate. Instead of stealing your business, you get the spillover from their store. “They’ll do all of your marketing for you, and your sales will soar.”

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.

We’ve noticed that Starbucks has had another “positive” effect on the coffee house industry—it’s trained consumers to willingly pay over $1.50 for a cuppa joe no matter where they’re buying it. Maybe this is why “Just over the five-year period from 2000 to 2005… the number of mom and pops grew 40 percent, from 9,800 to nearly 14,000 coffeehouses,” and “the failure rate for new coffeehouses is a mere 10 percent.”

P.S. Starbucks is awesome. Playstation is awesome. Nintendo is awesome. Apple is awesome. Microsoft is awesome. Dunkin’ Donuts is awesome. Just wanted to prime the comments a little before we head into the weekend.

“Don’t Fear Starbucks” [Slate]
(Photo: rudolf_schuba)


Edit Your Comment

  1. bsankr says:

    *overprimed head explosion*

  2. Head explosions are awesome.

  3. SteveBMD says:

    Wait a minute… The guy called his friend Jim Stewart, the founder of Seattle’s Best Coffee? SBC was bought by Starbucks in 2003. So his opinion is hardly impartial. Something’s fishy.

  4. morganlh85 says:

    A Starbucks closed down my favorite coffee shop. They even had a drive thru, just like Starbucks! The people in my area are just too mainstream to support a local establishment.

  5. cheera says:

    My city has four independent coffee shops and no Starbucks. I love it.

  6. gitemstevedave says:

    @SteveBMD: Read the first paragraph. This started in 1991. Unless is was a loooooooooooong buy-out.

  7. i’ve heard starbucks uses non-compete clauses when they move into strip malls

  8. pda_tech_guy says:

    No, I am awesome.

  9. DallasDMD says:

    @Petrarch1603: how does that work? make customers sign them? make the existing businesses sign them?

  10. trollkiller says:

    Sounds logical to me. Starbucks pumps up the marketing making people want a cup of coffee, so they go to the local shop out of habit.

    A friend of mine owns a couple of Domino’s, he said that when Papa John’s came into the area his sells went through the roof.

  11. 44 in a Row says:

    My town actually didn’t have a single successful independent coffee shop until a Starbucks opened up. We now have three or four, plus Starbucks. There probably is something to be said for the idea that Starbucks encourages the idea of a coffee-house culture.

  12. mrestko says:

    This is true of a lot of boutique-type stores. I remember reading some time ago that independent bookstores that open next to chains are more successful.

  13. specialed5000 says:

    @Petrarch1603: It is very common for leases in retail developments to include language where the developer and/or management company agrees to only lease space to one of any given kind of retailer (only one video store, one coffee shop, one grocery store, etc). This is one reason why retail developers generally don’t announce tenants until leases are signed, because they are negotiating with more than one retailer in each category, and don’t necessarily want the retailers to know who else they are trying to attract and/or what kind of terms they are offering.

  14. Preppy6917 says:

    Nah…they just include it in the lease, so no competing coffee shop can lease in the same development.

  15. ceejeemcbeegee is not here says:

    Burger King has been employing this strategy for years: put a stand adjacent to a Mickey D’s, and you’ve got yourself a profitable business.

  16. rmz says:

    But do they have juicy raspberry syrup?

    I didn’t think so.

  17. derherzeleid says:

    I’m going to call Bs on this one. In order to get to the drive thru at the starbucks i used to work at, the local patrons had to drive by the local coffee house. Even with a huge line, and wait times, no one ever chose the local store over the bucks.

    I also later talked to the owner, and her business was doing poorly even being open 24hrs vs starbucks 18 hrs.

  18. LatherRinseRepeat says:

    I don’t think opening a coffee shop next to a Starbucks will result in instant success and profit. Starbucks is really about selling a name brand and image, because we all know the coffee is awful. Independent coffee shops need to sell an image along with their better tasting coffee. They need to spend the time/money/effort in making their store look a little hip and appealing. Because there are people out there that will judge a business by the way it looks. The coffee might be the greatest tasting in the world, but if the place looks like a dump, then no one will want to come in.

  19. dantsea says:

    @derherzeleid: The idea that Starbucks helps sales is established as fact in the independent coffeehouse industry. However, it’s not quite as easy as the quotes here make it out to be; the owner/operator still has to ensure they’re delivering a consistent, quality product served by friendly staff in a welcoming environment. So many cafe owners are tempted to skimp on one or more of those variables, to their own detriment, forgetting that Starbucks is just as adept at shutting out bad operators, too.

  20. krunk4ever says:

    @SteveBMD: I was going to say the same thing… Seattle’s Best Coffee is owned by Starbucks now. The reason for this is for people who dislike Starbucks to go to Seattle’s Best Coffee, so they get both worlds.

  21. Benny Gesserit says:

    @DanB: Excellent point. The article doesn’t imply I could open “Jim’s Crappy Coffee and Stale Biscuits” next to a Starbucks and retire two years later.

  22. ogman says:

    THis article is one of the many reasons I stopped reading Slate; dumb ideas and lack of fact-checking.

  23. doctor_cos wants you to remain calm says:

    Oh, for Peet’s to go nationwide and crush these poseurs from Seattle.

  24. Melsky says:

    I regularly go to Freedom of Espresso, a small local chain which is just across the street from a Starbucks in Downtown Syracuse. It seems to do a very good business. So does Starbucks.

  25. rouftop says:

    @DanB: Well said! I’m not a major Starbucks hater, but I try to support a variety of businesses. There’s nothing more disappointing than going to a local independent joint that doesn’t have its shit together.

  26. LTS! says:

    @rouftop: Well, one might argue that whether it’s local independent or a national chain, if its shit isn’t together it’s going to be disappointing.

    I favor my local coffee places as much as possible, but leave it to fargon Dunkin’ Donuts to put up a new place that’s on my commute path to work and in about the most convenient place it could be.

    I rarely have Starbucks.. can’t stand the coffee. I do have a friend who goes there every day and gets some no-fat blah blah blah drink (no fat, but massive sugar) for around $5. That’s insane.

  27. grepme says:

    Please! Open more mom and pops near starbucks that thrive. I was sorely disappointed to discover due to the new machines, the baristas do not (cannot) pull a espresso shot short or long. All they have now is a button. :(

  28. quail says:

    Must admit I prefer the mom & pop over Starbucks, but only when they offer atmosphere and quality. A nasty diner motif won’t cut it. It’s got to be a place where for the price of my cup of joe I can hang out for at least an hour to unwind while reading.

  29. quail says:

    @grepme: I’ve seen that too at the newer Starbucks and at their competition. It’s a way for them to bypass some of the training and to make sure that each shot of espresso is consistent. It also allows the barista to walk away and multi-task.

  30. just_paranoid says:

    @cheera: can you even call where you live a CITY if you don’t have a starbucks? lol.

  31. MonkeyMonk says:

    My town had two independent coffee shops before a Starbucks finally moved into the area. One lasted about a year and half before closing and the other stays open but is a shadow of it’s former self. Clearly it isn’t as cut and dry as slate would like to have us think.

  32. Jean Naimard says:

    It’s not only for coffee shops…

    Where I live, this joint [www.schwartzsdeli.com] is heavily patronized; very often, people will wait 30 minutes in a line outside, even when it’s minus 20 degrees.

    The people uwilling to line-up simply spill over in this joint three doors further: [www.tabledhote.com], which serves just as good (albeit radically different) food.

  33. sibertater says:

    @rmz: That shit tastes like cough syrup. Blech. They can keep it. Also? WTF is Melon Syrup?

  34. skippywasserman says:

    See, now here’s where the problems start. Some yutz going and saying ‘Open next to Starbucks’, but not being more specific. In an urban location with mostly foot traffic, absolutely. In a stripmall? No. People stop for their Starbucks or Dunkies, not Skippy’s Watered Down Whisky in a Green Tea Bottle. Just sayin’.

  35. bohemian says:

    All of the Starbucks in town have very small seating areas with only the small cafe tables. With the exception of the Barnes & Noble one. They are cramped and not somewhere you would hang out for long.

    The two indie coffee houses in town have big seating areas with comfy chairs and couches. The Caribou and Dunn Brothers locations are much larger and all have fireplaces and sofas and chairs. A couple of these do music on Friday nights. Caribou has free wifi.

    The non-Starbucks locations are doing rather well and you see them rather crowded most days. Around here Starbucks is becoming more of the coffee on the go type of place.

  36. evilhapposai says:

    Around my little town we have a Starbucks but it doesnt do so well. There ARE a lot of coffee drinkers here and there is another mom and pop store downtown but it does not do to well either. Both fail to realize all we want here is a REGULAR cup of coffee without all that crap thrown in it and not have to pay $4 and up for it. Places like the local diners and McDonalds are cleaning house here. You get MUCH better tasting coffee, cheaper, and….omgwtf…FREE REFILLS?

  37. swagv says:

    Starbucks may have helped to create a coffee culture filled with a significant number of people who don’t actually like Starbucks, but even more impressive is that they helped create a coffee culture filled with people who don’t like coffee.

    “Starbucks Coffee” is one of the biggest misnomers around. All their sales and profits largely center on milk and syrup. Coffee actually has little to do with it. Their genius stroke was in making people think they liked coffee, where obviously their greatest successes have been at making converts of people who would otherwise avoid the stuff.

  38. smallestmills says:

    I think it’s one of the rules of business that it’s always a good idea to open near your competition. Perhaps the mom-and-pop coffee shops are doing well next to a Sbux because of all the haters. It seems like a good plan for the little guy. Hate large corporations? Your answer is right next door in helping out the little guy. Do a good deed and get coffee w/out having to hear Paul McCartney.

  39. Whinemaker says:

    Dutch Brothers coffee … puts Starbucks to shame.

  40. coren says:

    @DallasDMD: I’d imagine making the property owner (which is generally one person, whom all the stores rent from (did I use whom right? probably not!)) sign to not allow competition.

  41. swalve says:

    @ceejeemcbeegee: How’s that working out for them? Half the BKs in the Chicago area closed in the last few years.

    @smallestmills: *IF* you offer a better product. Otherwise, you want a captive audience. Do you think anyone would eat Sbarro if there was a decent pizza place nearby?

  42. swalve says:

    @coren: Yes, non-compete from the landlord. Retail leases are far more complicated than residential.

  43. shades_of_blue says:

    This tactic would only work in heavily populated areas. No way in hell is a local Starbucks going to boost mom and pop shops in my area. The lines are always small or nonexistent at either of my local Starbucks.

    Now the one located inside the local mall did and is doing so well that Starbucks opened a second one! In contrast, there is a no name shop on the top floor and it appears to do well. But it did well before Starbucks was there, so I can’t say Starbucks helped generate sales.

  44. kikijones says:

    It seems almost like an IQ test for the local population as a whole– got brains? or got venti latte? sBucks is such a YUK experience. No seating. Bad music.

    Y gotta give em credit though: I do think that it was pretty clever to re-market extremely high calorie milkshakes as ‘coffee.’ Fatties rejoice– there’s a sBucks on every corner.

  45. parnote says:

    Hmmm … this has already happened in Kansas City. One of the first Starbucks in Kansas City is slated to close it’s doors within the next couple of months. RIGHT NEXT DOOR is a “mom & pop” coffee house … and THEY literally forced the Starbucks closure with better service, better product, and better prices.

  46. Rusted says:

    Caribou right down the road. Starbucks up the road, smaller, not as friendly.

  47. podulator says:

    That actually makes sense. When the Starbucks is too busy to justify a wait, or their premium “coffee” concoctions are too pricey, or their regular coffee sucks too bad, people will look for an alternative. If the alternative is easy to find, they’ll try it out. Starbucks are usually in convenient locations, so this fact helps guide recurring business to the nearby competitor.

    Very clever.

  48. MrsMicah says:

    @skippywasserman: Good point, I think. The Starbucks in my hometown was on Main Street–best approached by parking somewhere else and walking there. No real lines, but you passed local coffee places on either side, so there was always the option. It was nice, because you could go to any of them, made life more interesting. And if there was a line, as the piece says, you could decide to go elsewhere.

    I’m sure it wouldn’t have worked nearly as well if the Starbucks had had its own parking lot. Or if they’d been on a highway and not a street that does tons of pedestrian traffic.

  49. drjayphd says:

    At this point, could you even open a coffee shop and not be next to Starbucks? I’m in a modestly-sized suburb in Connecticut, and there’s 42 of ’em within a 30-mile radius. Saturation much, Howie?

  50. coren says:

    @drjayphd: Exactly. There are at least five within two blocks of each other in one area near me

  51. RandomHookup says:

    Sounds like my neighborhood near Boston. Two very successful local breakfast places with lines out the door every weekend. One moves next door for more space and, lo and behold, the landlord takes the vacant space and makes a new breakfast space! Stealing the people standing in line in the rain is a time-honored business practice.

  52. King of the Wild Frontier says:

    Yes, being able to open next to a Starbucks doesn’t guarantee success. Living in the rural midwest, I’ve had the misfortune to try out several coffee places where the brew is sub-gas station quality. It’s easier to say that the Beast of Seattle shut you down than to admit that you barely knew how to boil water.

  53. LeopardSeal says:

    @drjayphd: Guy: Can I help you?
    Bart: I’d like to get my ears pierced!
    Guy: Better make it quick, kiddo, in five minutes this place is becoming a Starbucks!

  54. cheera says:

    @just_paranoid: I know, right? I honestly don’t live in a tiny city though, its weird. Can a city council give sBux the finger if they wanna move in? Because if they can, and if thats what they did…then I’m gonna go hug my mayor.

  55. AlphaTeam says:

    Let’s be honest with ourselves here. $2 (w/ tax) for a cut of venti coffee is not expensive. Those food stands sell coffee for $1 and the cups are really small. I personally drink a lot of coffee, so Starbucks is a bargain. Let’s not forget their free refill.

  56. hflemings says:

    Great Post. I love Starbucks and competition two powerful forces in business.