How fancy Starbucks stores can boost sales of plain packaged coffee?
Written By T. (Ned) Choungprayoon, Ph.D. Candidate at Stockholm School of Economics
You are walking by Starbucks, seeing the image of Siren tempting you to walk in. You smell and hear grinding coffee, you start craving coffee. Does it have to be THE COFFEE in a fancy Starbucks’ Tall, Venti, or Grande cup, or will A COFFEE from any supermarket do the same trick?
In a recent IJRM paper, entitled “Category expansion through cross-channel demand spillovers”, Ali Umut Güler (Assistant Professor at Koç University, Turkey), uses information on Starbucks store locations, the location of grocery stores, and Nielsen household scanner data, to show that the presence of Starbucks stores stimulates the sales of packaged coffee from grocery channels. Indeed, the findings show that the effect is significant among low- and middle-income households that are not the main target of Starbucks.
I interviewed Umut Güler about his research inspiration and his research findings regarding how the presence of Starbucks stores could promote the demand for “a coffee” (in mass-market grocery channels).
Once a Starbucks fan, always a Starbucks fan
“Starbucks is a brand that I love and was always on the top of my mind.” says Umut. His PhD thesis is about Starbucks, which he wrote in 2014. He developed a method to measure the economics of store density using store closures (e.g., how a store closure in one location might increase operational cost in another location). Having done research related to Starbucks, he has good institutional knowledge about Starbucks and coffee industry. However, his curiosity about Starbucks did not end with the effect of store’s closure. A few years later, during Covid-19 period while he was staying at home contemplating new research idea, Umut started this project and finally brought what he has in mind for a long time ago into an actual study.
“I just graduated from college when Starbucks entered Turkey (in early 2000) and I saw a gradual change in coffee consumption there. I wanted to study the causal effect of opening Starbucks stores.”
In a grocery store, Starbucks may be out of sight, but a crave for a coffee is never out of mind
Umut’s paper shows that Starbuck stores’ presence does not increase the sales of Starbucks packaged and capsules coffee or any high-end coffee brands in grocery channels. On the contrary, it increases sales of coffee products from low-end/mass-market brands while there was no (significant) effect on middle-end/high-end and Starbucks brands. Well, one might argue that people just buy more coffee over time because of the caffein addiction. However, in his findings, he found that people bought more both regular (packaged) coffee and decaffeinated (packaged) coffee. Hence, people consume more coffee in general, not caffeine per se.
“There is no upgrading. After being exposed to Starbucks, people do not become coffee elites (at least in the period of time that I studied). They don’t buy more expensive coffee or espresso machines. People just buy more coffee. That surprises me.”
- Umut Güler -
Why demand for coffee is never out of mind
How does a Starbucks store create demand for other coffee brands in a nearby retail store? Apparently, a store is more than a simple sales outlet. The presence of retail stores of a brand such as Starbucks can be perceived as environmental cues that increase product’s fluency. This means that driving/walking by and seeing Starbucks may not only make consumers recognize or perceive its brand but also its offered products in general (coffee). Thus, stores can generate demand spillovers and become cross-channel category promoters.
Based on Umut’s findings, the Starbucks’ Siren looking at you from the stores may be tempting. Yet, the Siren may fail to tempt you to buy a Starbucks coffee. Not knowing about the potential spillovers, the siren may simply tempt you to buy just a coffee; a plain packaged coffee from the supermarket.
Crave a Starbucks? Why don’t you just grab a simple coffee and read this article.
Meet Ali Umut Güler
Ali Umut Güler
Assistant Professor at Koç University, Istanbul, Turkey
What drives you to do the research / work you do?
Curiosity is my main driver. If I have any idea/intuition/question, I am driven to test if the insight is validated or not. Another thing is the stamina to do the work.
If you were not an academic, what would you be?
I can only think of an academic because that is how my mind works. I get really moved by ideas especially the empirical investigation of a certain phenomenon. If I can’t be in academia, I would still like to be an empirical researcher.
This article was written by
T. (Ned) Choungprayoon
Ph.D. Candidate at the Stockholm School of Economics (Sweden)