Starbucks Good for the Competition’s Business

Although it has often been cast as the villain in a big brute versus small guy scenario, it turns out that Starbucks is often good for business – other coffee houses’ business, that is.

According to the Wall Street Journal, “The battle between independent coffeehouses and Starbucks may be one of the most hostile — and most misunderstood — rivalries in retailing. Starbucks is prospering, with earnings up 22.4% in the first nine months of the year that ends Sept. 29, and a compound annual growth rate from fiscal 1997 to 2001 of 26.8%. Conventional wisdom, meanwhile, says Starbucks is clobbering the independent — invading its turf, stealing its customers, bankrupting its owners.”

The truth, says the article, is quite the opposite. Independents have accounted for more than half of the industry’s growth between 1996 and 2001, according to Mintel Consumer Intelligence, a Chicago market-research firm.

Mintel claims that one-third of Americans who drink coffee away from home order it from a specialty shop. Many believe that Starbucks increases the overall market by attracting new customers to the category. “When a Starbucks opens, it educates the market, expanding it for everyone,” says Bruce Milletto, president of Bellissimo Coffee InfoGroup Inc., a Eugene, Ore., consulting company for independent coffeehouses.

Moderator’s Comment: Will Starbucks continue to grow
the coffee category leaving plenty of business for it and its competition or
will it eventually begin to wear the independent shops and small chains down?

Tully’s Coffee Corp. strategy is to place its coffee shops
near a Starbucks, according to the WSJ piece. [George
Anderson – Moderator]

• Despite
  Starbucks Jitters, Most Coffeehouses Thrive – The Wall Street Journal
  (Subscription required.)