* Movement to increase sustainability – In order to stabilize the industry, there was increasing focus on sustainable practices. The coffee industry was unique, in the sense that most producers were small scale farmers, rather than large corporate operations. Prices had experienced a significant decrease; farmers were not practicing in environmentally “friendly’ manner as they were ‘cutting corners’ in order to maximize dwindling profits. Different interest groups were being formed to encourage large buyers (i.e. Starbucks) to support farmers whom utilize sustainable practices. These groups included Conversation International; this grew stronger with the Fair Trade Movement. * Shift in bargaining power to the Buyer – Overproduction of coffee, internationally, had caused a stark decline of the price. This shifted the market to skew towards supporting the low cost producer of coffee; which in effect was punishing those producers whom practiced growing coffee in a sustainable manner. * Industry Growth – From 1999 to 2002, Starbucks experienced large growth in revenue. Further, industry wide, the volume of coffee purchased by consumers continued to grow. Thus, the industry required additional demand, while met by the sellers, was not being produced in a sustainable manner.
Key Internal Issues:
* Starbucks pride – Being a good ‘Corporate Citizen’ – From its infancy, Starbucks had given back to local communities, including countries where its coffee is produced. In 1999, Starbucks created the Corporate Social Responsibility (CSR) department to oversee involvement in literacy programs, community volunteering, environmental affairs, shade grown coffee, and international relief efforts. Starbucks mission statement includes, “premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.” * Strong relationship with employees and its customers – Starbucks calls its employees, their ‘partners.’ They invest heavy capital in their employee’s development and satisfaction. This has resulted in a turnover rate over 100% less than the industry average. Also, Starbucks defines its customers as their: partners (employees), retail customers, coffee growers, shareholders, and the community. This has led to their success. They define their brand, not just as selling coffee, but to entertain their customers. * Focus on Quality – Starbucks developed a rigid scrutiny over their production and quality assurance of the coffee they purchase. Sellers have to provide samples, prior to purchase, for Starbucks to ensure it passed their standards. Starbucks kept this quality assurance ‘in house’ to maintain control over their product.
* High End Product – Although a leader in the retail coffee industry, Starbucks is positioned as a ‘high-end’ brand. In 2001, over 60% of coffee was purchased in grocery stores. Starbucks purchased about 1% of the world’s coffee supply that year. Further, Starbucks commitment to producing the highest quality product, led to them paying a premium for the product. In 2001, they were paying over double per pound of coffee than what is was trading for on the commodities market. In 2000, gourmet coffee sales were just 8% of industry sales. * Mixed Trust in outside Sustainability Organizations – These nongovernmental organizations (NGO’s) can expose the organization. There are no confidentiality agreements. These groups, such as Conservation international and the Environmental Defense Fund, act independently. Thus if the relationship sours over time, it could have a negative impact on Starbucks. Also, they do not have to define their level of commitment to Starbucks. If the organization folded during the initiative, Starbucks would not be able to recoup costs even though reward(s) were not realized.
Summary of Findings:
* Starbucks is committed to improving