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Starbucks employs unfair tactics against local coffee shops.Submitted by Organize on Wed, 08/17/2005 - 11:37am.
Starbucks eliminates competition through buy-outs, "cluster bombing" tactics, and market cannibalization. The Ocean Beach Grassroots Organization, in support of the local merchants of Ocean Beach, declares as part of a boycott that, "Starbucks employs unfair tactics against local coffee shops. If Starbucks finds a successful coffee establishment they build one or more locations to take their business. They lease buildings to keep out competition, send agents around to take notes and pictures (as we have witnessed in Ocean Beach)" (obgo.org). Ocean Beach is a community located in San Diego, California. It has recently been the site of numerous protests against the Starbucks Corporation's attempt to open franchises there. The Ocean Beach planning board is working on a ban called Proposition A that bans "Formula Retail" restaurants and stores from encroaching on Ocean Beach. In Japan, Kinzo Niwa, managing director of Pokka Corp., which runs the Cafe de Crie chain, a rival of Starbucks, explains, "Our sales don't drop even if Starbucks opens a shop near ours, but if we simultaneously apply to a landlord to rent space in the same building, the landlord chooses our opponent" (The Japan Times). Starbucks's market-entry strategy involves first finding a market's leading independent coffee shop, and then going to the landlord of that coffee shop and buying the lease out from under them, replacing the shop with a Starbucks. As is common in Ocean Beach and Japan, the existing coffee shop is forced to move or go out of business. If Starbucks cannot buy the lease, Starbucks will open several franchises around the shop (nearly one on each corner) and heavily promote to draw the crowd. This begins a "cluster bombing" campaign where Starbucks opens so many franchises in one area that they become unsustainable. After driving out independently owned coffee shops, the Starbucks franchises then have to start competing with themselves, cannibalizing each other's sales. Starbucks, the parent company, is basically promoting Darwinism as their business model, a business model that is becoming unbeatable. In Starbucks's 2002 10-K Report filed with the Securities and Exchange Commission, it is reported, "As a result of its expansion strategy of clustering stores in existing markets, Starbucks has experienced a certain level of cannibalization of sales of existing stores by new stores as store concentration has increased." Despite this cannibalization, Starbucks's net revenue growth increased 24% that year. |