Why Starbucks is Good for Small Coffee Shops

Yesterday's NYT ran two almost idential "little coffee shop versus Starbucks" stories. Peter Applebome was in Little Falls:

Mrs. Mallek was a bit taken aback when she saw two of the regulars — the regulars! — near her shop, Starbucks cups in hand, not long after the new one opened last summer. And so came the idea of the billboard, about a half block from the Starbucks — as close as they could get — reading: “We may not be Big ... but we’re not Bitter!”

Meanwhile, Alex Mindlin was in Washington Heights:

He says his profits dropped about 15 percent in the ensuing months, and he has been mortified to glimpse some of his former regulars in Starbucks... Lately, Mr. Musabegovic and Starbucks have been conducting a kind of low-intensity feud. Shortly after Starbucks opened, Mr. Musabegovic planted a sandwich board bearing an advertisement for Jou Jou on the corner of Broadway, just outside Starbucks.

Musabegovic even complains that he "made the neighborhood safe for coffeehouses"; at least Mallek is big enough to concede that "if not for Starbucks turning everyone in America into a coffee addict, it would have been very difficult to build a business essentially trying to be a smaller, friendlier alternative to Starbucks with better coffee".

For the fact is that Starbucks is the best thing that ever happened to small, mom-and-pop coffee shops: it ratified their product and gave them a huge market of gourmet coffee drinkers which had previously barely existed. What's more, given that the smaller shops nearly always are much friendlier and more pleasant than Starbucks – not to mention much more likely to serve their coffee in china, rather than in paper cups – the mom-and-pops have a built-in advantage over any Starbuck's.

Starbucks itself has demonstrated time and time again that opening a new location very close to an existing location does no noticeable damage to the sales of the older store. The big green Starbucks signage works these days essentially as a reminder to "drink coffee now" – in that, it actually helps drive traffic to the smaller place next door or possibly down the road. The NYT stories, I think, get it exactly the wrong way around.

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