Wednesday, December 26, 2007

Starbucks In Singapore = The Decline of Local Coffeeshops?

First and foremost, allow me to say that I am writing this in part as a response to this blog entry which I got today from Singapore Surf.

After reading through the abovementioned blog entry, I was reminded of this strategy, as described by Naomi Klein in "No Logo", by Starbucks of "clustering". In a nutshell, this strategy involves Starbucks setting up several of its outlets in a certain small area. Although this would mean that the individual Starbucks outlets may have to compete with one another for the same clientele and average earnings for each outlet will most likely drop, Starbucks will acquire a greater market share for that area and eventuall force its competitors (be they other coffee franchises or local community coffee shops), which do not have the necessary capital to compete with the "clustering" strategy, out of business.

And, if I remember correctly, Ms. Klein argues that this would mean the creation of a Starbucks monopoly in that area, thereby reducing consumer choice. Beyond this, Ms. Klein also argues that local community heritage (in the form of local community coffee shops) will also be diminished if and when a Starbucks monopoly is established in a certain area. In short, Ms. Klein sees the "clustering" strategy by Starbucks as an unfair strategy which will only lead to detrimental outcomes for consumers and the community they live in.

Hmm... I suppose the question to ask would be this: are local coffee shops in Singapore on the decline due to the influx of foreign coffee franchises, of which Starbucks is a notable example?

Well, I suppose that, for now, local coffee shops are still rather healthy. I say this because, in my opinion, local coffee shops and foreign coffee franchises perhaps cater to different groups of clientele and thus are not in direct competition.

Also, another advantage that local coffee shops may perhaps have over foreign coffee franchises would be that they offer much lower prices. We may gripe about local coffee shops recently increasing their prices by ten to twenty cents but compared to foreign coffee franchises, the prices offered by local coffee shops remain nonetheless low.

The fact that they operate in different areas also help to buffer local coffee shops against the competition from foreign coffee franchises. This is considering that while there may be 9 Starbucks outlets along Orchard Road, there is not a single Starbucks outlet (or that of any other foreign coffee franchise) in my immediate HDB residential area. In other words, while foreign coffee franchises may "cluster" in the upmarket areas (e.g. Orchard) of Singapore, the heartlands remain the territory of local coffee shops. Of course, it remains to be seen whether foreign coffee franchises will start to "invade" the heartlands and what sort of impact this "invasion" would have on local coffee shops.

And, of course, as far as I can see, a customer gained for foreign coffee franchises need not necessarily mean a customer lost for local coffee shops. This is considering that, besides the fact that they cater to different groups of clientele, "customer overlap" may also occur for local coffee shops and foreign coffee franchises. By this, I mean while I may enjoy the cappuccino sold by Starbucks, that doesn't mean I can't and don't enjoy the kopi-o from my downstairs local coffee shop.

In addition, it should be noted that local coffee shops, as we know them, sell more than just coffee. They also sell other sorts of beverages and have stalls selling a variety of food. Though I may be wrong about this but the last time I checked, Starbucks does not have Milo, chicken rice or fishball noodles on its menu. This provides yet another buffer against competition from foreign coffee franchises for local coffee shops.

To conclude, local coffee shops will, in my opinion, continue to remain on the local scene despite the influx of foreign coffee frachises. However, if ever local coffee shops disappear and are replaced by foreign coffee franchises, a dark day it will be.


Anonymous said...

Not only starbuck, the 7-11 chain store has since took over most if not all the provision and mama stores. It also took away business opportunities from Singaporean who want to run small businesses instead of working for people. Imagine a tiny island, we have more than 400 of 7-11 stores?

MJ said...

like the thought...
it's different target customers.
they're all services.though their basic products are the same but to the very end. the augmented products differs alot.
there's different competitive advantage on both sides..

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