NAOMI KLEIN, author of NO LOGO, on Starbucks: “Clustering: The Starbucks Model”
excerpts from her book, No Logo.
Naomi Klein, born in Montreal in 1970, is an award-winning journalist. Her articles have appeared in numerous publications, including The New York Times, The Village Voice, The Nation, The New Statesman, Newsweek International, and The Baffler. She writes a weekly column in The Toronto Globe and Mail. For the past five years, Klein has traveled throughout North America, Asia, and Europe, tracking the rise of anti-corporate activism. She is a frequent media commentator and has guest-lectured at Harvard, Yale, and New York University. She lives in Toronto.
"There have been other, more brazen ways in which Starbucks has used its size and deep pockets to its competitive advantage. Until the practice began creating controversy a few years back, Starbucks' real-estate strategy was to stake out a popular independent café in a well-trafficked, funky location and simply poach the lease from under it."
Starbucks: The Wal-Mart of Coffee
"Clustering: The Starbucks Model" , p. 135-40.
-from No Logo: Taking Aim at the Brand Bullies, No Space, No Choice, No Jobs, No Logo by Naomi Klein (1999)
"A Comforting Third Place" is the phrase Starbucks uses to promote itself in its newsletters and evangelical annual reports. This is not just another non-space like Wal-Mart or McDonalds, it's an intimate nook where sophisticated people can share "coffee... community... camaraderie... connection."
Everything about New Age chains like Starbucks is designed to assure us that they are a different breed from the strip-mall franchises of yesterday. This isn't dreck for the masses, it's intelligent furniture, it's cosmetics as political activism, it's the bookstore as an "old-world library",' it's the coffee shop that wants to stare deep into your eyes and "connect."
But there's a catch. The need for more intimate spaces designed to tempt people to linger may indeed provide a powerful counterpoint to the cavernous big boxes, but these two retail trends are not as far apart as they appear at first. For instance, the mechanics of Starbucks' dizzying expansion during the past thirteen years has more in common with Wal-Mart's plan for global domination than the brand managers at the folksy coffee chain like to admit. Rather than dropping an enormous big box on the edge of town, Starbucks' policy is to drop "clusters" of outlets in urban areas already dotted with cafes and espresso bars. This strategy relies just as heavily on an economy of scale as Wal-Mart's does and the effect on competition is much the same. Since Starbucks is explicit about its desire to enter markets only where it can "become the leading retailer and brand of coffee," the company has concentrated its store-a-day growth in relatively few areas. Instead of opening a few stores in every city in the world, or even in North America, Starbucks waits until it can blitz an entire area and spread, to quote Globe and Mail columnist John Barber, "like head lice through a kindergarten." It's a highly aggressive strategy, and it involves something the company calls "cannibalization."
The idea is to saturate an area with stores until the coffee competition is so fierce that sales drop even in individual Starbucks outlets.
In 1993, for instance, when Starbucks had just 275 outlets concentrated in a few U.S. states, per-store sales increased by 19 percent from the previous year. By 1994, store sales growth was only 9 percent, in 1996 it dipped to 7 percent, and in 1997 Starbucks saw only a 5 percent sales growth; in new stores, it was as low as 3 percent. (See Table 6.3, Appendix, page 473).
Understandably, the closer the outlets get to each other, the more they begin to poach or "cannibalize" each other's clientele—even in hyper-caffeinated cities like Seattle and Vancouver people can only suck back so many lattes before they float into the Pacific.
Starbucks' 1995 annual report explains: "As part of its expansion strategy of clustering store in existing markets, Starbucks has experienced a certain level of cannibalization of existing stores by new stores as the store concentration has increased, but management believes such cannibalization has been justified by the incremental sales and return on new store investment." What that means is that while sale were slowing at individual stores, the total sales of all the chain's stores combined continued to rise—doubling, in fact, between 1995 and 1997. Put another way, Starbucks the company was expanding its market while its individual outlets were losing market share, largely to other Starbucks outlets (see Table 6.4, Appendix, page 473).
It also helped Starbucks, no doubt, that its cannibalization strategy preys not only on other Starbucks outlets but equally on its real competitors, independently run coffee shops and restaurants. And, unlike Starbucks, these lone businesses can only profit from one store at a time. The bottom line is that clustering, like big-boxing, is a competitive retail strategy that is only an option for a large chain that can afford to take a beating on individual store in order to reap a larger, long-term branding goal. It also explains why critics usually claim that companies like Starbucks' are preying on small businesses, while the chains themselves deny it, admitting only that they are expanding and creating new markets for their products. Both are true, but the chains' aggressive strategy of market expansion has the added bonus of simultaneously taking out competitors.
There have been other, more brazen ways in which Starbucks has used its size and deep pockets to its competitive advantage.
Until the practice began creating controversy a few years back, Starbucks' real-estate strategy was to stake out a popular independent café in a well-trafficked, funky location and simply poach the lease from under it. Several independent café owners in prime locations are on record claiming that Starbucks went directly to their landlords and offered to pay them higher rental payments for the same or adjacent spaces. For instance, Chicago's Scenes Coffee House and Drama received an eviction notice after Starbucks rented a space in the shopping complex where it was located. The coffee chain attempted maneuver with Dooney's café in Toronto, though Starbucks claims it was the landlord who made the initial approach. Starbucks did gain control of Dooney's lease but the community protest was so strong that they company ended up having to sublet the space back to Dooney's.
These cutthroat real-estate practices hardly make Starbucks unique as a developer: McDonald's has perfected the scorched-earth approach to franchising, opening neighboring franchises and mini-outlets at gas stations until an area is blanketed. The Gap has also adopted the cluster approach to retailing, brand bombing key neighborhoods with multiple outlets of the Gap, Baby Gap, Gap Kids, Old Navy, Banana Republic and in 1999 Gap Body stores. The idea is to make Gap's family of brands synonymous with clothing in the same way that McDonald's is synonymous with hamburgers and Coke is synonymous with soft drinks. "If you go to a supermarket, you would expect to find some fundamental items. You would expect to find milk: non-fat, 1 percent, 2 percent, whole milk. You would expect dates to be fresh... I don't know why apparel store should be any different," says Mickey Drexler, Gap CEO.
It's fitting that Drexler's model for the Gap's ubiquity is the supermarket, since it was first supermarket chains that pioneered the clustering expansion model. After A&P launched its "economy stores" in 1913 (the prototype of the modern supermarket), it quickly opened 7,500 outlets, then closed half of them after saturation had been achieved and many competitors were forced out of business.
The Gap welcomes these comparisons with Coke, McDonald's and A&P, but Starbucks, because of the nature of its brand image, strenuously rejects them. After all, the Gap's project is to take a distinctive product—-clothing—-and brand it so completely that purchasing it from the Gap is as easy as buying a quart of milk or a can of Coke.
Starbucks, on the other hand, is in the business of taking a much more generic product—-a cup of coffee—-and branding it so completely that it becomes a spiritual/designer object. So Starbucks doesn't want to be known as a blockbuster, it wants, as it marketing director Scott Bedbury says, to "align ourselves with one of the greatest movements towards finding a connection with your soul."
Yet no matter how urbane the original concept may have been, the business of chains has a logic and a momentum of its own, having very little to do with what it sells. It breaks down each of a brand's elements—no matter how progressive and homespun—into a kit of easy-to-assemble bits and parts. Just as the chains snap together like Lego, each chain outlet is made up of hundreds of its own snappable parts. Within the logic of chains, it matters little whether those snappable pats are a McDonald's deep frier and a Hamburglar mannequin or the "four elemental icons" that form the building blocks for each Starbuck's store design: "Earth to grow. Fire to roast. Water to brew. Air for aroma."
A clone is a clone, whether it is molded in the shape of an arch or a peace symbol, and its purpose is still replication.
This process is even more apparent when the chains expand on the global stage. When retailers move outside their countries of origin, Starbucks-style clustering melds with Wal-Mart-style price wars to create a kind of "bulk clustering strategy." To keep prices low in a new market, chains like Wal-Mart, Home Depot, and McDonald's must carry with them their trump card of being volume buyers; and in order to have the market clout to get lower prices than their competitors, they can't dribble into countries one store at a time.
Instead, it has become a favored expansion tactic to buy out an existing chain and simply move into its stores in one dramatic entrance, as Wal-Mart did when it bought out 120 Woolco stores in Canada in 1994 and when it purchased the Wertkauf GmbH hypermarket chain in Germany in 1997. Similarly, when Starbucks moved in the U.K. in 1998, it acquired the already existing Seattle Coffee Company and retrofitted its 82 stores as Starbucks outlets.
For national companies looking to avoid becoming the prey of the global giants, it has become an increasingly popular strategy to initiate preemptive mergers of their own between two or more large national brands. In the name of nationalism and global competitiveness, they consolidate, lay off staff and mimic American retail formulas. Not surprisingly, they generally end up transforming themselves into copies of the global brands they were attempting to block. That's what happened in Canada when fear of Hudson's Bay Company, to buy Kmart Canada, fold it in with Zellers, lay off six thousand workers and open several lines of big-box discount outlets: one for furniture, one for home and bath and one for discount clothing. "Wall-Mart executed better than either Kmart or Zellers.
By merging the two operations, we're going to learn how to execute better," said George Heller, president of Kmart.
SELECTION VERSUS CHOICE
The combination of the big-box and clustering approaches to retailing is having a transformative effect on the retail landscape. Though they may represent very different retail trends, the combined effect of the Wal-Mart and Starbucks models has been to gradually erode the market share of small businesses in what was one of the few fields remaining where independent operators stood a solid chance of competing head-to-head with multinationals. With barely a second thought, retail has become a battle of the big spenders. Whether they are using their clout to drive prices to seize near monopolistic market shares, the net effect is the same: a retail arena in which size is a prerequisite and small companies can barely maintain a toehold. Like sumo wrestlers, the competition in this game must push the limits of their weight category; bigness begets bigness.
Of course independent stores and restaurants continue to open and thrive, but more and more, these are high-end, specialty retailers in gentrified neighborhoods, while the suburbs, small towns and working-class neighborhoods get blanketed in—and blasted by—the self-replicating clones.
This shift affects not only who can afford to stay in business but also (as I'll get into in Chapter 8) what makes it onto the store's shelves.
There is another retail trend that is in many ways exerting an even more significant influence than the two just discussed: the branded superstore, a marketplace marriage of the size of power boxes with the branding clout of the store clusters. As I'll show in the next chapter, the superstore is the logical result of the corporate preoccupation with synergy: part marketing, part brand-extension supermarket, part theme park.
. . .
On April 2, 1993, advertising itself was called into question by the very brands the industry had been building, in some cases for over two centuries. That day is known in advertising circles as "Marlboro Friday," and it refers to a sudden announcement from Philip Morris that it would slash the price of Marlboro cigarettes...
TO A BRANDLESS FUTURE... WHERE WE LOVE THE EARTH DIRECTLY IN OUR DAILY ACTIONS INSTEAD OF LOVING A FAKE CORPORATE IDEOLOGY THAT CLAIMS TO REPRESENT IT. [ ONLY TO KEEP US FROM IT.]
STOP THE ASSIMI-LATTE.
. . .
'You might not see things yet on the surface, but underground, it's already on fire."
--Indonesian writer Y.B. Mangunwijaya, July 16, 1988
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"Exceedingly well-organized, contains numerous vivid examples, and tells as compelling a story as the best spy thrillers," - News & Record (Greenboro, NC)
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"[A] challenging, provocative book." - The Sacramento Bee
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Starbucks in the Forbidden City has some Chinese aghast
Tourists drink coffee Tuesday in the Starbucks cafe in Beijing's Forbidden City
November 29, 2000
Web posted at: 9:53 AM EST (1453 GMT)
BEIJING (AP) -- To weary visitors, Starbucks' tiny store amid the sprawling majesty of the imperial-era Forbidden City in Beijing is a welcome chance to rest with a frothy latte.
For some Chinese, however, the U.S. chain's opening two months ago in the ancient home of China's emperors is an act of American economic and cultural domination in one of their proudest national monuments -- and on Tuesday they said they wanted the Yankees to go home.
"Tell some Chinese about the coffee shop and they react as if shaken to their soul. 'God!' they exclaim, 'Not the Forbidden City!"' the official China Consumer Journal groused.
Growing controversy about the Starbucks outlet prompted employees to remove its trademark round green signs from outside the shop Tuesday, making it virtually impossible to distinguish from the dozens of gift shops dotting the massive complex of palaces and courtyards where China's emperors once lived.
Administrators in charge of the 600-year-old palace were meeting to consider additional steps, which could include revoking Starbucks' one-year lease, said the manager of a neighboring store, who refused to be identified by name.
Such action wouldn't be completely without precedent. In April, city authorities ordered Kentucky Fried Chicken to close its store in Beihai Park, a scenic imperial garden near the Forbidden City, when its lease expires in 2002.
The hoopla underscores the mixed emotions many Chinese have toward the sweeping changes, Western influences and commercialism brought by two decades of market reforms.
On Internet chat rooms, where criticism first surfaced after the coffee shop opened September 27, users lamented officials' approval of the store, saying it reflected a get-rich-quick mentality. Most Internet chat room comment Tuesday was negative.
Supporters, however, said it was unfair to single out Starbucks, noting that the Forbidden City was already awash in commercialism.
A stroll through the palace reveals outdoor stands advertising Fuji Film and, in summer, Coca-Cola. Even large map boards that aid tourists in navigating the alleyways and great halls bear the logo of a sponsor, American Express.
The president of Starbucks Coffee Asia Pacific Ltd., Pedro Man, defended the Forbidden City shop, saying it was designed with local sensitivities in mind.
"Starbucks strives to respect the local cultural heritage in every country where it does business," said Man. "With regard to the Forbidden City store, it was a landmark location and we worked closely with the Forbidden City Museum authorities in respecting the historical relevance of the site."
Judging by the more than 100 people who purchase drinks at the coffee shop everyday, plenty are happy with the Forbidden City's newest addition, said David Sun, president of Beijing Meida Coffee Co., which runs all of Seattle-based Starbucks' outlets in the Chinese capital.
"We're there purely to provide a quality drink. It's a simple proposition," Sun said.
The shop that triggered the furor is modest, located in a small traditional red-walled building near the towering Hall of Preserving Harmony, where emperors once celebrated Chinese New Year with feasts.
There's barely room to sip a frappuccino between the shop's espresso machine and its two wooden tables and six chairs. But the store's two employees were kept busy Tuesday serving a steady stream of sightseers, most foreign, who stepped in out of the winter cold for a warm drink.
"We welcome the coffee shop," said Wen Junhua, who works at a gift shop that shares the building with Starbucks.
"It draws in foreigners, who prefer coffee over our Chinese tea. And while they drink, they wander over to our displays and buy. Everyone benefits."
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