The Self-Destructive Logic of Chain Stores

The LATimes hit the nail on the head when it comes to the self-destructive behavior of national chain stores. Focusing in on Starbucks and Krispy Kreme in particular, Daniel Gross explains how the transformation from a regional to a national chain, conducted at a frenzied pace demanded by shareholders, leads to the cheapening of a brand and its eventual fiscal problems. The story goes like this: Regional chain with quality product and strong customer loyalty decides it's time to expand into the national market. The initial expansion is highly successful (since the product is so great!), so it's easy for the chain to secure financing for even faster expansion. Soon enough the chain goes public, giving it access to even more capital for its expansion efforts. Shareholders, however, demand ever greater profits, so the chain starts sacrificing quality in exchange for an efficient supply chain and crappy customer service. Worse still, the regional identity associated with the brand collapses, since the brand is present in all regional markets. As Daniel Gross puts it, "[w]hen a chain becomes of every place, it's no longer of any place." Eventually, the expansion (and the profits associated with it) slows down, and CEO's find themselves in the hot seat.

The urban-centric debate has often framed the chain store issue as independent retail vs. big bad national chain stores. I think that it may be more productive to think about the issue as regional chains vs. national chains. While I'm still a big backer of independent retail, I think it's clear that it is possible for a regional chain to stay committed to quality products and customer service without bankrupting its host region's cultural identity.

What keeps regional chains regional? Which regional chains go national? Why are businesses so keen on growth, rather than stability, in their finances? Are there public policies available to government to promote regional business and discourage nationalization of brands?