As it is widely known, predatory business strategies are unethical, but often effective in eliminating competition, and by this, enhancing financial sustainability. Predation is defined as part of the profit that could be earned under competitive circumstances were the rival to remain viable, in order to induce exit and gain consequent additional monopoly profit (as cites in Mano & Durand, 2005, p. 5). Scholars distinguish two types of predatory business practices: predatory pricing and non-price predation (Mano & Durand, 2005). Both of these approaches abuse rivals, which leads to their exclusion and creates favorable conditions for setting the monopoly of a predation company. The aim of this paper is to explore non-price predation, in particular, predatory siting of such business giants as Starbucks and Whole Foods.
To begin with, it is appropriate to explain the rationale that underlies the choice of a predation type. The fact is that both discussed corporations utilize differentiation competitive strategy that presumes using the appropriate pricing (relatively high costs). Given that predatory pricing requires lowed costs, this strategy is improper for Starbucks and Whole Foods. Hence, non-price predation that suggests making excessive investments that have the objective and likely effect of weakening or eliminating competitors (Mano & Durand, 2005, p. 5) is in compliance with the firms business practices, possibilities, and goals. Specifically, applying to predatory siting, Starbucks and Whole Foods set their shops in the places that have a potential for becoming the rich people districts.
At the same time, the proximity of these businesses considerably increases the real estate costs, which implies that these processes are interdependent and reinforce one another. Herzog (2016) names the above-described phenomenon the Whole Foods Effect. Consider the statistics, the presence of a specialty grocer nearby actually increased these values by around 17.5 percent (Herzog, 2016). The similar phenomenon is created by Starbucks. The study reveals that people are paying a premium for homes near Starbucks and thus, this company drives up the price of real estate (Kasperkevic, 2015). Whereas the growth of prices for the property within the proximity of Starbucks and Whole Foods is the statistically proven truth, some people believe that this effect has the reverse nature.
The discussed businesses strive to locate their spots in the areas with good urban accessibility, which is directly linked to the obtaining profits. It is a reasonable business approach, which does not imply any unethical practices. Similarly, Starbucks and Whole Foods fuels gentrification (Kasperkevic, 2015), by this, attracting the new dwellers, who can afford to pay for the created geographic advantages. Nevertheless, there are two negative effects that point to the predatory siting of these businesses. The first is that individuals who have less successful financial/social situation are forced to move away because the demand for costly real estate creates the respective supply and, thus, leave poorer people off-board. This socio-demographic tendency is beneficial for Starbucks and Whole Foods the companies that utilize differentiation competitive strategy with high prices. This example explicitly illustrates predatory siting in action. In particular, it displays the role of customers/potential clients in this process.
Nevertheless, predatory siting of the discussed companies is even more transparent in terms of treating their rivals. Consider an example, Starbucks is noticed to offer to pay leases that exceed market value if the building owner would refuse to allow competitors to occupy the same building (Starbucks sued, 2016). Another predatory siting strategy of the mentioned companies is proposing to buy the businesses of the competitors at below-market costs, and if this proposition is refused, Starbucks threatens to open own shop nearby (Starbucks sued, 2016). Furthermore, in a case when Starbucks enters the new area where competitors have already set their shops, it applies to predation by offering free drink samples in front of its store to lure customers away (Starbucks sued, 2016). Although increasing the popularity of this coffee shop, the above-described approaches abuse rivals. Scrutinizing predatory behavior, one may deduce that it is unethical because it sticks to unfair competition, which opposes the approach to survive rivalry by increasing the quality of products/services and setting reasonable prices.
Analyzing the performance of Whole Foods, no information is found about similar to Starbuckss rival abusing. Hence, the predatory siting is conducted by choosing affordable neighborhoods and turning them into wealthy districts (Herzog, 2016). In particular, the companys founder claims that financial prosperity of customers does not matter, but their education does (Herzog, 2016). Identifying the target audience and respectful locations, Whole Foods conceals predation. Nonetheless, scrutinizing this claim it becomes clear that receiving academic degrees, to a great extent, depends on family attitudes. Besides, it requires considerable financial input; and most importantly, people who get higher education are potentially the representatives of the upper middle and upper classes in the next decade or two. Therefore, it is natural to conclude that the detected target audience is in compliance with the Whole Foods choice of affordable areas that have a potential to be turned into the rich people districts. In this regard, the predatory siting manifests itself: individuals with degrees become loyal clients of the shop, simultaneously, growing revenues and making their neighborhoods richer, by this, chasing away their less lucky neighbors.
As it is illustrated in the above-revealed examples, both Starbucks and Whole Foods utilize predatory siting and related unethical business practices. Moreover, connecting their business performance to the emergence of the rich people areas, one can assume that it is a chicken-and-egg phenomenon. The advocates of both sides reveal valid arguments regarding what comes first a wealthy district or a business that serves to address the needs of its dwellers. Taking into account this scrutiny, one may deduce that both phenomena are in action, and they are closely interwoven to the extent when it is impossible to separate one from the other. Specifically, Starbucks and Whole Foods apply to predatory siting by spotting the areas with good accessibility and boost the gentrification of these districts. In this respect, it is important to understand the underlying mechanisms that predefine the choice of the potentially profitable spots.
Presumably, to seize profitable areas, Starbucks implements the land rent theory. It suggests that land use is the outcome of the rent-paying ability of different economic functions in urban areas, such as retailing, industry and residence (Rodrigue, n. d.). To put it simply, the best location for the business is in the places where people make money. According to this insight, the optimal spot should have highly developed industry and infrastructure. Besides, this area should be characterized with high urban density, have good transport connection, and should be easily accessed by the greatest possible amount of people. Having considered these characteristics, one can understand why companies attempt to set their shops in such locations. Nevertheless, since such spots are potentially highly profitable, their rent is quite high and, thus, is not affordable for every competitor (Rodrigue, n. d.). Consequently, it is more reasonable to detect and conquer this optimal territory before the rent prices grow high and before competitors coming. Exactly this approach is effectively utilized by Starbucks as well as by Whole Foods.
In addition, identifying profitable areas, companies refer to the leftover principle. Generally, the leftover principle explains the process of capital accumulation. That is why, its objectives include investing, profits, and land gentrification (Ordonez, 2007). To be more precise, it is important to detect the areas that have advantageous geographic factors, which can be utilized for turning resources into capital. People who live and work on such territories gain good profits, consequently, becoming richer and enriching the land. This positive trend attracts investing, which supports industrial development and assures the further gentrification of this area that is combined with increased revenues of the locals. Starbucks and Whole Foods adhere to these principles and, therefore, succeed in spotting potentially profitable areas. Thus, applying to non-price predation, these businesses eliminate competition and boost the micro-economy of the occupied territories.
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Without a doubt, fueling the prosperity of certain district is closely connected with branding and differentiation of competitive advantage. Specifically, both companies target audience consists of customers who can and are willing to pay for their status. It is a significant reason that predefines the concentration of wealthy districts in the vicinity of the discussed businesses. This principle resonates with one of Tillys assumptions about Market Power and Economies of Scale, which states that price is a proxy for pleasure (Economies of scale, 2006). Both firms utilize this idea for increasing revenues by creating the rich districts for their client base. Moreover, it is necessary to mention that constructing the notion of interdependence between high price and pleasure helps to anticipate the plausible price-predatory techniques of their rivals.
To summarize, the above-mentioned, it is appropriate to stress that the discussed business giants, Starbucks and Whole Foods, largely increase their revenues by applying to predatory strategies. In particular, these companies utilize non-price predation, which manifests itself through predatory siting and related approaches aimed towards increasing the companies wealth by conquering the potentially profitable markets, chasing away the rivals and poor customers. Despite being dubious in terms of corporate ethics, predatory siting is effective in boosting the gentrification of the chosen territories. This process is connected with the enhancement of the firms profits that is stipulated by the use of differentiation competitive strategy, which suggests creating the connection between financial prosperity and high costs. In this regard, one can observe the interwoven processes in which Starbucks and Whole Foods engage enrichment of their markets/clients, assemble them nearby, and simultaneously, enrich their neighborhoods. Finally, the success in detecting potentially profitable spots is connected with the proper use of the rent land theory, the leftover theory, and Tillys assumption about market power.
