10° 40' N, 61° 30' W

Tuesday, December 17, 2002

As I was studying for my test last week, my normal study routine (if it can be called that) was disrupted by the fire brigades strike. I generally don't have sympathy for anyone seeking a 40 percent pay increase, but the way Birkbeck responded to it had me somewhat more frustrated and less sympathetic. The safety officials at the college got paranoid and shut the college at 9:30 pm--a terrible inconvenience given that the college is where I do my studying after lectures, which finish at nine, as I can't really study at home. I also do all of my online stuff at night from the fast computer labs. The test was important, though, so I had to find a reasonable substitute study location.

I decamped to Starbucks, Leicester Square. Not a bad choice, all things considered.

Now a coffee bar may not be one's first choice of study location, and I know more than a few people who would loathe the choice of Starbucks especially. Part of this, it must be said, is the coffee itself--I have heard more than one complaint of undrinkability. This is, in part, a cultural thing. Caffe Nero, for instance, one of a number of British coffee bar chains, serves all coffee with two espresso shots rather than Starbucks' one. Starbuck's coffee is therefore "weak", and weak coffee, ergo, is undrinkable. This is a matter of taste; I, for, example, generally prefer tea to coffee. Two espresso shots is not a major distinction; most of Caffe Nero's competitors would happily add another shot for an extra 30p. It's probably part of Caffe Nero's way of branding, and it does not seem to be hurting them; just last year they bought the Aroma coffee bar chain from McDonalds. Starbucks, though, is the only chain in the UK that makes decent profits.

Part of the anti-Starbucks feeling, if it can be called that, has to do with a thing against chain stores in general, and brand names in particular. In the UK, at least, much of this not so much influenced by the anti-corporate writings of Naomi Klein, but rather for a notion of fairness and responsibility; "fair trade" and organic brands do have something of a niche in the UK market. Despite Starbucks postioning itself as a socially responsible company, including selling fair-trade coffee in its shops, it is still seen by many as another Seattle-based global corporate behemoth. It's ubiquity (in some parts of New York, for instnace, you can barely walk two blocks without running into an outlet) also turns people off.

Whether fair trade and organic coffee actually helps Third World coffee producers is questionable, at best. Cofee prices are now at a four-year low, and margins are being squeezed worldwide. In an excellent article in the Federal Reserve Bank of Boston Regional Review Miriam Wasserman asks "How is it then that, at a time of historically low [coffee] prices, American consumers are paying $2 and more for their lattes?"

In part, they are paying for a lot more than coffee beans. When Americans buy a prepared coffee drink—be it a cappuccino or one of its humbler relations—coffee is one of the smallest components in the product. One pound of beans makes about 40 cups, according to Don Schoenholt, a well-known coffee enthusiast and owner of Gillies Coffee Company, based in Brooklyn, New York. Even if the beverage is made from great coffee beans—the type that roasters buy for $4 to $5 a pound— the value of the coffee is about a dime per cup. Just “the cup and the lid are about 20 cents… the Equal packet often costs the restaurant as much as the coffee,” says Schoenholt. More important, the price of each beverage also has to cover the cost of prime real estate rents, U.S. salaries and benefits for the café employees, research and development, taxes, and marketing expenses, among others.

An article I read a few years ago in the now-defunct Third-World magazine South made the point that McDonald's is "less a fast-food company than a real estate company that sells food". This, I think, also has some part of play in the anti-Starbucks feeling, with some people having a reaction against what they see as a growing sameness in much of England. (I cannot speak for Scotland--fifteen months in the UK and I've still not been there.) A common complaint here is that most English high streets look the same, and from what I've seen, that's true. Arrive in any town centre and you'll find the same Link, Boots, Dixons, Marks and Spencer, all of the five main high-street banks (Barclays, HSBC, Lloyds TSB, Halifax and Royal Bank of Scotland), at least three stores selling the same mobile phones with the same price plans, a "metro" or "central" outlet of the Tesco or Sainsbury's supermarkets, and branches of the William Hill and Ladbrokes betting chains, to name a few. Why travel throughout the land if you're going to end up in the same place?

The clustering of like stores can be explained by game theory, as an example of the "beach location problem". Take a beach alon which sunbathers are evenly distributed, and assume there are two hot dog vendors competing for that market, with the sunbathers buying ice cream from the nearest vendor. Where on the beach would be the best location for a vendor to set up?

John D. Stiver, of the University of Connecticut, proides the answer:

Suppose that you are considering opening a hot dog stand on the beach. Currently, there is already one hot dog stand already in business. Presumably, this vendor has chosen his location at the most crowded section of the beach so he can be near the largest number of customers. Given the existing vendor’s location, where should you choose to open your stand? If you locate far away from the existing vendor (hence, far away from the customers), you will probably have to charge a low price to attract business. However, if you locate right next to the existing vendor, you can charge the same price he does.

This model of spatial competition, therefore, can be used to explain why similar business seem to be "clumped together" in the same location, the reasoning being that business in the same location can charge the same prices. This is a noncooperative equilibrium; no prior agreement on location was made between the parties, and each was simply acting to maximise their individual profit. This is what produced homogenous-looking high streets, and the point about monotony is taken. To be fair, though, one could assume that most people do not travel to places simply to see high streets.

Brands, of which chain stores are a part, a also a part of the way consumers deal with the lack of perfect information in a market. Consumers are often willing to pay a premium in a chain store they trust, partly because they have an expectation that the quality of branded merchandise is better than the average quality of merchandise out there. In this sense, brands can be though of as a means of lowering the consumer’s cost of acquiring information on quality. Markets in which brands are dominant may not be perfectly efficient, but they do come a long way in lowering consumer's transaction costs. In Canterbury a few months ago my friendand classmate Sophia and i went into a local establishment, and here put off by the price and quality of the coffee and sandwiches we were given. The service was not great either. Sophia (who's one of the "undrinkables") says that could be a reason why Starbucks does so well--their service is generally so much better than the local average.

Nationalism plays a role; I would not go as far as to call it anti-Americanism, but some people regard the presence of American chains (like the Gap) as an import of the vulgar, common part of Americana they would rather do without. The imports, though, went out of their way to do things differently to attract business. Until the European Union Working Time Directive became law in the UK in 1998, branches of Borders bookstores would remain open until 11pm, everyday. (The directive indirectly led to the reduction of most shop hours to just six hours on Sundays.) To this day, good and venerable British stalwarts as Foyle's, Blackwell's and Waterstone's don't open past eight or nine pm.

To busy people, extended opening hours are a great convenience, and the bookstores, in effect, add to public space--they become third places, which, as Glenn Reynolds points out, are "somewhere more congenial than the office, less isolated than home". A July 2001 article from the Atlantic quotes the New Statesman on Waterstone's, saying that "Cities that lacked any decent bookshop suddenly got one; sometimes, with the competition, even two or three. Culturally it matches Allen Lane's invention of the cheap, good paperback when he launched Penguin Books in 1935." The convenience of late opening hours was why I was studying at Starbucks--it was one of the few places wih a decent ambience that remains open until midnight. (Links via Virginia Postrel.)

For me, Starbucks illustrates one thing--prosperity. If your residential neighbourhood has a Starbucks, or if one is coming there soon, then it's a sign that outsiders are taking notice of what's happening in an area. (The same could possibly be said for the Pizza Express chain. I, for one, do not get the European taste for pizza--either it's gourmet or it's Domino's. Give me a big slice of New York-style any day.) Last weekend I was in Sutton and Croydon, both in south London. Both had a branch of Starbucks. Lewisham, close to the Thames and the part of London where I live, does not. Now I quite like my area, and I think it's on the up and up, but a Starbucks outlet would be a another sign of arrival--of being cosmopolitan, if a working-middle class area could be such a thing. Some may rail against this, but I think it would be not bad thing, once they keep on serving Tazo Chai tea.