Why Italy could not build a coffee chain like Starbucks (despite being much better at making Coffee) ?

An interesting conversation between Profs. Luigi Zingales and Tyler Cowen on series of issues.

Zingales wonders why Italy could not build a chain of coffee shops despite being great at making coffee:

COWEN: ….One of my favorite papers by you isyour paper with Bruno Pellegrino. It’s a great name for coauthoring a paper on Italy. The way I read that paper is you’re saying something like this: Italy, right now, doesn’t have enough firms which could be 5 or 10 times larger than they currently are.

The global economy, over the last 20 years, has put greater emphasis on scaling up. The 1980s were much less about scaling up. You could do better with small- to medium‑sized enterprises in the 1980s. Now everything is about scaling up. You have Apple, you have Google. Kind of mega‑scale.

Italy, more or less, has stayed still. China has scaled up. In the new world where scaling up is really what matters, Italy is left behind. That’s the fundamental productivity reason why even the Italian North hasn’t, in some ways, done that well. Is that the way you think about it?

ZINGALES: Absolutely, but it’s not just the Apple of this world. It’s also the Starbucks. If there is one thing Italy is competitive on and is better than everybody else is food. The fact that the major chain of coffee is not Italian is really hurtful.

[laughter]

ZINGALES: No, I understand that Apple is an American product, but when I arrived in this country 27 years ago, you were not really drinking coffee. You were drinking a dark thing that tastes like I don’t say what because we’re online. The culture of coffee did not exist here.

The culture of coffee and a café where you sit and drink, et cetera, what Starbucks is, is an Italian or at most French culture. Why were you unable to export this? This is my little explanation. By the way, the only country in the world where Starbucks has not arrived is Italy.

If you go to an Italian coffee shop, the productivity of the individual working there is five times the one of Starbucks. They do coffee, cappuccino, one after the other, no questions asked. They understand five orders contemporaneously.

You come here to the United States, you first go to the cashier. You have to repeat five times what you want, then another repeat five times to the one producing it, and then five times to the one delivering it. How can Starbucks compete? The answer is very simple. The bar, the Italian café, is one shop, one establishment thing.
If you go to a café, you’re going to find that at the register, there is an old woman who is generally owner, and she watches over everything. Why?
COWEN: You can’t scale monitoring.
ZINGALES: Exactly, but why? Because the model they’re doing allows people to steal whatever they want. You take money here, you use coffee all over the place. You have no monitoring of how much coffee is consumed, how much revenue I produce. If you don’t have the lady checking you out throughout the day, at the end of the day, there’s zero revenues and all cost.
In Starbucks, everything is computerized, so you know at the end of the day how many coffee you have to have, how much rent you have to have, how much coffee you have consumed. You can actually order coffee online automatically, because everything is centralized in Seattle, so you can scale it.
The extreme agency problems of Italy make it difficult to scale firms. Either you have family firms in which you have all the employees that are part of the family, and it’s not obvious that family does not steal, but still less so.
Superb reading. All through..

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