Coffee and Starbucks

External Environmental Analysis of Starbucks and the Coffee Industry Harold Brown Strategic Management March 3, 2011

Costa Rica now provided raw material for Starbucks which accounted for about 15 percent of the total coffee beans Starbucks needed every year. Costa Rica as one of the raw material suppliers plays an important role in global value chain. Coffee has played a pivotal role in the development of Costa Rica. It has shaped social, cultural and political institutions and is still one of country’s major agricultural exports. (Anywhere, 2016) The global value chain in this coffee industry can be described that Starbucks, the centre in this coffee global value chain, purchasing raw materials (coffee beans) from coffee farms in Costa Rica, reprocessing and reproducing in retail shops, selling the finished products (various kinds of coffee) to customers in the world.

Despite Peet’s Coffee and Tea being a corporate company, and the amount of stores it has produced, the goals and ambitions have not changed much. Coffee beans and tea’s are still the main focus of Peet’s and where they get most their revenue from. Bill Lilla, Peet’s executive vice president, said his company ensures quality through long-term relationships with growers, and by paying them more than the going rate. On the other hand, Starbucks Coffee insists their size has not affected quality, but it is hard to believe when their size is above and beyond the thousands. As the saying goes, too many cooks ruin the stew, and in this case, Starbucks would be the cooks, and its coffee and early aspirations are the

Starbucks desire as the leader in the specialty coffee industry is to be acknowledged for its responsibility to coffee farmers and their families to improve their well-being. The corporation’s primary stakeholders are broad organizations such as, coffee trade associations, suppliers, and groups with interest in sustainable coffee production. Including non-profit groups focused on human rights, social justice, and environmental issues. Other stakeholders include governmental agencies such as, U. S. AID (Starbucks Corporation, 2010).

Starbucks has a long-standing effort in ethical conduct and global responsibility. One of the major efforts is sourcing ethically grown coffee. For

1. What factors accounted for Starbucks’ extraordinary success in the early 1990’s? What was so compelling about the Starbucks’ value proposition? What brand image did Starbucks develop during this period? Is the value proposition still valid in 2002?

In the early 1990s, Smith and Shultz were able to see the importance of the environment in which coffee was sold. In the past, coffee was generally treated as a commodity and quality was considered secondary to cost. Both men saw the opportunity to expand this experience, particularly the

Perhaps the most telling of the core differences between Wal-Mart and Starbucks’ sustainability agendas relates to their motivation for sustainability measures to begin with. Wal-Mart seems to pursue sustainability measures for purely selfish reasons, utilizing sustainability measures more as a tool for their Public Relations department than out of any real attempt at social responsibility. Starbucks however shows by the company’s actions that they are in fact genuinely concerned with operating sustainably. Starbucks makes realistic sustainability goals, then actively strives to meet them, publicly reporting on their progress annually (Timm 2005).

As Starbucks competes in the coffee shop industry, they need to be aware of a few factors that affect their operating environment. These factors consist of Trump’s Import Tax Laws, JAB, and New Emerging Technology. Trump is planning to sign a law to decrease tax deductions on imports, which would make importing more expensive. One of Starbuck’s biggest raw material consumption is coffee beans, which are imported from countries like Brazil, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, México, Panamá, Perú and Puerto Rico (Fact Sheet: Starbucks Latin America). Therefore, this would affect Starbucks first hand since the environment for growing coffee beans is better in other countries than it is

In general the coffeehouse industry in the United States was experiencing an increase in coffee consumption per capita due to the “Starbucks effect”. At this time Starbucks was operating approximately 20,000 stores in the United States and was living a fast expansion strategy worldwide.

The vital part in political concerning Starbucks is that they have to comply with the regulations from where they extract the raw materials. This has caused Starbucks to be more aware in adhering to the current social and environmental norms. As the politicians from the West and the activist are becoming more aware of Starbucks garnering its raw material, Starbucks are currently conforming to the strategies that are in line with “Fair Trade” practices (PESTEL Analysis of Starbucks, n.d.). This issue has become the basis of Starbuck’s sourcing strategies.

As Starbucks continues to expand, more profits and more risks are in store. The corporation’s brand and reputation may be put at risk as the quality of the products supplied by third parties is outside of the company’s control (―Starbucks Corporation Fiscal 2009 Annual Report‖, 20). Partnering with farmers and suppliers meant letting go of control over the quality of certain products. In order to retain customers and protect their brand, Starbucks must establish and maintain effective working relationships with reputable farmers and suppliers, which could increase costs.

As a part of environmental awareness coffee companies will have to be aware about the way their coffee beans are produced and the way to manufacture and sell their products. Design their supply chain

Starbucks inbound logistics comprises of the firm’s quality control specialist in selecting top-quality Arabia coffee beans from suppliers that maintain a sustainable approach. Starbucks supports ethical sourcing by operating “responsible purchasing practices, farmer support…” (Starbucks, 2016) also corporate social responsibility (CSR). Additionally, their tactic is utilizing the “Coffee and Farmer Equity (C.A.F.E.) Practices” (Starbucks, 2016), wherein this approach is the first set of sustainability benchmarks in the coffee industry and is certified by third-party logistics professionals. The C.A.F.E. Practices has assisted Starbucks in relation to generating a “long-term supply of high-quality coffee” (Starbucks, 2016) and influencing the lives of the farmers and their communities. Furthermore, Starbucks utilizes economies of scales in their inbound logistics activities by developing outstanding supply chain procedures by using C.A.F.E. and also includes collaborating internationally with managers discussing strategic alliances through suppliers for their products. Starbucks have recently

Starbucks then reorganized their supply chain – developing new cost-effective models, relooking into suppliers and reconsidering expenditures by ingredient instead of purchase price (Cooke, 2010). The supply chain was streamlined into 4 categories: Plan, Source, Make and Deliver, adopting a simplified system where coffee beans were manufactured in the same region where they are sold (Starbucks, 2012b, November 30). This was modeled by existing