Starbucks Effect: the Meaning and Aspects

Starbucks effect may sound like a medical term or acronym, concomitant with caffeinated beverage or drink addiction, but rummaging through the pages of any medical journal, wouldn’t dig up anything. Rather, it is used as a parlance to delineate the phenomenon which benefits the homeowners dwelling near a Starbucks outlet. For the time being, let’s hold onto the horses running into our minds, before we make it to the depth of this subject, and ponder over the journey of transformation of a petite coffee bean store into a massively successful worldwide and globally eminent brand.

Starbucks - A must visit for any coffee connoisseur

Established in 1971 by three consociates; Jerry Baldwin, Zev Siegl, and Gordon Bowker, inspired to vend high-quality coffee, this Seattle-based coffeehouse chain has modified the way the world drinks coffee outside home and work. Initially, the store just dealt in coffee beans and coffee equipment but subsequently, it embarked on the voyage to quench the thirst of “coffee-yearning” people of Seattle by brewing superior grade “caffeine- infusion” libation. However, with the visionary Howard Schultz coming into picture, the local coffee chain augmented into a $84 billion fraternity. Upon his entry, the business expanded by introduction of aromatic and luscious espressos, mochas and lattes. What he believed in was, not to woo employees away from competitors, but unleash the enthusiasm that is already within employees, just dormant. Complete with intrinsic motivations and positive emotions, Schultz stimulated his employees to toil as to achieve greater returns and make the brand ubiquitous. Starbucks generally preferred a strategy of premium prices, using a menu and store layout somewhat modified for local tastes. It has expanded its tea, bakery, and grab-and-go offerings with acquisitions of Teavana, La Boulange, and Evolution Fresh, respectively. Currently, it offers a range of exceptional products encompassing more than 30 blends and premium coffee, Frappuccino, refreshers smoothies, pastries, sandwiches, yogurt parfaits fruit cups and what not to savour. Carrying out operations in over 76 countries, this premier and iconic roaster, marketer and coffee retailer has inaugurated nearly 28000 stores, becoming a very well-known and “heavenly” like- site to hang out for the coffee lovers.

Deducing the Starbucks Effect

Essentially, “Starbucks effect” is a conceived term used to portray the outcome of opening of a store, which leads to magnification of the property’s worth in the native area. A new Starbucks gives a sense to developers that the neighbourhood is on the rise. Coupled with this literary evidence, the statistics given by the real estate research group ‘Zillow’, which has conducted ample research on the Starbucks Effect, points a compelling view that the value of property within a quarter-mile of a Starbucks rise faster than those that aren’t. More specifically, the data shows that between 1997 and 2014, the holdings in close proximity to the coffee shop appreciated in value by 96%, compared to 65% for all U.S. residential properties. The greatest impact was witnessed in Boston, where nearby home values went up by a magnificent value of 171% in the same time period. It was 45% points over and above all the houses in the city as the outlet is usually a harbinger of good times for a locality. While residences near a Starbucks sell, on average, for $137,000, those that are distant from it are exchanged for just $102,000. It has also been corroborated that over 17 years, the Starbucks correlation was reflected by a 96% appreciation. Meanwhile, property far and away from it did not surpass 65% mark.

Living near the coffee shop entails gains for householders, whether he/she is a coffee drinker or not. Surveyors found a 0.5% increment in housing prices within a year of inauguration of Starbucks in a locality. Basically, it means that for a home estimated at $1.3 million—the median in both New York and San Francisco—a single new upscale coffee shop would raise the figure by $6,500.

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But digging a little deeper to get more insight, it seems to be kind of a chicken and egg situation. It's not actually like Starbucks can take full credit for changing a community. Simply stated, an increased number of commuters stopping for coffee and food and that the stops may have a discernible impact on the distances people drive, does not give rise to this phenomenon.

Then, how does the retail giant stay ahead of the curve? The soaring apartment prices are not due to the actual Starbucks opening but may be more of an indicator of affluent customers in the zone. As a matter of fact, the coffee chain is exceptional in finding locations that are up-and-coming. It has fine-tuned its ability to flourish and get ahead of the neighbourhood curve by successfully identifying the demographic, income, and economic metrics and trends that drive residents towards copious sales of elevated-priced coffee. When it comes to choosing retail locations, the Starbucks has a crew of 20 analytics experts around the world poring over maps and geographic information systems data, assessing factors like an area’s traffic patterns and businesses. The company also empowers dozens of regional teams to reach their own conclusions about location and draft store design and a host of other factors necessary to hold up this concept. In order to maintain its competitive edge and franchise esteem, it is imperative that it continually keeps on finding the next optimal store location and position itself as “first mover” in order to capture and maximize local market share before its competitors can get on the ground. The general perception is if we see a new outlet, or similar premium-priced competitor store pop up in our suburb, rest assured it would be a positive symptom of thriving real estate values. The correlation between increasing property values and Starbucks is termed the “Starbucks Effect”.

The Bottom Line

It is imperative to ascertain whether the Starbucks is the main mechanism driving the greater rise in worth or the added increase in value is part of a larger chain of events—some unrelated to coffee—that contribute to an increase in demand for housing. For this, correlation and causation should not be confused with. Regarding correlation, the credit for this should be given to the Starbucks site selection/real estate department, who did an excellent job in pinpointing neighbourhoods undergoing strong income and population growth, which induced a surge in property values. On the contrary, Starbucks offers umpteen amenity that up-and-coming localities want. The outlets encourages and enables people to spend time just hanging out, either visiting or working, well beyond the time that it takes to consume a cup of coffee or a snack. Consumers, usually teens, are drawn to non-traditional spaces, store’s Wi-Fi facility and comfortable seating. The increase in young adults means an increase in demand for housing. This implies to the causation aspect.

Unsurprisingly, Starbucks sustains its popularity through shrewd and unconventional marketing strategies. In a nutshell, the Seattle-based coffeehouse chain is arguably the most prominent of its kind. It has a phenomenal appeal- the ‘emerald mermaid’ remains beloved by millions, and is deservedly credited, by both its fans and detractors, with revolutionising the modern cafe experience.