Penny Stafford claims the “insatiable and unchecked ambition” of coffee giant Starbucks Corp. forced her to close her Seattle-area espresso stand just four months after opening. But she may have been too ambitious herself in filing an antitrust suit against the coffee giant.

The proposed class action alleges Starbucks sent “baristas” from a nearby store to hand out free samples in front of Stafford's Belvi Coffee and Tea Exchange and orchestrated special lease contracts with Seattle landlords, paying above-market rent if the landlords promised not to rent similar property to competitors.

“This action arises from the insatiable and unchecked ambition of the world's largest multinational chain of specialty coffee shops to continue to dominate the market for specialty coffee,” the complaint says.

In an antitrust case under Section 2 of the Sherman Act, the plaintiff must show that the defendant possesses monopoly power in a relevant market and used anticompetitive methods to achieve or maintain its position. Anticompetitive acts are those that tend to exclude or restrict competition “on some basis other than efficiency.”

According to Stafford, Starbucks has engaged in such behavior through its exclusionary real estate practices. “The exclusive lease agreements prohibit the lessors from leasing to any other retailers who wish to operate 'espresso pieces' on the same premises,” she alleges.

In the Bellevue suburb of Seattle where Stafford wanted to open her espresso stand, Starbucks allegedly has exclusive rights to 67 percent of the prime (Class “A”) office building space of 250,000 square feet or more. She eventually set up shop in a downtown Bellevue building also occupied by a Starbucks but closed four months later.

But why Stafford would want to open a store in the same exact building as Starbucks is anyone's guess. If she really is as "well-funded and well-connected in the Puget Sound commercial real estate market" as she claims to be, any number of prime locations should have been available to her that were not near a Starbucks.

In a business where location is everything, Starbucks could certainly argue that exclusive leases are an efficient way of ensuring a return on real estate investment. Why spend money on identifying and developing a store location if the door is left open for competitors to lease in the same building?

As for those “predatory” Starbucks' baristas, such tactics may well have alienated more of Stafford's customers than they poached. Indeed, according to a recent wire service article, independent coffeehouses in Seattle have profited from positioning themselves as an antidote to the corporate coffee behemoth.

Stafford, who now operates a full store in another Bellevue building, shouldn't blame Starbucks because her business strategy wasn't up to scratch.

By Peyton Burgess (CNS)
11/21/06