According to a new working paper, Starbuckds company that makes coffee-based milkshakes, also provides additional innovations. Choi Jinkyong, Jorge Guzman, and Mario Small of Columbia University discovered that opening a new Starbucks in an American neighborhood without a coffee shop results in the formation of between 1.1 and 3.5 new businesses every year for the next seven years. According to the authors, this is due to the café’s status as a “third place”—a place where individuals can assemble without having a specific purpose. “Branches help entrepreneurs form and mobilize networks,” they write.
The authors offer additional evidence that the gains are due to a new third space. They discover no equivalent benefits for Dunkin’ Donuts, which does not usually have much seating. Caribou Coffee, a Midwest-based brand, operates on a similar concept as Starbucks and offers comparable benefits.
Although the paper has not yet been peer reviewed, it is historically plausible. Coffee houses in London were hotbeds of innovation in the 18th century. They were dubbed “penny universities” because they provided access to the best brains of the day for the price of a cup. Lloyd’s of London, an insurance market, is descended from Lloyd’s coffee house, and London’s stock exchange has a similar history.
The results also present a puzzle. Starbucks took inspiration from Europe’s cafés. However, the presence of third spaces across the continent has not been sufficient to address its innovation challenges. Perhaps there is something to the chain itself. Italians should switch from espresso to a “cotton candy Frappuccino” just in case.
Source: Economist
