How is it possible that so many Starbucks stores in the U.S. are located so close to each other, and all of them manage to succeed? You’d think that new stores would cannibalize sales from their older siblings. And they do, to some degree, but there are two other factors in play that more than make up for it: plenty of demand and lazy customers. An article from yesterday’s Wall Street Journal peeks into a new book by Karen Blumenthal, Grande Expectations: A Year in the Life of Starbucks’ Stock, and gives a surprisingly simple explanation of how all the stores don’t compete themselves out of business:
Despite many efforts to build sales later in the day, most Starbucks stores rang up at least half their sales before noon. A store could handle only so many customers at a time and in the morning, lines often grew. No matter how badly people wanted a latte, if the line looked too long, they’d keep walking.
Opening another store nearby was the retail equivalent of basketball’s boxing out, stationing yourself under the basket to get the rebound so the other team doesn’t. Starbucks first saw this phenomenon in Vancouver in the early 1990s, when it opened a second store kitty-corner to a small store on a busy corner. To everyone’s surprise, both stores did well. The logic was so simple [...] The new store might take some sales away from the original store, but it could lead to far more sales overall. [...]
Research showed that customers would travel only a few minutes to buy coffee — or maybe six to eight minutes, tops [...] Even a slight bend in the road “can really have a demonstrable impact on your business in the short run,” said Launi Skinner, Starbucks’ senior vice president of store development.
In other words, Starbucks’ omnipresence is mostly a result of their ability to recapture the surplus demand at any particular location by adding another store. And since coffee-drinkers can be reluctant to cross the street in their quest for a cup, Starbucks makes sure they don’t have to.
