Editorial: Competition Is Good For Us
A block from where I live sits one of those ubiquitous Subway sandwich stores. A block away in another direction is Submarine Express, a small privately owned sandwich shop that's been in the community for many years. Both seem to be doing okay.
Why doesn't the Subway franchise with its familiar brand name and advertising clout overwhelm the mom-and-pop competitor? It's because the little place makes meatier, tastier sandwiches. Plus, a visit to the tiny shack usually scores an added bonus of pleasant conversation with an owner as opposed to mumbles from sullen kids with pins sticking out of their faces.
It's just one of many examples of little businesses thriving in the land of giants. When you delve into this, a surprising phenomenon comes into focus. It's not only that little businesses can hold their own against huge competitors, it appears that the presence of a formidable company in a marketplace can actually give a boost to smaller competitors. Subway's advertising whets peoples' appetite for sub sandwiches. That's half the marketing battle. Once that's done all Submarine Express has to do is convince people its sandwiches are better.
According to a Time magazine article, the number of independent coffee shops rose from 8,200 in 1999 to 8,800 in 2002, despite Starbucks popping up everywhere. The power of the Starbucks brand seems to be a tide that lifts all coffee shops. Coffee used to be a breakfast staple thrown in by restaurants virtually at cost. Starbucks has made it an end unto itself and trained people to pay three and a half bucks for a cup.
Likewise, you can still find a lot of neighborhood pet shops despite the dominance of Petco and PetsMart. Same with little bookstores amid behemoths like Borders, Barnes & Noble, Waldenbooks and amazon.com.
Last month we named New York City's Davis & Warshow Wholesaler of the Year. D & W operates eight successful plumbing showrooms in the NYC area, despite plentiful competition. President Frank Finkel had an interesting observation about a nearby Home Expo store that he didn't regard as competition. “Home Depot and Lowe's have helped create demand,” said Finkel. He's right. They stimulate interest in remodeling projects. From there it's simply a matter of hitching a ride on the brand name's bandwagon by better meeting customer needs.
Storefronts on Main Street tend to go vacant after a Wal-Mart moves into town. That may be due to lack of business acumen by most mom-and-pop owners. You don't need much marketing savvy when you're the only one in town supplying certain products or services. If the owners thought things through, they just might find a way to compete by filling a niche or doing something better than Wal-Mart. Or, simply capitalize on the convenience factor.
It's interesting that the likes of Home Depot and Borders have gone retrograde in developing smaller scale stores. They found out that neighborhood hardware stores and book dealers retain not just charm, but have some marketing advantages over big companies. Home Depot is a great place to shop for bulky home improvement materials, but its size and bustle make it a hassle to patronize if you just need a box of nails. A little bookstore can specialize in an oddball category the big chains might find unprofitable. A favorite ploy of independent book dealers is to host book discussion groups, whose members wouldn't think of buying books from anyone else.
Roll-up consolidation has failed in the PHCP industry and many others largely because the consolidators overrated the advantages of sheer size. A small local firm competing against a national chain doesn't really need to climb Mt. Everest, just hop over one of its lower ridges. That's because he's not really competing against a billion-dollar business. He's only bumping up against a branch operation whose volume may be a little more and sometimes less than his own. The local operation may enjoy some competitive advantages in purchasing and other areas, but it also likely has more corporate overhead and rigamarole to deal with. No matter what its size, a company that knows the market and its players is likely to hold its own against the giants.
Small businesses face a lot of problems. The labor market and government regulation are among the most onerous, in large measure because they are beyond the control of business owners. Beating the competition is very much within everyone's control, and thus ought to rank very low on the list of problems that cause business owners to lose sleep.
Competition is good for everyone in business. Competition makes us better at whatever it is we do for a living.