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October 4th, 2021
By: Priyal Maheshwari
Do you know who Starbucks’ major competitors are? Think about it hard before reading this article!
Starbucks’ biggest (or the most relevant) competitors are independent coffee shops, not Dunkin, Tim Hortons, Peet’s Coffee, etc. I liked the way Saadat Awan, owner of the soon-to-be-opened Woodcat Coffee Bar in Los Angeles’ Echo Park neighborhood, explained this in Yahoo Small Business, “...it’s like comparing a really great specialty steak house featuring grass-fed, aged beef to a chain house that serves millions of steaks a year. We’re (Starbucks) in a different niche, but I think we can co-exist… we can provide a completely different experience.”
So, why are these small coffee businesses giving big chains such as Starbucks a problem? Well, firstly their value proposition is completely different than that of Starbucks. Starbucks is everywhere, readily available, and fast. Their atmosphere is buzzed with energy for sure, but it’s usually related to working as a community - not a place to meet friends. This is where it’s lacking behind independent coffee shops.
Indie shops are a place where you go to relax, work peacefully, or meet your friends on a bright sunny day. On top of that, these shops are famous for their specific “specialty” drinks, whereas, Starbucks has a changing menu with loads of options. Although a lot of options are popular, the thought of “specialty” dies with the changes. And for regular coffee drinkers, it is more than a drink, it’s an experience and it’s a part of their personality. It’s easy to get lost in Starbucks, and as a result, most of the “regulars” find themselves in smaller shops (shops they can relate to!) Therefore, the consumer experience creates a huge difference in consumers’ perception of the brand value. Although indie shops aren’t taking a big chunk of Starbucks’ consumers, to keep up with the shops, Starbucks needs to make sure their service is top-notch and as personalized as smaller shops.
Moreover, due to Starbucks opening at so many locations, they also attract large amounts of consumers, which is then leveraged by these indie shops. Take the example of the MUD Café at Astor Place, which is situated right in front of a relatively large Starbucks. I personally walk past Astor Place every day, and slowly I am changing into a MUD café fan!
Of course, this cannot be generalized for every shop, but nevertheless, this happens quite often. Since Starbucks is attracting consumers who are willing to pay its higher prices, indie shops can price their coffee slightly less than the big giant and make a profit, while stealing consumers away! But being in the same region or pricing are not the only reasons for indie coffee shops’ success.
Coffee drinkers these days appreciate creativity, different styles, and most of all authenticity. Most of us forget that Starbucks grows, roasts, and brews their own coffee, as the popularity of the brand was taking away its authentic factor, a problem that did not go unnoticed by CFO Scott Maw. As he mentioned in an article with Business Insider, “It would be easy for people to forget that we (Starbucks) still source, roast, and deliver the highest quality coffee you can get… but for customers, they might not associate that with Starbucks because we're everywhere." This led to Starbucks opening its Starbucks Reserves, which constantly reminds us (their consumers) that they are just as authentic.
Usually when a giant enters the market smaller (local) shops are threatened, and die out, similar to what Amazon did to physical bookstores. The same is not true for coffee shops, in fact, rather than dying out we see an increase in the coffee shops (see fig)! The only dip we see is during the COVID-19 pandemic when the number of coffee shops went down 0.6% from 37,274 to 37,189. This trend is not limited to the USA, even in the United Kingdom small coffee shops are steadily growing, although not to a level to affect bigger chains, however, they should be careful.
Even though indie shops aren’t that big, they are nevertheless the biggest threat to the big chains! The consumer journey and experience is also one of the most important reasons why indie coffee shops hold a soft spot in consumers’ hearts! Keep this in mind if you ever want to open your own coffee shop :D
Priyal Maheshwari is one of the Fall 2021 Co-Content Directors. She is a junior at NYU Stern studying Marketing and minoring in Astrology. She is the lead on the MktSoc Blog Writers project, so reach out to her if you have any questions!
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