Developers and Cities Desperate for a Starbucks Fix

While Starbucks coffeehouses may seem commonplace, even passe to many sophisticated urbanites, developers and public officials in suburban and lower-income areas who don’t yet have one are willing to bend over backward--and even pass out financial perks--to bring the famous retailer to their cities.

The justification for wooing Starbucks is usually financial, but most city officials also admit they want the familiar green-and-white logo to serve as proof that their neighborhood has arrived.

“It’s really important for these communities to have that Starbucks as a status symbol,” says developer Severyn Askenazy of Pueblo Contracting Services. “It helps validate what they feel about their area.”

When Alhambra City Manager Julio Fuentes began working on an overhaul of his town’s sleepy Main Street in 1997, he knew right away he wanted a big name, one that would grab people’s attention and help give the downtown a more hip, upscale image.

Starbucks was one of the first names that came to his mind. But Starbucks management wasn’t convinced, so city officials offered the huge chain $136,000 in government redevelopment funds and a guarantee of cheap rent to open a store in Alhambra.

“It’s a very trendy, upscale coffeehouse, and we decided we needed that,” Fuentes says. “We just provided them the incentive to jump in the pool as one of the first swimmers.”

Such recruitment tactics may seem extreme, especially considering the ubiquitous nature of Starbucks in many areas. But an open-wallet pitch to Starbucks is not uncommon, real estate brokers say.

Developer Askenazy tried to lure Starbucks to the shopping center he’s planning one block from the county courthouse in the city of San Fernando. He repeatedly called Starbucks’ real estate broker and began calculating how much free rent and tenant improvements he could offer. He even put together a new set of drawings that showed a Starbucks with a drive-through window. However, he still was unable to reel in a Starbucks and has since been talking with an independent coffeehouse owner.

Ironically, while many are fervently courting Starbucks, developers in Southern California’s more upscale, urban neighborhoods are starting to find the outlets passe.

“Starbucks are becoming like McDonald’s,” says Cliff Goldstein of Los Angeles developer J.H. Snyder Co. “There’s one on every corner.”

In other words, because they’re a household name, they’re not as attractive to the jaded palate as, say, a less-exposed Peet’s Coffee & Tea or Coffee Bean & Tea Leaf. Indeed, with 460 of Starbucks’ 2,000 worldwide stores in California, some tony neighborhoods such as Montana Avenue in Santa Monica and Long Beach’s Belmont Shore now have two Starbucks to a street. Stores are popping up in Southern California next to decidedly downscale shoe discounters and Laundromats, or even standing alone.

The luxury coffee phenomenon is just now making its way into many inland suburban communities, lower-income neighborhoods and the rest of middle America, analysts say. And people in such communities are willing to pay for that Starbucks cachet.

The city of Walnut, for example, pulled $7,500 from its redevelopment budget to finance the construction of an outdoor eating area and garden wall for a Starbucks opening in May next to the campus of Mount San Antonio College. City officials there also fast-tracked the planning and permit process.

“When the owners brought [Starbucks] to the staff’s attention, we were excited,” says Roger Friesen, the city’s community development director. “We wanted to create a more distinctive place [for them] out here.”

Developers say they prefer coffeehouses to fast food outlets or doughnut shops as tenants because coffee bars draw shoppers who linger, and because such other businesses as book shops, bagel sellers and restaurants tend to follow their lead.

In Alhambra, at least five other shops and restaurants have since agreed to move into its faded shopping street. And on Sunday, the Starbucks appeared to be doing a brisk business.

Cities are eager to embrace Starbucks because of the sales tax revenue they provide. Each unit grosses $600,000 to $800,000 annually. And, city leaders say, the trendy shops are an easier sell to locals who might otherwise resist development. Some residents even campaign for Starbucks. In Hollywood, 700 people who live or work near Franklin and Highland avenues signed a petition to entice one into their corner strip mall.

“They have made themselves an icon, and now they’re able to exploit that,” says urban anthropologist G. Alexander Moore, a professor at USC.

Executives with Seattle-based Starbucks Corp. declined to discuss their strategy or the incentives they receive from cities and developers to open their corporately owned stores. But one of the company’s real estate brokers says financial perks play only a small part in the decision-making process.

“Ninety percent of the time we go into a location just because it’s a good location,” says Dan Bercu of the Los Angeles office of Epsteen & Associates. “We’re not going to go somewhere just because they want us and it’s cheap.”

But sometimes, he says, a city or developer dangles just enough incentives to make feasible a location Starbucks normally wouldn’t have considered. Bercu says the city of Long Beach, for example, gave the retailer’s landlord enough cash to do most of the improvements for its location on Pine Avenue, a downtown street city planners hope to fill with restaurants and trendy shops.

But other coffeehouse owners and observers say that such pandering to a brand name is insidious and unfair to competing operators. In many areas, they say, independently owned shops do just as big a business and brew a cup of coffee that is as good or better than Starbucks’. For instance, a coffeehouse on Long Island that espresso consultant Alex Fisenko worked on quickly became more popular than the Starbucks outlet down the street.

“We stole more than half their business away in the second week,” says Fisenko. “By having an owner-operator run the place, you get to know the customers more. It’s friendlier.”