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December 31, 2007

Starbucks vs. Mom & Pops

One of the enduring myths about market competition is that it necessarily implies winners and losers. We go on believing this despite the fact that when we drive along the highway we notice clusters of gas stations, burger joints & office supply stores all next to each other.

There's a new Slate article available which tells a story whose ending will be counter-intuitive to many.

Don't Fear Starbucks

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.

Many have complained about the tough tactics labor unions use when trying to limit the competition by non-union employers. A side benefit of this article is the window it gives on how companies such as Starbucks ruthlessly attack their competition through means other than the market.

One thing the article doesn't touch on is how, if at all, Starbucks has caused labor market costs to rise (or fall) for mom & pop coffee shops. Based on data I have looked at with other retailers I would assume there has been a slight effect causing mom & pop shops to raise wages & benefits.

December 31, 2007 in Labor Markets, Market Competition, Product Markets | Permalink


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