Wednesday, June 6, 2007

Starbucks v. Freedom

In a memo from earlier this year to members of senior management, Starbucks chairman Howard Schultz, expressed concerns over the “watering down of the Starbucks experience.” Schultz bemoaned the loss of “romance and theater” that the chain’s old La Marzocca machines – replaced by automatic espresso machines in order to increase speed of service and efficiency - had provided. He fretted about loss of aroma due to flavor locked packaging and he lamented the decision to streamline store design thus creating “stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.”

The memo reflected an understanding of the unique niche that the coffee house has come to occupy in American culture. Coffee house culture initially rose to prominence in the 1950’s buoyed by the literary and musical sensibilities of the Beat Generation. Coffee houses became cathedrals to folk music and leftist thought during a time when the rest of the country was leaning more and more to the right.

As the cultural significance of the Beat Generation waned and many of its leaders were relegated to the fringes of society so too were the coffee houses in which they had read their poems and played their music.

Coffee house interest returned in the 1980’s in much the same spirit as that of the late ‘50’s. Over time however coffee houses would assume a very different role largely due to the franchising of the coffee house experience.

This is the story of two coffee houses that have become homes. One, to millions of American’s each day and one to thousands of Syracusians each week. The stories are wildly different in some respects and eerily similar in others. But each in their own way suggest something larger than coffee.

Freedom of Espresso

The Grateful Dead’s “Fire on the Mountain” is playing from a smallish egg looking radio that doesn’t amplify particularly well. There’s a cute, impossibly skinny girl serving the two women in line. We are the only four people in the place. To my right I see three mounted paintings, two of fish and one of a collection of wine bottles. In between a fish and the wine bottles is a mural - presumably of the first Freedom of Espresso - thumb tacked to the wall. I step forward and order my coffee and bagel. The server, wearing a purple hooded sweatshirt and teal, dangling earrings, pours my coffee into a cup, places a bagel on the counter and asks if I want cream. When I say yes, she places a carton of half and half on the counter; I top off my drink and sit at a table in a well lit corner. “Paper Thin Walls” by Modest Mouse comes over the eggaphone.

Anna and John Dobbs opened their first coffee house in November of 1995 and were immediately subject to corporate interference. The Dobbs’s, who are divorced, were sued by Federal Express, after attempting to trademark “Federal Espresso,” their store’s original name.

“An old friend of mine, decided to represent us pro bono which Federal Express didn’t count on, usually they try to lawyer you to death. So they spent over a million dollars suing us and we agreed to change our name but we didn’t say to what, so we changed it to Ex Federal Espresso and they sued us again.”

The Dobbs’s were again forced to change their name and in July of 2000, officially switched to Freedom of Espresso, a term that ran as the headline of a reader’s letter to the Syracuse Post-Standard lamenting the coffee house’s legal troubles (at publication, the Post-Standard had yet to claim copyright infringement).

Over the next several years Freedom of Espresso grew to three stores with two in the downtown Syracuse area and one in the Syracuse suburb of Fayetteville. Then Starbucks came to town.

In autumn of 2004, Starbucks opened down the street from the Freedom of Espresso in Fayetteville. In June 2005, another Starbucks opened right across the street from the Dobb’s second Freedom of Espresso in downtown Syracuse. “They tried to put us under, which they almost did, but we survived. That’s what they do.” Anna Dobbs said in fits and starts.

The Dobbs’s have given a great deal of thought to Starbucks.

“Well when they first opened up, Starbucks concept was great, it was wonderful, they had a great product…Then [their] business strategy changed, it was quantity rather than quality, and as a result, the coffee isn’t as good as it used to be, which allows regional roasters to be able to compete. The biggest problem with competing with Starbucks is they’ve got a reputation that was built around when they first opened and…” Mr. Dobbs said before getting cut off by his ex-wife who expanded on his argument.

The Dobbs’s unusual relationship manifests itself in the uniqueness of their store design. According to Ms. Dobbs, the process of building a store is collaborative effort that usually depends on the makeup of the building’s space and the stores location. A Freedom of Espresso, in a suburban area with a great deal of automotive traffic, contains large wooden tables and comfortable, padded, oak armchairs, giving the space the feel of a library. Another store, in an urban neighborhood that gets more foot traffic, has chest high tables and waste high stools. Yet there are elements that tie the stores together. Several of the stores display mounted articles of Syracuse University athletic achievements and all of the stores contain stained glass windows, courtesy of Mr. Dobbs, a former glass artist who gave up the business to work full time for Freedom of Espresso.

There are now four Freedom of Espresso’s in the Central New York area (thus making it a mini-chain according to the Specialty Coffee Association of America’s guidelines) in addition to a wholesale coffee distribution business. The Dobbs’s have designs for further expansion and are planning a Freedom of Espresso near the Syracuse University campus, a block away from where a Starbucks resides, “we’re going after them now,” Ms. Dobb’s says proudly.

But if an independent coffee shop just expands outwardly when the owners have the resources isn’t that the same as Starbucks only with fewer resources? Isn’t this another example of the kill-or-be-killed nature of the coffee business and of business in general?


Across the street: I reach for the handle of a black metallic door and pull it open. I am greeted by the sounds of world music playing from, well, everywhere. I sidestep several people on my way to the line. I arrive at the counter and a well kept gentleman in his early twenties takes my order. He is wearing a green apron that matches that of his coworker. He retrieves my perfectly square Marshmallow Treat, hands me my change and receipt and tells me that I should step down to where my drink is being made. At the end of the counter, my Chai Latte is ready for me. I sit down on a plush, leather couch and U2 Twilight comes over the sound system. I think of the hundreds of thousands of Starbucks costumers across the country that will be hearing Bono’s voice today as I take my first sip of tea.

In November of 1999, Seattle hosted the World Trade Organization’s Ministerial Conference. Ministers and dignitaries from well over 100 countries gathered in Seattle to discuss an agenda that included, agricultural agreements, textiles and clothing, and intellectual property rights, as well as myriad other issues. The purpose was to lower trade barriers and to further the globalization of the economy as the world approached the 21st century.

The conference also brought together a collection of individuals opposed to the actions and intentions of the WTO. Thousands of protestors lined the streets in what the San Francisco Chronicle would call “one of the largest acts of mass civil disobedience in U.S. history, a mix of carnival, peaceful rally and riot.” The protesters barricaded entrances to buildings, blockaded intersections, marched on the streets, and some looted local stores. Windows were broken, storefronts graphitized and police cars overturned. Of the many chain stores that suffered the wrath of the protesters, Starbucks received some of the harshest treatment. The aggression of the protesters even caused the franchise to close its downtown locations for the second day of the conference. Many of the organizations involved in the protest objected to the vandalism of property, however, the protests did disrupt the conference enough to halt formal negotiations until the conference reconvened in Doha, Qatar in 2001.

How did a coffee store become the target of angry protesters given to the destruction of corporate retailers? Why was a coffee shop even a concern of protesters opposed to globalization? What is the difference between Starbucks and the corner coffee shop and why did it matter? After all it’s just coffee right?

Wrong. Sort of.

In August of 1987, two months after Ronald Reagan delivered the words “Mr. Gorbachev, tear down this wall,” Howard Schultz a 34-year-old businessman from Brooklyn, New York inked a deal to purchase a small chain of coffee houses named Starbucks which had opened in 1971.

Schultz first encountered the coffee house six years prior while working for a Swedish kitchen equipment supplier. He had noticed an unusually large number of orders from a Seattle company for a drip coffeemaker and decided to investigate. His investigation led him to the discovery of a company devoted to the sale of gourmet coffee beans and brewing and roasting accessories. After meeting with the owners and surveying the company, Schultz was so impressed with the potential of Starbucks that he pursued a position as head of marketing despite a marked pay cut from his position in New York.

The partners, one a former English teacher and the other a writer, were initially weary of Schultz’s advances. They had initially opened Starbucks due to their love of superior quality coffee and while Schultz had shown a great deal of enthusiasm for the potential of the brand they feared his excitement would clash with the existing culture of Starbucks. After much prodding Schultz was able to convince the partners that he was committed to facilitating their vision for Starbucks, not imposing his own.

In 1982, Schultz was hired as the head of marketing for Starbucks. Shortly thereafter, during a trade show in Milan, Schultz discovered the Italian café culture and thought it to be a perfect fit for the burgeoning bean business Starbucks was doing in the states.

However, again Starbucks’ owners did not share Schultz’s vision. They did not have any interest in expanding into the restaurant business and were skeptical of its viability.

So Schultz went out on his own opening Il Giornale (“the daily” – the name of an Italian newspaper) and testing his gourmet coffee bean crossed with Italian café concept. Il Giornale was an instant success and by the summer of 1987, Schultz was thinking bigger than ever when an opportunity he couldn’t resist was made available.

Starbucks owners were ready to focus on other ventures and wanted to sell. At the time, Starbucks had six stores to Il Giornale’s three but Schultz was able to raise nearly $4 million dollars on the strength of his pitch to investors, which included opening an additional 125 Starbucks over the next five years.

In his book, titled “Pour Your Heart into It,” Schultz explains his vision:

“We would go public, someday. Customers would respect our brand so much that they would talk of “a cup of Starbucks.”

“But my view of a successful business wasn’t just measured in number of stores. I wanted to create a brand name respected for the best coffee and a well-run company admired for its corporate responsibility. I wanted to elevate the enterprise to a higher standard, to make our people proud of working for a company that cared for them and gave back to their community”

Starbucks not only met the goal of opening 125 stores, it exceeded it, opening 165 stores in the five years following the purchase. The store was a runaway hit and at a time when the overall consumption of coffee, having trended down for decades, was starting on an upswing.

Over the next decade and a half, Starbucks became the dominant coffee house throughout the country even surpassing Burger King in store quantity. Starbucks came to export its brand of coffee, cappuccino, espresso, and eventually music and literature, in fact its culture to cities big and small. In turn, a backlash has arisen in opposition to the Starbucks culture. Individuals decry the loss of local culture, the commoditization of the coffee house experience and claim foul business practices on the part of the corporation.

The debate amongst coffee lovers has taken shape along absolutist lines. Either for Starbucks or against. Most purists have rallied against the corporate monolith (that as of publication had nearly 9,000 stores in the U.S. alone), with such arguments as those of the purveyor of - the number one return for both “hate Starbucks” and “love Starbucks,” on the Yahoo search engine – where the top ten reasons for hating Starbucks are listed.

But lost in the passions of the coffee argument are the statistics of coffee consumption. A study done by the Specialty Coffee Association of America, found that since 2002, daily specialty coffee consumption by American adults has risen from 12% of the population to 16% at the end of 2006. Occasional specialty coffee consumption amongst the adult population has gone from a low of 54% of the population in 2003, to 63% at the end of 2006. The amount of specialty coffee vendors has risen from 15,400 in 2002 to 23,900 in 2006 and the percentage of chain stores makes up only 40% of the overall marketplace. Further, overall daily consumption of coffee is up to 57% of American’s from 49% in 2004.

“Starbucks has been responsible for opening the world’s eyes and revealing the magic of the coffee bean to the public,” Theodore Erski, the “coffee novelist,” and professor of The Geography of Coffee at McHenry County College outside of Chicago said. He believes that Starbucks was instrumental in the stimulation of the marketplace but is ambivalent about its current form and does not care for its taste (which he says is over roasted). “Even though Starbucks is opening our eyes, it is also homogenizing the coffee experience so it’s a sum loss.”

The Last Drop

Ashley Moench, a manager at Freedom of Espresso and former employee at Nancy’s Coffee Café (a now defunct chain that Moench refers to as “corporate”), also believes that the coffee at Starbucks has a burnt taste. Yet, her distaste for Starbucks and corporate coffee houses in general runs deeper.

“When you work for a corporate, you have the manager who does the ordering, and then takes orders from the general manager who comes into the store like once or twice a week. But you have a lot more say and a lot more responsibility in a place like this so it makes you feel like you’re actually important. More so than you would feel if you were just working for some giant machine.”

Freedom of Espresso has 14 employees, 8 of whom have left at various points but have subsequently returned. The company also prominently displays the artistic works of Moench and her co-worker Thaddeus Chapman.

Further, the Dobbs insist that their first priority is maintaining the high quality of their product. When asked about the possibility of compromising the quality of their coffee as they expand, Ms. Dobbs dismissed it, saying “we roast every other day, we’re still just going to be five stores and then we’re going to focus on doing our bakery out in Fayetteville…We’re just trying to build a nice tight circle that we can service and keep the quality up on.” Ms. Dobbs also said that her and Mr. Dobbs receive offers from building and mall developers “everyday,” but are not entertaining any more offers at this point.

But Starbucks certainly still is, and Ms. Dobbs rejects the argument that Starbucks has created the market for high end coffee. Ms. Dobbs’ family is originally from the Central New York area and prior to returning, she and Mr. Dobbs lived together in Alaska (the two were married at this point). She says that during trips back to the Syracuse area in the early 90’s they couldn’t get a cup of high end coffee anywhere in the area which is part of the reason they decided to move back and begin Freedom of Espresso. “We pioneered the market here,” Ms. Dobbs said.

Adam Williams, the co-owner of Recess, a single entity coffee establishment across town from Freedom of Espresso/Starbucks feud, was somewhat less emphatic. “They probably have helped the market, they definitely opened the door to people wanting more complex, high end coffee drinks.” Williams even suggested that Starbucks has helped make gourmet coffee trendy, which has helped the market for high-end coffee retailers.

Erski shared Williams’s sentiment. Starbucks helped make coffee “cool and hip, not just something your father drank in the morning to get going” Erski said.

The concept is not peculiar to coffee aficionados. “(Starbucks) has a brilliant understanding of the cultural significance of branding and corporate behavior…brands are owned by the consumer not the corporation,” said Carla Lloyd a professor of advertising at Syracuse University. Lloyd believes that Starbucks has an understanding of the desires of their customers, which has allowed them to create an atmosphere that is accommodating without seeming inauthentic.

Bridget Baker, a Starbucks representative did not comment on the matter of Starbucks’ positive impact on independent coffee houses but did say that Starbucks does not attempt to put stores where independent coffee shops already are. “We put our stores where customers want and expect us to be,” Baxter said, then reiterated several minutes later, word for word. When asked why Starbucks might build a store in a location that does not have Starbucks, and therefore would not have any customers, Baker replied that with Starbucks in grocery stores and in other cities, there are now Starbucks customers everywhere.

In the penultimate paragraph of his memo Howard Schultz wrote, “I have said for 20 years that our success is not an entitlement and now it's proving to be a reality. Let's be smarter about how we are spending our time, money and resources. Let's get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others.”

The ability of Starbucks to differentiate from “all others” is unlikely considering the omnipotence of the coffee house. Schultz and Starbucks can speak to individuality but many people today prefer consistency to individuality. The market place has changed from the days of the Reagan ‘80’s and will likely continue to change moving forward. While the growth of the Starbucks monolith may seem disheartening to some, the growth of the giant has in the past and will continue to increase the size of its prey.

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