So, it's kinda official - Starbucks is going to open a new store in Fishtown, at 1405-21 Frankford Ave (the site is currently under construction). As noted in the article, it's about a block north of the La Colombe flagship store, and a few blocks away from Reanimators Coffee (my personal go-to in the area). What's most amusing though, is the reaction that this announcement has brought out among the local residents - or at least those that are on social media.
There's two camps, though one is certainly much larger than the other - on social media comment pages at least. Camp A is vehemently anti-Starbucks, and they oppose the company on various grounds (no pun intended) including arguments of gentrification, amplifying current racial tensions between the company and general public, and a general disgust for chain restaurants/perceived homogenization of the urban environment. Camp B is less pro-Starbucks than they are nonchalant about them locating in the area. These people are more nonplussed, pointing out that there are already chain restaurants in Fishtown (Dunkin' Donuts, McDonalds, and an existing Starbucks inside the Acme at 2nd & Girard), as well as noting that as a capitalist society businesses are free to locate where they believe they can make the most profit.
In my opinion, both sides have reasonable points - but there's a deeper question under all this: is this location actually a good spot for a Starbucks? Ignoring the current firestorm of racial tension that the company is going through in Philadelphia (which is admittedly hard to ignore), I couldn't resist sitting down and putting the green mermaid from Seattle through SSC's own process for site selection.
In order to determine if Starbucks (or any company really) should actually locate in Fishtown, SSC runs the following analyses:
1. Competition Analysis - what's there that would compete and how well are they doing?
2. Demand Analysis - are there customers that want what's being offered, and how many of them are there?
3. Customer Profiling - what're the type of people that live nearby that would be customers?
4. Market Potential - do those potential customers have the money to spend or is the market saturated?
5. Forecasting - if the customer isn't there now, will they be in the future?
So, is Fishtown a good location for the coffee giant? Let's start with Competition Analysis.
1. Competition Analysis
In terms of direct competition - there's quite a lot in the area - though none of which really compete in Starbucks' frozen/cold/specialty drink sector. Certainly, La Colombe is the biggest and closest, but even they don't offer the variety and scope of Pumpkin Spiced Lattes that S'Bux does. Other competition nearby includes Reanimators as mentioned, Steap and Grind, Milkcrate, and One Shot Coffee - all in all around 10 stores in a 1/2 mile that would sell coffee first and foremost, as opposed to restaurants that serve it as a compliment. Ironically, the closest competition in terms of offer, Dunkin Donuts, is on the periphery of the neighborhood, and the other competition (McDonalds) doesn't offer the same type of in-store atmosphere. It was surprising when doing the research - but the biggest competition for a Starbucks is really itself at the Acme - and few people would venture into a grocery store just for a Frappucino. Those Starbucks Acme customers are making an impulse buy while doing other shopping.
While Starbucks does sell food and other retail merchandise - it's still drinks that make up the bulk of their income - and the Frappucino by itself makes up around 20% of their total revenue. Honestly, if I was engaged by Starbucks to do this research - I'd already be encouraged by these findings.
2. Demand Analysis
So, with the competition strong in the general coffee sector but weaker in the specialty drinks arena, SSC then needs to proceed to the demand analysis - that is, is there no competition because there's not really a demand for the product?
The answer? There's absolutely demand for the product, and in the immediate area as well! ESRI's Business Analyst actually has information on how many people visit/buy Starbucks products and then crafts models on predictive behavior. I looked at the two variables - people who buy/use the pre-packaged Starbucks coffee and also those who have visited a Starbucks in the last 6 months, at rates higher than the national average. Amazingly, that area of Fishtown and Olde Kensington actually had very high rates of people who purchase Starbucks products (the areas in blue). Furthermore, there are over 11,000 people that live an estimated 10 minutes walk-time (about 1/2 mi) from the proposed location, with a median household income at ~$50,000, which is about $5,000 higher than the City as a whole.
In short - the areas in blue above show concentrations of people who have both the inclination and the income to buy Starbucks. So, there's demand for the product, but, do those customers actually want Starbucks, or do they buy it because due to their sheer number of stores, it's convenient? For that answer, a customer profiling of the neighborhood is required.
3. Customer Profiling
ESRI has what's called "Tapestry Segments", which essentially outline the mindsets and other behaviors of consumers, based on spending patterns, demographics, and other variables. In the 10 min walk area mentioned, there's four different segments: "Trendsetters" (23.7%), Emerald City (19.9%), Front Porches (18.2%), and Old/Newcomers (13.0%). Together, these groups account for over 75% of the local population. But, what does any of this mean?
Well, Trendsetters would be a challenging demographic for Starbucks, as "image is important to these consumers," and they are "socially and environmentally conscious...are willing to pay more for products that support their causes." These are likely the people responsible for the most vocal backlash against a new location - but they are less than 25% of the total customer market. Emerald City people are similar to Trendsetters, but they're older, and have a bit less disposable income. They're conscious of nutrition and environmentally friendly products, but are less ideologically motivated for their purchases. Front Porches are blue collar individuals and families for whom "price is more important than brand names or style," and "are not adventurous shoppers," - which may make them both less and more likely to visit a Starbucks depending on whether they would consider a Unicorn Frappucino an adventure. Lastly, Old and Newcomers are an older subset, mostly single households, and 32% of these households are on Social Security. They're "price aware...but open to impulse buys," which makes that coffee jolt a bit harder for these individuals to turn down.
In summary - of the roughly 11,000 people who live within a short walk to the store, less than 25% would really be unlikely to be a Starbucks customer by ideology. The rest of the neighborhood would have a mix of people that are either fans of the brand or indifferent - which confirms what we already suspected with the demand analysis. With a revised likely customer base of around 8,000 people, not including visitors to the area on a daily basis - it still makes sense for a Starbucks to be located in Fishtown. In theory...
4. Market Potential
So, the competition is relatively weak, demand is pretty good, and there's not enough people who hate the brand to be enough of a deterrent to open. All great stuff - but more research is needed before making a confident recommendation. For that, financial projections are necessary - what's the market doing and is there actual room for a new operator?
Leakage is a term that's used to describe when consumer dollars are leaving a community to be spent on products outside it. It's a good metric for whether there's scope for a new business to come in and operate. Looking at the Supply/Demand metrics for the area, there's an estimated $676,000 surplus (red numbers) for Special Food Services and over $7m surplus for Restaurants/Other Eating Places. It's hard to determine where Starbucks would fall between those two definitions, but it's a safe assumption that the area is pretty well served in the cafe/restaurant category. While this doesn't mean SSC would recommend against a Starbucks locating here, it means that there's not a ton of room for error, as their customers in part are likely going to be pulled from other nearby competition who prefer the convenience of this new location, or had preferred Starbucks' offer from the beginning. Now, there's just one last piece of research crucial to a thorough recommendation - forecasting.
So, the market may be saturated, it may not be - but what's expected for the future? Real estate is a long game - is there enough growth coming that could offset these numbers in the next 3-5 years?
Well, population growth to 2022 is projected to be about another 1,000 residents - which is good growth but not astronomical. Household income though, is projected to go WAY up - from $50,000 to almost $60,000 per year, and vacancy is projected to go down by 2% falling from 8% to 6%. This means that the area is going to become more densely populated with rising wealth - people who can buy that $5 latte.
While no one knows FOR SURE what the future will bring - it's at least a reasonable assumption that if things keep going the way they are in the neighborhood, Fishtown/Olde Kensington is going to be a more densely populated, increasingly affluent community.
So, after all that, what's the outcome? If SSC was advising a client (in this case, Starbucks), the report would say that opening a store would come with moderate risk. Competition is generally strong, but specifically weak in the variety of offer Starbucks provides. Demand for the product is solid, and customers opposed to the brand are limited in number. The market appears saturated today for another coffee shop, however future population and income growth could mitigate that risk in the future. From an operations standpoint - the store would do well to more heavily market its cold, frozen, and specialty drinks, as well as its line of healthy, organic convenience foods to take advantage of the consumer preferences and gaps in the market. Strong community outreach and engagement would also be advised to help mitigate any current ill will that exists in the neighborhood.
So what do you think? Do you think the Green Mermaid will thrive in Fishtown, or will she be filleted by the locals? Leave your thoughts in the comments!
Economic development in America was, at the beginning, essentially a by-product of exploitation of natural resources and trade. Companies established in locations, made something out of whatever raw materials were available, and natural economies developed around those industries to serve them. In Detroit, it was cars, in St. Louis, fur trading, in Chicago, it was deep dish pizza.
However, in more recent years, with local economies shifting, withering, and in some cases, dying, utilizing natural resources and labor markets weren't enough to keep a robust economy. Increasingly, cities and states turned to various incentives and projects to try and spur companies large and small to locate in their area, spend money and add jobs to the local economy. Various tax incentives have been used across the country, and increasingly more and more inventive project/programmatic initiatives have been used in an effort to be a panacea for local economic ills.
Among practitioners, economic development varies somewhere between a fad and a trend. Some activities have stuck around for decades (Tax Increment Financing), others less than a few years (remember innovation parks?) And yet, because each attempt works in some degree, there will be a continued effort to try new things to help local areas increase their economic base. While, in this author's opinion nothing is more important than addressing systemic educational inequalities and improving the quality of housing to help improve local economies, it's a lot more fun to talk about what new and fun things cities will try to do to bolster their local economy - despite the fact that few if any of these initiatives actually ever work.
So - what's next for economic development in the USA? I offer two (and a half) ideas for the next half-decade.
1. Micro-manufacturing/maker spaces.
Micro-manufacturing (micro meaning small, not computer chips) and/or maker spaces aren't anything particularly new in the economic development world - many variations on the same theme have been popping up all over the country in one form or another. Kitchen incubators for food, maker spaces like NextFab for manufacturing - these facilities provide needed space for very small businesses to get their foot in the door with limited overhead expense while they explore their business model. It's like co-working spaces for non-office jobs. Philly, already with a handful of these spaces has people interested in adding another in East Falls.
What there isn't - yet - are spaces that bridge the immense gap between a facility designed to help the sole entrepreneur and one made to house bigger businesses - those slightly more mature businesses that have some scale, but don't have the financial backing or track record to get their own space. Particularly in this age of romanticized manufacturing, I predict that many of these smaller maker spaces will generate larger demand for bigger facilities with even more expensive dedicated equipment and technical support, provided by universities. I don't see the typical non-profit managing one of these huge buildings - it's just too much work. However, I point to the Rutgers Food Innovation Center in Burlington, NJ as an example of one of these facilities - Pennovation is another, though that's more about tech innovation than making physical products. I expect many of these types of facilities becoming more common across the country, particularly since funders want to see their investments resulting in measurable outcomes over time.
2. Experiential Marketing
Millenials are the next big demographic wave, and they're entering prime family formation and career earning years. This means that their dollars are going to be chased harder than an attractive cat in a Pepe LePew cartoon. What does that look like? To understand how the world will market to Millenials, we must first understand the economic forces of Millenials. They're the most educated and debt-ridden generational cohort ever. They're also experiencing delayed adulthood (or extended adolescence, depending on your definition) and are arguably the most anxious generation. So, what does the world provide a group of people with tons of education, no money, and no "chill"? Experiences - especially soothing ones.
Experiential marketing is right now in its infancy and it's only going to get bigger. Millenials now rank parks and restaurants as higher criteria in a city than public schools (not that surprising, most don't have or are even considering child-rearing) or public transportation (quite surprising, but could reflect the popularity of ridesharing). It's no surprise then that parks like the High Line in New York are being copied across the country (including the Reading Viaduct here in Philly). Events around restaurants and food - items with accessible price points for lower-wage millenial workers - are big and getting bigger. In Philly alone there was over 50 food events in 2017 - I seriously doubt there were more than a dozen back in 2000. A merging of public spaces/placemaking (another economic development trend) and restaurants/experiences is a logical extension of this pattern. This will probably be less Shake Shack in Bryant Park and more Dinner en Blanc. Of course, with the continued rise of brewpubs, craft beers, and craft distilleries, these will absolutely be backed by creative alcoholic purveyors.
2.5 - Adult Dorms.
While it's not really an economic development action, I do think we may see a shift in housing, based on a convergence of social activism, environmentalism, and lack of income. A communal lifestyle, more reminiscent of dormitories than independent living is coming. While it sounds far fetched, I can honestly foresee these facilities supported with programs/courses on "how to adult" (such as financial management classes), live demonstrations from the staff at Tasty on how to cook, and an Uber/Lyft contract for transportation and meal delivery services by Blue Apron or Amazon. In an era of on-demand services, this format of living could be the pinnacle of convenient living.
What do you think? Will this be real life? Or is this just fantasy? Am I caught in a land slide with no escape from reality?
Let me know in the comments!
General thoughts and musings about the work SSC Solutions does and other things happening in and around Philadelphia