In defence of... Starbucks - Spectator Blogs

13 November 2012

It does seem odd that Starbucks can have so many coffee shops in the United Kingdom and yet fail to make any profit from them. I am no expert in these matters but assume Starbucks is merely acting rationally and, in fact, legally. If politicians don’t like this kind of caper they might consider simplifying the tax code. Even for multinationals such as Starbucks, Amazon and Google.

Anyway, all this has people harshing on Starbucks. Again. The coffee chain is a victim of its own ubiquity. Which is just another way of saying that it’s suffering for its successes.

It’s fashionable these days to deride Starbucks as just another faceless mega-chain, sucking the life from British high streets that, in their absence, would be bustling, charming havens of localist shoppers shopping at their locally-owned local store. Well, perhaps but I think it pretty unlikely.

The dark little secret is that most of the coffee consumed in this country would scarcely be considered coffee at all in other parts of europe. 74% of the coffee consumed in Britain is the “soluble” stuff, ie “instant” coffee that, while better than it used to be, is still not coffee as an Italian would understand the term. No-one has ever said Sorry, I’m out of instant will you be able to make do with the real stuff? 

Still, 15 years ago instant and other forms of soluble coffee constituted 84% of UK coffee imports. So while roasted, ground, real coffee remains a minority taste it is much more popular than it used to be. Imports of real coffee rose from 385,000 bags in 1997 to 782,000 in 2010. (All these figures are from an International Coffee Organisation PDF.)

Starbucks is a large part of that. Most coffee consumption remains domestic but whereas coffee chains were responsible for 6.6% of overall consumption 15 years ago by 2011 that figure had reached 17.3%. The share of the market held by “other” non-chain coffee-selling enterprises slumped from 23% to 11% in the same timescale.

Clearly, then, this is evidence that the coffee chains – Starbucks, Costa, Cafe Nero, Cafe Ritazza and all the others all of which are basically just the same – have been stomping on the little independent guy who just cannot expect to compete with the bland, familiar reassurance offered by the big chains. That, at any rate, is the version of the story you tend to hear.

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But I suspect it’s hooey. I remember the early 1990s and unless my memory is deceiving me I’m pretty sure it is vastly easier to locate a drinkable cup of coffee in any decent-sized British town or city now than it was then.

Nor is this trend confined to the United Kingdom. It’s true of Ireland and the United States too. There’s a reason Starbucks became so successful: most coffee sold in these countries was, before the chains arrived, terrible. Much of it still is.  I remember how difficult it was to find a decent cup of coffee in Dublin back then. Nor was Edinburgh much better provisioned. London, I suppose, was more fortunate but even there you could spend a lot of time hunting a drinkable cup of coffee.

I remember a friend returning from a summer in San Francisco – this would have been 1995 or so – and sharing the bags of Starbucks coffee beans he’d brought back. It was like a glimpse from the future: a hip and glamorous place where everyone could easily find a good cup of coffee. If we sneer at the standard of Starbucks coffee these days – and many people do sneer – it is in part because Starbucks has played a part in raising our expectations.

Glamorous? Yes, in a way. Remember the internet was barely a real thing back then (my generation of students were the first to have email addresses; many of us never used them) and it took longer for news and other things to arrive from America and the future.

So Starbucks arrived in the UK in 1997 as something more than a rumour but less than a sure thing. The success of Starbucks and all its imitators has been remarkable. No other place on earth is as addicted to coffee chains as Britain. Starbucks et al have a tiny share of the overall coffee market in other european countries (and, actually, the United States too) but a huge part of the British market.

There is little evidence to suppose, however, that the chains have crowded out the independent coffee store. There is a Starbucks, a Cafe Nero and a Costa within a couple of hundred yards of where I’m writing this in Edinburgh which might, on the face of it, seem like overkill. But there are also at least five other independently-owned coffee shops too. Ar the chain coffee houses – all 5,000 of them – crowding out the little guy or, actually, creating minimum standards for the market? A bit of both perhaps but the little guy being crushed by Costa and Starbucks is probably the little guy who served the worst coffee. Should we weep for his loss?

So there’s this: Starbucks has probably improved your coffee-drinking life even if you never step foot inside a Starbucks shop. Because, again, what chains do is set a floor for standards beneath which it is not wise to fall. Starbucks may not be the best coffee in the world but if you’re competing with Seattle’s largest you better offer something better than they can provide.

The reason Starbucks and other chains have made less impact in, say, Italy or the Netherlands is that these countries were amply-stocked with places you could purchase good coffee before Starbucks et al arrived. Britain? Well, not so much.

Those wealthy consumers who deplore Starbucks and want to stick to their single-tree sourced, Ethiopian high-roast or other comparably trendy, exotic and fussy brews are entitled to their prejudices. But they might at least recall that Starbucks created the market in which they can parade their snobberies. They owe something to Seattle too.

In one sense Starbucks and the other chains are like the NHS. They perform tolerably well at a tolerable price. They are neither world-beaters nor the world’s worst. And that’s fine.

Chains, however much they are criticised by the comfortably off – and it is a feature of these debates that the poor rarely have their voices heard – may be relatively soulless enterprises but the bland reassurance they offer is not worthless. On the contrary, in coffee (and in pizza, incidentally) they drive up standards. Their size and their familiarity force competitors to do better or offer something different.

If the average cup of coffee sold in Britain today is much better than it was 20 years ago – and by god it is you know – then the people to be thanked are the folk who brought Starbucks to the UK. Again, even if you hate the chains (there’s now one chain coffee shop for every 10,000 people in Britain) they have improved your coffee-drinking life. You don’t need to use them but you might at least be honest enough to tip your hat in their direction.

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Show comments
  • DavidL

    Coffee is coffee. Starbucks coffee is a hot milky drink.

  • rndtechnologies786

    Good thought.

  • JurgenD84

    Sense at last

  • Barry

    Foreign companies have increased the quality of cars manufactured in the UK so, presumably, they shouldn’t have to pay any UK tax.

    Seems like a good “defence” (your word, not mine).

    • squidward

      They dont. Nissan in sunderland made a 58,000 loss last year

  • epcb

    starbucks only came to UK because a little business called the Seattle Coffee company set up a clone of Starbucks and Starbucks had to buy them such was their success. I fondly remember enjoying the incredible improvement in British coffee and environment in the mid 90s and Starbucks haven’t done badly in keeping up standards since considering their size. Starbucks is not the best for sure, Monmouth, Taylor Street and others are way better, but its a fair guarantee of decent and without Starbucks and co the independents may not have had a market to serve. I guess they should pay more tax, though maybe we should make our corporation tax more competitive and help everyone…

  • marrer

    I’ll wash your mouth out with soapy water (or Starbucks coffee) if you say that again,that what my mum would have said in the 50’s or 60’s if there had been a Starbucks on the high st.

  • Paul R

    Starbucks, Cafe Nero et al. It’s all over priced crap. Very over priced, with no real justification for the prices. Give me a nice cup of rosey lee any day, English Breakfast or maybe a nice cup of Assam, and they’re healthier for you.

    • Brian

      UK now knows good coffee , but i think the outlets are too pricey so buy a machine.If your in town find Costa and boycott Starbucks and Nero, at the same time don’t buy from amazon or apple.

  • Alex Massie

    Yo, people, this is not a post about Starbucks’ tax affairs. Nor does it argue that because Starbucks has been good for Britain it should not have to trouble itself with paying tax. It’s a post about markets and brands and standards, not a post about tax. OK?

    • Dan Grover

      It’s fairly depressing that you have to point this out, especially given the haughty patronising glee with which my fellow commentators love to leap on the post authors here.

      I agree with everything you’ve written, incidentally. Across all markets and industries, the largest tend to be the lowest acceptable standard, and usually it’s because they raised the standard to that position (and that’s how they came to be in such a dominating position – no one takes over a market by offering a crap product at expensive prices).

    • Jim Araali-Kabyanga

      Er, your title is “In defence of … Starbucks” and in your 1st paragraph you bring up tax and paint them as a victim of their own success. What did you think was going to happen?

      Markets. Starbucks have historically deliberately paid above market-rate rents to secure the best premises quickly, so as to avoid lengthy negotiations or any chance of being out-bidded, as rents are a negligible expense for them. The effect of this has caused massive inflation in high street retail rentals for every shop on the high street, given their massive presence through a highly aggressive growth strategy over the last few years. Landlords love them, their neighbours hate them

      The thing that has shocked people about Starbucks is that such a popular brand can purport to have made no money for so many years. They may be acting legally, but their actions make them appear to be amoral and leave us all the poorer for it. There’s nothing wrong with making money, but the way Starbucks is playing the game is not a standard that any decent company should approve of.

      • Baron

        Jim, it’s globally a $3.0bn plus company making roughly a 10% margin, it’s more than bloody profitable, it’s just they pay tax mostly in the US where the Revenue would take much dimmer view of their tactics if the y didn’t.

  • EdinburghEye

    In a couple of hours, three weeks ago (20th October to be precise) I found out why Starbucks tells investors that the UK is one of its most important markets but tells the Revenue that they’re not making any profit:

    You make a fair point here: “So there’s this: Starbucks has probably improved your coffee-drinking
    life even if you never step foot inside a Starbucks shop. Because,
    again, what chains do is set a floor for standards beneath which it is
    not wise to fall. Starbucks may not be the best coffee in the world but
    if you’re competing with Seattle’s largest you better offer something
    better than they can provide.”


    But is this a good reason why Starbucks should dodge paying taxes? I’m appreciative of the fact that small local cafes now sell real coffee instead of instant, but Starbucks have set up a pretty sweet deal for themselves in the UK… and I’m not one of the “wealthy consumers”, thanks very much.

  • Troika21

    The ‘profits’ that Starbucks makes are so paltry, that you’d think it was nationalised.

    Honestly, ‘makes coffee therefore pays no tax’ is not logic I follow, Alex.
    Loop-holes should be filled-in, not made bigger.

  • kevinlaw1222

    …and to think – people like Massie actually get PAID for rubbish like this (not very much of course, this being the Spectator )

  • Timple

    I think you’ve missed the point – its not about the quality of the coffee – it’s about moving profits to offshore tax free locations by the use of brand payments and presumably over the odds payment for raw materials i.e. special “starbucks” coffee beans. The little independent coffee shop has no such opportunity for such financial management. It’s not therefore the level playing field which healthy capitalism depends on.

  • MichtyMe

    Simple tax code for multinationals, if xx% of global turnover in UK then xx% of global profits taxed. And the coffee? I’m a tea drinking snob.

  • Michael

    “In one sense Starbucks and the other chains are like the NHS” – haha

  • Joni Patel

    Starbucks is good coffee? Are you taking the piss?

  • Baron

    Alex, a good read on real coffee, Starbucks, the changing life of the country, hat tipping….., but if you forgive Baron pointing it out, it’s as close to why the company is getting kicked as is a cup of instant coffee of old to one of latte brewed by Starbuckss.

    Could it really be that a $3bn company, an American company at that, engages in Britain in a business for altruistic reasons? Do miracles happen? .

  • Will Marshall

    Quick bit of background on why Starbucks is making a loss in the UK – and by implication why they’ve not been entirely willing to explain this.

    When Starbucks opened in the UK, they realised that they would face stiff competition, and that location was highly important in fighting that competition. So they incentivised managers to grab as many stores as possible, on long leases.

    10 years later, they find they have too many stores, the contracts for which they can’t leave or renegotiate. Competitors have their own stores, so don’t want to buy Starbucks’ locations off it (at least not often).

    So whilst the new stores they are opening now are making some money, the existing stores are often genuinely unprofitable.

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