The Starbucks Effect: South Africa Response To New Store Shows Obsession With U.S. Brands

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Written by Dana Sanchez

The first Starbucks in sub-Saharan Africa opened April 21 in Johannesburg, and more than a week later customers are still lining up out the store, across the pavement and around the corner — some driving two hours just to try the American brand, GlobeandMail reported.

Despite some complaints on South African social media about “neo-colonialism” by U.S. multinational companies, many of the country’s middle-class consumers have become obsessed with U.S. brands, according to Globe&Mail. When the first Krispy Kreme Doughnuts and Burger King outlets opened in Cape Town and Johannesburg over the past three years, there were huge lines for months. Domino’s Pizza opened here in 2014, and the first Dunkin’ Donuts are scheduled to open by the end of June.

Fast-food and restaurant franchises are outperforming their peers in South Africa with increased demand, Fin24 reported. Established local fast food and restaurant brands are feeling increased pressure by foreign-owned brands such as Starbucks, Burger King and Dominos. Their entry in the market has a positive economic impact and gives consumer more choice, but significantly increases competition for locals.

Starbucks CEO and Chairman Howard Schultz told journalists he was astonished by the scene at the new Johannesburg store, Globe&Mail reported. Even after opening more than 22,000 outlets in 71 countries worldwide, the response by South Africans stands out.

Schultz acknowledged the contribution social media made to the buzz surrounding the first sub-Saharan opening, saying he is surprised by the “unaided awareness” of his company’s brand in South Africa and other parts of Africa.

Starbucks Effect

In the U.S., early voices that lamented the advent of thousands of new Starbucks stores have quieted down a lot.

Why? The Starbucks effect. Instead of being bad for business, it turns out Starbucks does the opposite.

The success of Starbucks was good for coffee distributors all over the U.S., setting off a chain reaction of innovation in a once-sleepy industry, according to a 2000 Harvard Business Review report.

“When individual companies increase the perceived ‘premiumness’ of a product through innovations in the product itself or the way it’s delivered, the entire category can reap higher prices and profits,” according to the report.

Coffee distributors aren’t the only ones to benefit when a Starbucks moves in. Living near a Starbucks benefits U.S. homeowners, whether they’re coffee drinkers or not, CNNMoney reported in March 2015. The value of homes within a quarter mile of a Starbucks rise faster than those that aren’t, according to real estate research group Zillow.

With tens of thousands of Starbucks locations in the U.S., that’s good news for a lot of homeowners. Between 1997 and 2013, homes close to the coffee shop increased in value by 96 percent compared to 65 percent for all U.S. homes.

Starbucks usually means good things for a local community, according to CNN. A new Starbucks give developers a sense that the neighborhood is on the rise, wrote Zillow CEO Spencer Rascoff and chief economist Stan Humphries in their book, “Zillow Talk.”

You can’t really give Starbucks credit for changing a community, the authors said, but the coffee chain is very good at finding locations that are up-and-coming. Homes near Dunkin’ Donuts also appreciate faster than U.S. housing on the whole, but not as fast as those next to a Starbucks, according to Zillow’s analysis, CNN reported.

Starbucks appears to know the next hot neighborhood before everybody else does, Quartz reported. “Starbucks seems to be fueling—not following—these higher home values. And the reason why is that Starbucks’ real estate choices are, in their words, ‘as much an art as a science.'”

Will the Starbucks Effect work in South Africa?

After a week of sales that exceeded expectations at the first Johannesburg Starbucks, CEO Schultz said he may have underestimated the market. He said he plans for 150 Starbucks stores in South Africa. “I think this market is going to be larger than we probably thought initially,” he said, according to Globe&Mail.

Strange as it sounds, the best way to boost sales at your independently owned coffeehouse may just be to have Starbucks move in next door, Taylor Clark said in 2007 Slate report, entitled “Don’t Fear Starbucks: Why the franchise actually helps mom and pop coffeehouses.”

It’s called the Starbucks reverse jinx, Clark said.

Each new Starbucks store creates a local buzz, drawing new converts to the latte-drinking fold. When the lines at Starbucks get too annoying, these converts venture out and find another coffeehouse right next door.

Ward Barbee, the late founder of coffee trade magazine Fresh Cup, said “Anyone who complains about having a Starbucks put in next to you is crazy,” Slate reported. “You want to welcome the manager, give them flowers. It should be the best news that any local coffeehouse ever had.”

Starbucks isn’t slaughtering mom and pop, Slate’s report said:

The key for independent coffeehouse owners who want to thrive with a Starbucks next door is that they don’t try to imitate Starbucks. (As many failed coffee chains can attest, there’s no way to beat Starbucks at being Starbucks.) The locally owned cafes that offer their own unique spin on the coffeehouse experience—and, crucially, a quality brew—are the ones that give the Seattle behemoth fits.

After all, if Starbucks can make a profit by putting its stores right across the street from each other, as it so often does, why couldn’t a unique, well-run mom and pop do even better next-door?