Third Places and Neighborhood Entrepreneurship: Evidence from Starbucks Cafés
nber.org
nber.org
People get excited because they bought a house for $200k and it's notionally worth $800k now. In reality they haven't gained anything because every house is $800k and you still need somewhere to live so you still only own one housing unit of wealth.
Worse, people actively lobby for policies that increase housing prices.
But if this house is worth $600k more where is that money coming from? It's coming from the next generation who has to pay substantially more for the same house. It's a wealth transfer from the young to the old.
How does this relate to third places? Well, imagine a neighbourhood cafe. 20 years ago that cafe space might cost $200k and have a commercial rent yield of, say, 5% so it would cost $10k/year in rent for argument's sake. Well, all property has gone up in value so that cafe's space is now valued at $800k. It still demands a 5% yield so that's now $40k/year. All the cafe's customers have to pay for that with increased prices.
So with increases in housing costs, people have less money to spend and that money doesn't go as far. At a certain point, volume goes down and the business has to either close or raise prices, further exacerbating the problem.
Rising housing costs are strangling every aspect of society.
They can borrow money against the extra value of their house. They don't need to move out. That's what everybody in the landed gentry has been doing for the past two decades.
That is why the gains really are actual, useful money for lots of people.
And yet, it's a system which has, so far, outlived the others. Perhaps it is stable, after all. It certainly keeps the youth honed in on the grindstone.
There were some defectors in the 60s, and in 2008, but that was far less sustainable or, rather, failed to reach critical mass / escape velocity.
We need a few Hari Seldon types.
How is the price supposed to go up unless supply fails to meet demand?
I would be careful to read into these things too much.
Perhaps you are implying that even if the price of houses increases, if wages increase at the same rate, then they will cancel out? If so you are describing inflation, and the real cost of houses will be unchanged.
Alternatively, if you are implying that the solution is for everyone's wages to increase faster than the prices of houses increase, then the consequence of your solution is that houses will no longer be anywhere near as attractive of an investment.
Setting aside any moral considerations, it simply does not make any rational sense to wish for the price of a necessity to increase while also wishing for it to become more available. Imagine wishing for food to become more expensive while also lamenting that people can't afford food!
I think the problem is debt. The power of debt has outstripped any buying power of an individual worker.
I’m not an advocate for communism either, by the way. Just regulation and proper taxation.
Somehow I don’t think petrol station seating areas will promoting a huge amount of neighbourhood entrepreneurship. I would probably look at more independent, locally-owned kind of establishments—particularly that do have seating.
I can think of a lot of critical meetings that happened in these sort of coffee shops, including a first interview for the person who is now our staff software architect, the first meeting I had with my now-business partner where we went over her product idea (admittedly that was a Starbucks), getting together to hash out ideas to solve difficult problems, and best of all, a random chance encounter because we were in a third place. This is in places as diverse as small heartland American towns, NYC, Tel Aviv, or Pennsylvania’s rust belt.
Fewer of these places means fewer of these good things happening. I don’t need a kiosk; I have an espresso machine I can operate at home or in the office.
You would probably enjoy the experience of a small, locally owned coffee shop then. Starbucks is optimizing for their profit. In my suburban city, Starbucks has closed most or all locations that were a few miles from the freeway. They built new locations with drive throughs and very little to no seating within a few blocks of every freeway onramp. This tells you what they are optimizing for.
Unfortunately, chances are encounters and warm fuzzies do not please the corporate overlords.
Inversely, if everyone wanted cozy shops, that is exactly what Starbucks would build.
Cozy shops bring in much less profit per $ invested. They cannot seriously compete with kiosks, when the majority of customers just want some competently brewed joe on the way to work (or even half-competently, since we mention Starbucks). Maybe a bagel with it. Next customer!
A cozy shop with seating for customers who want to sit there and talk for an hour over a $3 cup of coffee each, cannot compete. It can maybe run as a lifestyle business by somebody who loves the craft and does not need much money. But not as an efficient business chain.
Coworking places tend to be more like offices with some startups renting permanent spaces and some people dropping in for a day of work. They tend to have real desks and phone booths. Anticafes tend to be more like community spaces with cafe seating, board games galore, and maybe some cats. Both are filled with people on their laptops :)
A small coworking space closest to me is pretty informal, has tables, not desks, but you should bring your own coffee. If they had a cat, it would definitely be an extra attraction.
So either Americans just don't care much about cozy shops any more, or American commercial real estate rent is too expensive, or some combination of the two are making it unprofitable to have a cozy coffee shop in American cities these days.
Yea, this is one of the primary problems. Commercial real estate prices are out of control, same with housing.
It might also be more profitable to operate a location as a kiosk than as a larger cozy shop.
That's what a third place is and what people are lamenting the lack of now.
In Italy they charge you for the seat.
I have been to places where they charge for a laptop too.
In addition you can minimize cellular network reception and charge for wifi.
https://www.cnn.com/2014/10/03/travel/marriott-fcc-wi-fi-fin...
I could not find an English shop that sells it with nice pattern, but you can always use something like this :
https://consciousspaces.com/products/yshield-hnv100-emf-shie...
Are we shocked businesses are optimizing for their profit? Isn't that their purpose?
BTW, say, your bedroom serves no public benefit; its point is to provide you some highly private benefits. Is it bad?
I'd say that any activity is fine, as long as it does not result in or intended for public harm. Providing a public benefit should be strictly optional; paying taxes should be enough.
Shielding people from liability is a good start.
>BTW, say, your bedroom serves no public benefit; its point is to provide you some highly private benefits. Is it bad?
I can't commit crimes in my bedroom and escape any and all responsibility for it.
Businesses everyone recognizes by name aren't run that way because the layers of capitalism serve to isolate people from the human aspect of their decisions, but there are a lot of businesses that people have never heard of.
And when they convert an existing location to kiosk only, the prices do not go down.
There are two Starbucks locations in downtown Redwood City, about 250m apart. The one on the right side of the tracks has comfortable seating and tables. The one on the wrong side of the tracks, in the dying mall near the homeless camp, is kiosk only. Same prices.
They offer similar benefits to a good sized Starbucks store.
Free charging points, WiFi, bench seating in secluded corners and so on.
Though I'd wager that WiFi is less important, as people have mobile plans with plenty of data.
Given the accommodation crises in Australia, I'd suspect many students dont have a decent place to study in their homes. Many of them are sharing bedrooms etc..
I was under the impression they were subsidized.
Additionally, they are a "trap" - easy to enter, but exiting requires you to walk the gauntlet of products for sale downstairs.
I learnt this the hard way several times in my local IKEA, but I also read an article about how this is absolutely strategic in their thinking. Unfortunately I couldn't find it to back me up.
I would say that the Wi-Fi is important, as the design of most UK IKEA buildings blocks mobile network signals!
Only downside is screaming kids
And yes there's bad mobile signal but Vodafone (famous for having better indoor signal I believe) works ok
There still might be a confounders, but they at least tried to control for that.
The definition of a third place is fully incompatible with it being just a remote work location: https://en.wikipedia.org/wiki/Third_place
Just watched a episode of Friends yesterday. The cafe there could be the definition of a third place. ;-)
I've seen articles in strong town use it, I've heard the term come up in meetings of my local pro-development citizen's organization, etc. Starbucks has no claim to the term third place, especially given that since covid, the majority of them don't even qualify as third places.
In the past, I had built a data brokerage offering clean and centralized data in this area -- the equivalent of Netflix for data catalogs (back when you could say this with a straight face). It is not a hard problem. You can (and many did) throw entire datasets at a random forest as a first-pass, and then retrain with only the features that pass a significance threshold.
Algorithmic identification of real estate investment opportunities for the purpose of corporate expansion is not a new thing. Most serious shops do it. The techniques are simple, but it's the prep and decision-making after that are difficult.
So the sampled population is the neighborhoods that were scheduled to receive a Starbucks, and lack prior other coffeeshops. Which means we're basically only looking a newly gentrifying neighborhoods (that Starbucks has calculated are worth opening something in, but that's probably mostly redundant with "newly gentrifying"). This severely limits the scope of applicability, but is fine in terms of the statistics.
The big question is: why did some locations not receive the Starbucks they were "scheduled" to receive? Because that is a potentially huge confounding factor. If it's because Starbucks corporate said "hey, we only want to open up 2000 new locations this year, let's roll dice to see which ones get it", then it's all good. If (as seems more likely) it's more like "let's start the process for all candidates, but drop the ones that are slowest to get through the permitting process or hardest to get a loan/insurance/workers/supplies/building materials for", well then -- might those affect the ability to start up a company just a wee little bit?
I'm torn. It's an interesting enough result that I'd almost like to go to the extreme measure of doing the "actually read the paper" thing that I've heard rumored some people do. And yet, my cynicism says my doubts are probably correct, so I don't want to bother with the effort to find out if they aren't.
Like you said, without knowing the why of the change in plans, there is no way to judge causality confidently.
Anecdotally, I love these types of cafes (not "Starbucks" but this model), hope we get more, and see huge benefit both for myself and the community.
More seriously: lower crime, more services, reduced infastructural and service strain, higher income, and an area made more desirable.
The very hard part would be getting only the good, to bring in investment and raise incomes of individuals across all individuals at a neighborhood level instead of just importing richer people. The levels of sudden life changes required frankly suggest mind control being involved.
About 20% of US workers are fully work-from-home. For the vast majority of workers, it still is a third place.
On the other hand, my area has a few excellent locally owned options that are so important to me. When I think about Starbucks vs. one of those locally owned shops, it reminds me just how much a rich tapestry of small businesses in a neighborhood can transform it for the better. Starbucks had that going for a it for a short while.
Also what's with the "they just want to make a profit" argument going round here? Why wouldn't they? They literally have a legal duty to do so. Should we instead incentivise cafes to not make a profit?
I think the “just” is the key word here. No one is going to get up in arms over modest profits. It’s the chasing growth at all costs even when it means sacrificing what should be the core value(s) of the business.
A lot of franchises just end up as soulless real-estate/marketing plays that siphon money out of local economies and compete on axis other than actual value/quality.
Starbucks had a vision now it looks to maximize short term profits while playing a real estate game.
“Starbucks Deluxe” for the golfers and yacht owners.
“Starbucks Influencer,” with pink cups and led rings at every table.
“Starbucks Classic” for the retired and confused.
And of course, “Starbucks Homeless” to capture the downtown vibe.
[oops, sorry, this should have been under the thread about Starbucks Reserve]
im not usually one to defend a company, and i dont know what's best for starbucks the company and brand. but what i see isn't necessarily or obviously bad
Their only legal duty is to conduct lawful business.
The Starbucks where my parents live is nice to sit down and have a conversation with someone - it's bigger and has more space. Why? It's a small town and there isn't much competition from other local coffee shops.
Compare that with the Starbucks's of Manhattan - usually very cramped, little seating, and meant to be more of a "to go" place than a place to sit down.
Small business entrepreneurs might be perfectly happy just turning a profit a few years into the venture. In contrast, a stock trader only turns a profit when the business gets more valuable, which requires growth. The business has to make more profit than it did last year. A third place might turn a profit but not provide growth for investors, so they're not going to fund it, they're going to destroy it.
This gets even crazier with private equity, because the fund managers are incentivized[0] to spike growth as quickly as possible. If you ever notice a business rapidly deteriorating, it's because private equity is sucking the blood out of the company. Run.
[0] The split between fund investors and fund management changes once the fund meets its hurdle: an arbitrarily-set amount of profit. After the hurdle is met fund management gets every penny.