In these last few days, a pot of controversy has been brewing over the arrival of Starbucks into Ecuador. This has sparked considerable debate over whether its presence will ultimately benefit or harm the country’s specialty coffee industry. On one side of the argument, there is anticipation about the potential for job creation and the prospect of revitalizing Ecuador’s declining coffee production. Conversely, there are concerns that Starbucks might exacerbate an already crowded café market, and at the same time push out national cafes that have been working to strengthen local production.
Given Ecuador’s use of the dollar and its labor laws, specialty coffee production is more costly compared to neighboring countries, Colombia and Peru. Moreover, while there has been a slight improvement in productivity per hectare over the years, overall national production continues to decline. Recent reports suggest that our coffee production only meets 50% of national demand, resulting in fierce competition among national roasters, cafes, and exporters for the best coffee beans. Due to the high cost of Ecuadorian coffee, coupled with the fact that the Starbucks franchisor entering the Ecuadorian market is based in Peru; it is very plausible that this franchisor will leverage an existing logistical system to bring low priced Peruvian coffee to Ecuador. While Starbucks does have commendable coffee farmer assistance programs at the corporate level, it’s unlikely that Ecuador will be prioritized amidst the many coffee regions they operate in.
Like many multinational corporations, Starbucks principal obligations are towards its shareholders and investors. To remain competitive in Ecuador’s saturated market, it’s doubtful that they will invest significantly enough to make a substantial impact on our specialty coffee industry. The likely scenario is as follows: initial interactions and meetings with local farmers, sticker shock regarding pricing and availability, and eventual importation of roasted and packaged coffee from their suppliers in Peru, Colombia, and elsewhere with only seasonal offerings from Ecuador. This mirrors a similar situation with McDonald’s and the sourcing of local frozen par-fried potatoes, where Ecuadorian potatoes failed to meet their specifications, leading to the majority being imported from Canada and the United States.
Proponents of Starbucks’ entry may tout job creation as a significant benefit. However, it’s arguable that these jobs already exist and will simply be absorbed from other cafes forced out of business. Given that coffee consumption has only increased by 5%-10% over the last few years versus the increase of cafes at 48% and the fact that Ecuador’s economy has grown stagnant; there is no indication that Starbucks will create a greater market of consumers. The market Starbucks stands to capture primarily comprises the diminishing middle and upper classes, primarily centered around malls in major cities. Starbucks will directly impact the growth of existing major coffee chains in Ecuador, such as Sweet & Coffee and Juan Valdez, as well as ice cream establishments like Tutto Fredo and Monte Biancos. While there may be a brief period of job creation, the lack of new market growth means either Starbucks or its competitors will eventually have to downsize. Perhaps the jobs Starbucks creates will adhere to employment laws more stringently than many small businesses, providing relief for our failing IESS (social security) system. However, it’s worth considering that the jobs they replace may come from established chains already complying with government regulations.
A decade ago, one of Ecuador’s charms was its relative lack of interest from multinational corporations. This allowed for the growth of national companies that, out of necessity for a steady supply of raw materials, collaborated closely with farming communities, thereby creating mutual growth. However, the recent influx of multinationals like Krispy Kreme, McDonald’s, IHOP, and now Starbucks threatens this dynamic. These companies often bring their own international suppliers, neglecting local rural communities and contributing to rural poverty, immigration, and economic disparities between urban and rural areas.
While acknowledging the inevitability of progress and to end on a positive note, Starbucks’ entry into Ecuador might spur an increase in coffee consumption among the younger population drawn to trendy drinks like Frappuccinos. This could foster a counter-culture of hip youth seeking locally sourced specialty coffee. Starbucks may then be compelled to reassess its supply chain and invest in Ecuador’s coffee industry, or ultimately withdraw, allowing local businesses to reclaim their niche. Regardless of the outcome, I’m intrigued to witness how the Starbucks scenario unfolds in Ecuador.
I wonder about the Bolivian experience as i understand they reject the entry from these multinationals.