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Student Name: SHANTANU BATTA

Student ID: st20090121
Module Name: STRATEGIC MANAGEMNT
Module Number: MBA 7002
Module Leader: Prof. Siddhartha Shankar Bose
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Table of Contents

Introduction…………………………………………………………………………………………2

Situation Analysis of the Industry in which Starbucks operates for last 5 to 10 years…………3-9

Analysis of the key Strategic challenges faced by Starbucks……………………………………10-14

and how it tackled them in the last 5 to 10 years

Assessment of Leadership and Organisational performance in managing the change………..14-15

Evaluating Starbucks Core Competence, Networks and Partnerships……………………… 15-17

Business Ethics and Corporate Social Responsibility practice…………………………………17-19

undertaken by Starbucks and how it helped the Starbucks to meet its strategic goals

Conclusion…………………………………………………………………………………………...19

Bibliography………………………………………………………………………………………20-22
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Introduction

The following report is made using secondary sources of information on “Starbucks”, which is a
multi-national corporation (MNC). It covers strategic changes made by the organisation in last 5-10
years to meet the globalisation challenges and to sustain its business in a highly competitive world.

Starbucks History

The coffee shop was started as a small single store in Seattle, Washington, U.S.A. in 1971 by three
people named Jerry Baldwin, Zev Siegl, and Gordon Bowker.In 1983, Howard Schultz a former
employee of the company travelled to Italy and got impressed by the popularity of espresso bars in
Milan. He sees the potential to develop a similar coffee house culture in Seattle. In 1987, Schultz
purchased the store from the three owners and then rebranded his “Il Giornale coffee”, which was
founded in 1985 and was offering brewed coffee and espresso beverages made from Starbucks
coffee beans as “Starbucks”. The acquisition was done with the backing of local investors and he
changed the store name to Starbucks Corporation. Soon then the stores expanded outside Seattle to
Vancouver and Chicago in the same year.

Source: Starbucks Coffee Company. (2016). Starbucks Company Timeline. [Online] Available at:
http://www.starbucks.com/about-us/company-information/starbucks-company-timeline [Accessed
29 Mar. 2016].

How “Starbucks”, the name came?

The name “Starbucks” came when the three founders started searching for names that began with
“st”. The reason for looking with “st” was because a person named Terry Hecker, who ran an ad
agency told the founders that words starting with “st” are very powerful.

Then one day while looking at an old mining map of the Mount Rainer and Cascades, an old mining
town named “Starbo” was there. Bowker told the Seattle Times. “As soon as I saw Starbo, I, of
course, jumped to Melville’s first mate [named Starbuck] in ‘Moby-Dick’.”

The logo; which was brown in colour originally, now green, was inspired by the sea – featuring a
twin‐ tailed siren from Greek mythology and has undergone changes from 1971 to 2011. Source:
Business Insider. (2016). Starbucks. [Online] Available at: http://www.businessinsider.in/The-
stories-of-how-7-famous-fast-food-chains-got-their-names/Starbucks/slideshow/50978259.cms
[Accessed 29 Mar. 2016].
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Situation Analysis of the Industry in which Starbucks operates for last 5 to 10 years

Presently, as per Forbes and Fortune reports Starbucks is among the top 100 companies in the world
with more than 20,000 stores present internationally.

The company’s primary offering is different types of speciality coffees which have always been its
core product. Starbucks store ambience and its baristas behaviour with customers have provided a
captivating atmosphere for coffee lovers. That’s why focus on baristas training before they join the
store operations and store design and structure have always played as a forefront factor for the
company’s success which goes hand in hand while serving coffee. The decisions surrounding
designing new stores are quite innovative and represent a new consumer class, the way Starbucks
treats innovation is by following procedures and product lines with teams that are expected to meet
the demand in the local and global market arenas (Osland & Turner, 2011) (Lemus et al., 2015).

Starbucks sells coffee both as a drink and in packet form through retail stores. However, the overall
coffee consumption demand across the world differs and the industry took a hit during economic
crises of 2008 which led to lower coffee sales and production. As per “International Coffee
Organisation”, which is an intergovernmental body of coffee exporting and importing countries and
brings governments to tackle the challenges facing the world coffee sector through international
cooperation, following information was available:

1) In January, there was a two-year low drop in the coffee market, mainly due to falling prices of
Robusta.

2) During first quarters of 2015 and 16, exports were 2.6% more than the previous year on 26.9
million bags and there were very fewer concerns in supply.

3) “Conab” which is a National Supply Company present in all Brazilian regions, following the
trajectory of agricultural production, from planting planning to reach the consumer's table, has
released its first estimation of coffee production in Brazil for the upcoming crop year 2016/17,
which is provisionally expected to recover to the record volumes of 2012/13 and 2013/14, where
there was lower output. It may lead to putting downward pressure on prices. Robusta and Arabica
are the two primarily coffee beans which are commercially grown and sold.

Coffee Trade Statistics - December 2015

4) When compared with nearly 9.18 million in December 2014, coffee exports around the globe
amounted to nearly 9.31 million bags in December 2015
5) Exports in the first three months of the coffee year 2015/16 (Oct/15 to Dec/15) have increased
by 2.6% in comparison with the first three months of the last coffee year.
6) When compared with 68.96 million bags last year; exports of Arabica totalled 70.17 million
bags for all the twelve months in 2015, when compared to 45.8 million bags Robusta exports
amounted to 42.3 million bags.
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Source: Ico.org. (2016). International Coffee Organization - What's New. [Online] Available at:
http://www.ico.org/ [Accessed 29 Mar. 2016].

As per Statista which is an online statistics portal following information was obtained:

1. In U.S at retail level, ground coffee and roast coffee had highest sales share of 36% in 2013

2. Based on sales, Folgers and Maxwell were the main ground coffee brands for the at-home
coffee segment. Folgers accounted for 852.4 million U.S. dollars in 2012.

3. Starbucks and Dunkin Brands Inc. dominated the coffee shop market with a combined market
share of almost 50 percent in 2011.

4. In the United States, the revenue of the coffee and snack shop industry was forecasted to exceed
30 billion U.S. dollars in 2014. The same year, there were more than half a million people
employed and the industry saw a boost of 52,684 establishments across the United States.

Source: Statista.com. (2015). U.S. Coffee Market - Statistics & Facts. [Online] Available at:
http://www.statista.com/topics/1248/coffee-market/ [Accessed 29 Mar. 2016].

Source: Statista. (2016). Revenue distribution of Starbucks from 2009 to 2015, by product type (in
billion U.S. dollars)*. [Online] Available at: http://www.statista.com/statistics/219513/starbucks-
revenue-by-product-type/ [Accessed 29 Mar. 2016].
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Below we have statistic showing the Starbucks' revenue distribution from 2009 to 2015, by product
type.

Source: Source: Statista. (2016). Revenue distribution of Starbucks from 2009 to 2015, by product
type (in billion U.S. dollars)*. [Online] Available at:
http://www.statista.com/statistics/219513/starbucks-revenue-by-product-type/ [Accessed 29 Mar.
2016].
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When it comes to European market we have following statistics available as per European Coffee
Federation:

Source: European Coffee Federation, (2014). European Coffee Report 2013/14. 35th series.
[Online] pp.1-23. Available at: http://www.ecf-coffee.org/images/European_Coffee_Report_2013-
14.pdf [Accessed 29 Mar. 2016].
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Source: Ecf-coffee.org. (2015). Coffee consumption in Europe. [Online] Available at:

http://www.ecf-coffee.org/about-coffee/coffee-consumption-in-europe [Accessed 29 Mar. 2016].

Analysis of Indian Coffee Industry

With the adoption of western lifestyle, particularly American, increasing disposable income, coffee
consumption per capita is increasing worldwide in emerging markets such as India, China, and
other South East Asian countries. As per Economic Times, the Indian coffee retail market is
becoming vivacious over the last 12 months with Starbucks having entered India in 2012 and is on
an expansion drive. The market size of in Indian retail coffee is estimated at about Rs 1700 crore
plus and is expected to grow at a fast pace of over 20% in the recent times
(economictimes.indiatimes.com, 2014).

In India, Starbucks now operates more than fifty stores across New Delhi, Gurgaon Mumbai, Pune,
Bangalore, and Chennai. Starbucks came into India with a joint venture of 50:50 with Tata Global
Beverages. The main target market is business class executives and premium class of the Indian
society.

As per Economic Times, when it comes to other coffee chains; Costa Coffee and Gloria Jeans are
still struggling to gain market share and built a profitable business. The arrival of Dunkin Donuts
and Krispy Kreme has also intensified competition in the market which has resulted in increased
staff salaries, industry officials said, for example, the salary of a store staff has gone up between Rs
20,000 and Rs 25,000 compared to about Rs 17,000 more than a year ago
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Source: economictimes.indiatimes.com. (2014). Landmark Group may snap franchisee agreement

with Gloria Jean’s. [Online] Available at: http://articles.economictimes.indiatimes.com/2014-04-
11/news/49058893_1_costa-coffee-landmark-group-citymax [Accessed 29 Mar. 2016].

The Indian coffee industry is dominated by two major brands: Starbucks and Café Coffee Day. Café
Coffee Day is an Indian brand and caters to those segment of the Indian population who can afford
a decent income and the pricing of its product is quite less as compared to Starbucks.

Over the last one decade, Indian consumers have shifted from being saving oriented to be more
consumption oriented, more so in the last 4 years. This shift in our consumer behaviour has taken
away the mental barrier on spending on eating out. Thus, spending Rs 200-400 on a cup of coffee
along with some food is not a big deterrent for today's Indian consumers
(economictimes.indiatimes.com, 2014).
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However, instability in prices of coffee beans determines market costs and profitability margins.
With growing demand in other countries which has resulted in shortages in supply, the global price
of coffee has increased highly in recent years. Coffee exporting alone is a $20 billion dollar
industry, mostly consumed by industrialized nations while being produced by the world's
underclass (businessinsider.in, n.d).

But, overall there is no hurdle to the growth of coffee shop industry as people’s preference and
experiment for speciality coffee is increasing along with snacks offered in a coffee shop. As per
“The Telegraph”, which is a leading newspaper in U.K following information is available:

a) 15 percent of the market growth in branded coffee shop was led by Caffe Nero, Starbucks, and
Costa. This amounted to turnover of £3.3billion and more than half of the branded coffee shop
market is controlled by these three chains

b) With consumers, growing appetite for coffee and a need for a relaxed and socially friendly
coffee shop, the non-specialist sector, from pubs to supermarkets, have also started focusing on
serving quality coffee in recent years

c) In U.K, now there are approximately 8,000 non-specialist coffee outlets. When compared with
branded coffee shops which are 31 percent and independent coffee shops which are 30 percent,
they account for roughly 39 percent of the total market

d) It is estimated, that by 2025, the total UK coffee shop market will increase by 30,000 outlets.
There would also be a breakthrough of £15bn in sales over the next decade.

e) Britons spent £7.9bn in coffee shops this year, with sales across the market 10pc higher than last
year as café culture tightened its clutch on the UK.

f) With 12 percent increase in the number of branded coffee chains, the number of coffee shops
broke past 20,000 in 2015, according to the Project Cafe 2016 UK report from Allegra World
Coffee Portal.
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Analysis of the key Strategic challenges faced by Starbucks and how it tackled them in the last
5 to 10 years

The biggest challenge Starbucks faced was during global economic crises in 2008.Howard Schultz
returned back to the company and became an indispensable asset. The way he managed to make the
company’s growth steady during that tough time has become a learning for all industry leaders
across different industries. There were other coffee chains especially McDonalds with its McCafe
and Dunkin Doughnuts offering low-cost specialty coffee for budget restricted consumers, although
competitors coffee was not superior to Starbucks in terms of quality but in some way managed to
take some of Starbucks market share. Starbucks was already decreasing its performance in 2006,
two years before the Nasdaq index - market where the actions are transacted - and its comparable
industry (Exhibit 10), and before the American population felt the budget restriction (Exhibit 11)
(Isabel Vaz, 2011).

On top of that Starbucks chain operating in Asian countries was not that much profitable because
Asian consumers preferred tea over coffee.
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In works of (Batchelor & Krister 2012) it is mentioned that “Starbucks’ challenge lies in the
balancing of two contradictory identities: it wants to become an ever-expanding multinational
corporation and retain the image of a friendly small business”. It is also mentioned that the
company’s in-store language can be viewed as a rhetorical solution to the dilemma, an attempt to
sustain the myth of the non-commercial coffee house, denying consumerism while creating visions
of community and connection. (p. 438)

However, how Starbucks managed to turn around itself during 2008 recession was one of the
biggest challenges it successfully fought which is illustrated through points below:

a) As per Business today news of 2014, as soon as Schultz resumed as CEO of the company a
letter was sent by him to the employees stating that Starbucks need to focus back on customers
instead of focussing on bureaucracy. “Reigniting the emotional attachment with customers”,
was Schultz objective, which was made very clear by him.

b) The rapid expansion of stores for the sake of growth without focusing on customer needs and
innovation led Schultz to shut down around 900 underperforming stores and lay off more than
1000 employees which reduced operating costs for the store.

c) In the work of (Gambardella, 2009), it was found that Starbucks, with a planned structural
expense reduction of $500 million in fiscal 2009, started aligning its cost structure to its current
business strategy by focusing its attention on how to increase profits in its existing stores. All
this was announced to the public on March 18, 2009.

d) The Prepaid Cards that had been introduced in 2001 were, in 2008, supplied with a new
function, a reward program. By doing so, clients were able to customize their drinks for free. It
was a clear incentive to build a deeper relation and even attract more heavy users (Isabel Vaz,
2011).

e) Starbucks through heavy advertising beside their word of mouth incitation events started
competing with McDonalds and other market players. The means used were TV campaigns or
coupons in newspapers. It was a very high investment, about $100 million in 2008, but it was a
strong method to increase visibility.

f) The quality of coffee was reinforced through the adoption of manually operated new espresso
machine called “Mastrena”, which allowed customers to see and interact with the barista while
the drink was being made. Thus, the machine allowed the technique of making coffee which
was practiced by employees, and in the overall process, speed was not compromised.
Morningstar analyst John Owens (November 11, 2008) said: “We believe McDonalds, Dunkin’
Donuts, and other fast food chains compete for more on price while Starbucks caters to
customers aspiring to a higher-end experience, with baristas handcrafting and customizing the
drinks(Gambardella, 2009).
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g) Starbucks acquired a Coffee Equipment Company in March 2008, which was a big move which
provided Starbucks access to a machine named “Clover” which could brew one cup at a time,
instead of a pot. Clover-enabled temperature controlling, the amount of water, and brewing
period through a number of programmes adapted to each type of bean, without taking too much
time. Compared to a French drink, which took ten minutes a good quality coffee took two
minutes. The acquirement was an incentive for media to dedicate more attention to Starbucks,
the machines were being acclaimed: “now you can get perfect extraction” published in The New
York Times; “ingenious” and “the coffee is so good people have no problem paying $6 for a
cup” was stated in The Economist (Isabel Vaz, 2011).

h) In works of (Isabel Vaz, 2011), it also mentioned that in January 2011, redesigning of
Starbucks logo was the most recent change which was an approach used to expand the
Starbucks as a brand name into new directions. It was done by removing the name “Starbucks
Coffee”, which allowed the company to penetrate into new distribution channels, and with
different kinds of products in a better way

i) In order to compete with brands offering low-cost quality coffee, Starbucks coffee was made
available in fast food chains, such as McDonalds and Subway, coffeehouses, movies theatres
and supermarkets.

j) The store design, furniture, and structure were adjusted as per the location and local culture. It
varied for students, where more space was required and for take-away customers, where space
was limited. Morningstar analyst John Owens (November 11, 2008) said: Rather than
significantly lower its beverage price, it is choosing to find ways to cut costs through less
structural expansion and improved operational efficiencies(Gambardella, 2009).

k) After the 2009 financial crisis, Starbucks faced up with the most difficult stage in the
development, when someone proposed to cut staff benefits options, however, the person who
advise this idea get the answer is, "If you think so, you can quit Starbucks." (Jianfei, 2014).
This was said because the company equates people engaging in business as the highest ideas,
which makes it find the soul again, then the stock value has grown 114% since October 2010.
From company’s website, it is also found that it was the first U.S. Company to offer
comprehensive healthcare coverage and equity in the form of stock to the part-time worker.

l) Starbucks has created a system of business where even the lowest paid employee is still
encouraged to take pride in the company for which he works because it is tied to his
compensation, which has helped to infiltrate the mission statement of Starbucks into all levels
of employees (Leshner, Camacho and Damassa, 2007).

From Business Today following five points were obtained:

m) On March 2008, the company came up with "My Starbucks Idea" where customers could
exchange ideas directly with the company and among themselves. There were around 93,000
opinions, ideas, and suggestions on everything such as products, advertising, services, in-store
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music, layout, corporate social responsibility etc. which were shared among nearly 1.3 million
people using social media which led to 5.5 million increase in page views per month. The
feasible and successful were heard and implemented which resulted in a robust and loyal fan for
the company.

n) Through its iPhone app features such as nutrition-based information, store locator, and rewards
programme, the brand integrated and enhanced its social media community fabric.

o) 'MyStarbucksSignature', an initiative allowed consumers to develop, name and share the new
flavour of their own signature drinks (hot or cold coffee), with the community. This initiative
allowed Starbucks to inform about the large and different range of product it was offering
worldwide. Consumers were also displayed with how to order their signature cup and what it
would look like. Quantity and ingredient mix were the only modification consumers could do in
their signature drink.

p) In 2008, in order to increase customer footfalls during breakfast hours, a free pastry was given
with a coffee bought before 10:30 a.m. This promotion led to the creation of online traction and
over one million people across the US queued up at Starbucks outlets.

q) When it came to employees and baristas, a separate page was created for them, which was used
to generate and debate ideas. In 2008, Brad Nelson a 28-year-old former barista became chain’s
voice on the Twitter. Starbucks was looking for ideas to re-engage with its customers, so, it let
him begin a Twitter handle for Starbucks on his suggestion which resulted in 775,000 followers.

Source: Businesstoday.in. (2014). Brewing innovation. [Online] Available at:

http://www.businesstoday.in/magazine/lbs-case-study/how-starbucks-survived-the-financial-
meltdown-of-2008/story/210059.html [Accessed 29 Mar. 2016].

As per Business Insider slides, Starbucks also took following measures to overcome economic
slowdown:

a) The company also decided to only deliver whole-bean coffee to its stores and required baristas
to grind the beans in the stores. Any coffee that had been sitting more than 30 minutes was to be
tossed.

b) Schultz decided to nix heated breakfast sandwiches from the menu as they were overpowering
the smell of the coffee and reintroduced them later with healthier ingredients.

c) All outdated computers and cash registers were replaced with new ones which resulted in saving
of 700,000 wait-in-line hours.

d) Customer rewards cards were created by Schultz, which in July 2008 were loaded with $150
million.

e) Overhauling of the entertainment division was done through scaling back on all the CDs and
books that had started to overpower the stores
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f) An instant coffee, “VIA” was made by the company which became a hit and got lots of media
attention. VIA got 30,000 distribution centers for sale. In addition, Starbucks trademarked
product Frappuccino also started selling at retail stores.

g) Most of the non-technical and non-productive senior management were replaced by technical
experts.

Source: Business Insider. (2011). 19 Amazing Ways CEO Howard Schultz Saved Starbucks.
[Online] Available at: http://www.businessinsider.com/howard-schultz-turned-starbucks-around-
2011-6?IR=T [Accessed 29 Mar. 2016].

Assessment of Leadership and Organisational performance in managing the change

Starbucks leadership possesses a transformation leadership style because of the belief in personal
identification by influencing the inspirational level of leader and followers’ perceptions about the
internalization of the organization aspects (Lemus et al., 2015). Whenever Starbucks made an
international expansion, its organisational values were made to align according to the cultural and
market values of the nation. In works of (Vinod and Sudhakar, 2011) servant leadership style is
also followed in Starbucks which is mentioned by Howard Behar, the former president of Starbucks
Coffee Company North America and Starbucks Coffee International in his book: It's Not about the
Coffee: Leadership Principles from a Life at Starbucks (2007).It is mentioned by Behar, that the
company through its ability of how it prices its products offered health insurance to any employee
who worked for more than 20 hours or more in a week as they provided to the CEO.

Furthermore, in work of (Vinod and Sudhakar, 2011) it is mentioned that how Behar was deeply
touched by the murder of three Starbucks employees in Washington DC during a botched robbery.
Behar also shared how in response to this event Schultz did not call Public Relations or legal
counsel, but flew to the store and spent the entire week visiting with the families and employees in
the area.

Servant leadership is also highlighted by taking down views about the company from the bottom
level employees and caring for them because it is the baristas who interact with the customers and
in what way customers can be served better. Starbucks seems to reflect the problems of employees
can bring new information to management, good ideas from different angles to provide solutions to
problems; it is worth collecting and research for the company (Jianfei, 2014).

Starbucks organizational structure and performance is viewed differently by its competitors and
customers. Some say that it is customer centric, others say that it is focusing towards the premium
class of customers and not the middle-income group. Whether one views Starbucks as a crafty
corporate power manipulating customers’ attitudes to sell coffee or a valuable community resource,
the creation of an environment that represents shared visions is a hallmark of the company’s
communication success (Batchelor & Krister 2012).

Marques (2008) reported that in the Fortune 100 Best Companies to work for in 2007, Starbucks
Corporation was listed as number 16 because it had implemented spirituality in the workplace as an
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innovative approach to enrich the ethical values of management and employees(Lemus et al.,
2015).

Also in works of (Lemus et al., 2015), there are five factors which implemented spirituality at work
and led to shareholders conclude that there was an increase in employee motivation and
productivity during work to achieve for excellence(Marques, 2008). These five factors are:
(a) Leadership position in the market
(b) Financial sustainability of the organization,
(c) Work environment
(d) Commitment to innovation
(e) Meeting CSR requirements

Evaluating Starbucks Core Competence, Networks and Partnerships

There are many reasons why customers and employees around the world like to associate
themselves with Starbucks which has always been a matter of pride for them.

a) Starbucks’s strategy in targeting its customers is to position itself as a “third” place in the
lifestyles of its customers (Paryani, 2012). The first and second place being home and
workplace. The comfortable seating atmosphere, mild music, behaviour of baristas, no smoking
zone and the smell of freshly brewed coffee beans when they enter the store becomes a relaxing
world for them.

b) Starbucks menu is based on continuous innovation with changing times and identifying and
meeting unmet needs of the consumer which has led to a cult following for Starbucks not only
as a coffee house but a “third kind of place”. In works of (Isabel Vaz, 2011) it is mentioned that
the company celebrated its fortieth anniversary in March 2011 by launching four new product
lines. This clearly shows that Starbucks is committed to innovation. Furthermore, it is stated
that “Convenience was still a very important driver for purchase in 2010, as it accounted for
36% of the decision “where to drink coffee”. Starbucks menu is also there for health and calorie
conscious people.

c) Once the coffee is roasted, packaged, and shipped to the Starbucks’s retail stores, it’s the
baristas who bring the product to life, the baristas are trained employees, referred to as
“partners”, who make a coffee drink and understand and explain the diverse coffee varieties
(Paryani, 2012). It is also mentioned in the work of (Paryani, 2012) mentioned that the coffee
beans are packed in vacuum packaging, which is developed by the company. These flavour lock
17 | P a g e

bags have a one-way valve that allows carbon dioxide to escape; however, it keeps out the
harmful air and moisture which cause the coffee beans to go stale.

d) The company engages customer through languages and symbols to build a community with
aspirations and make them live the “American Dream”. Consumers yearn to live a Starbucks
lifestyle, so they voluntarily adopt the language and actively participate in the drama that
Starbucks creates (Batchelor & Krister 2012).

e) To satisfy the needs of diverse customers, Starbucks has adopted a market structure which is
responsible for the needs of their customers and even allows them to act flexibly in making
decisions in response to their changing needs. “Starbucks seeks to connect first with employees
and second with customers,” said their CEO Howard(P. Morais et al., 2014)

f) Starbucks offer high-speed internet as compared to its competitors, customers can buy any size
coffee, they get unlimited free coffee refills within the hours that follow provided they are Gold
Level registered member to get free refills which are easily achievable with 30 purchases per
year, baristas are nice, warm, well trained and customer friendly, the customers inside can read
a book, download videos, and songs on their laptop etc., Starbucks application is on iOS and
Android to connect with customers online.

g) In 2014, Starbucks announced plans to introduce 100,000 wireless stations into more than 7,500
outlets over the next three years (nunwood.com, 2015). This clearly shows the company is
going technologically ahead of its competitors and also cares for customers comfort.

h) The company strongly believes and practices in motivating its employees, shareholders through
various benefits which have resulted in superior customer service. Training of baristas for
delighting the customer has become a core competency for Starbucks.

i) Starbucks employee stock ownership plan every year and enhance the welfare in different
magnitudes, the staff truly become the company's partner, rather than talking about it like other
companies(Jianfei, 2014)
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j) In works of (P. Morais et al., 2014)it is mentioned by Starbucks CFO-CAO, Troy Alstead, that
“We believe Supplier Diversity is a smart business decision which helps us identify and deliver
high-quality products and services across all business channels, while driving value and
economic development in the communities we serve” (Starbucks.com, Supplier Diversity
Program).

k) Furthermore, in work of (P. Morais et al., 2014) it is also stated that besides being ethical to
their partners it is also ethical to their customers, suppliers, and the environment. Under “CAFÉ
Practices”, which is an initiative by Starbucks, sets and verifies basic social, environmental and
quality criteria (Elder, Lister, & Dauvergne, 2014, p. 80).

Business Ethics and Corporate Social Responsibility practice undertaken by Starbucks and how
it helped the Starbucks to meet its strategic goals

Engaging in public welfare and ethical practices to run a company builds a positive image for the brand
in the eyes of government and people. With time evolving, the top corporate executives and owners
have realised that customer and employees can’t be used as a machine to generate money for the
company, so, in this regard, CSR activities have become a necessary obligation and a crucial business
practice for a brand to progress further especially in the host country.

Through company’s website i.e. (Starbucks.com, 2010) and report on its recent CSR activities,
following information is obtained:

Support to Farming Community

A majority of company’s coffee beans are obtained from tens of thousands of family farms with less
than 30 acres (roughly 12 hectares) of land. Starbucks engages in responsible farming practices in
coffee-growing regions around the world. Besides serving East Africa and Central America, under the
name of “Starbucks Farmer Support Centre”, the company was planning to open first time in Asia as
“Asia Farmer Support Centre” in the Yunnan province of China in 2012. Coffee farmers are directly
provided with Starbucks agronomists and quality via these centres, which help them implement more
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responsible growing practices, improve the quality and size of their harvests, and ultimately earn better
prices.

Through its “Small Farmer Sustainability Initiative” (SFSI), which was an effort launched in 2009 and
was three-year pilot program while having a partnership with Fairtrade International and Fair Trade
USA, Starbucks been reaching out to small-scale farmers and leveraging the company’s shared
commitment to support small-scale farmers. Through the SFSI, Fairtrade farmer cooperatives are
eligible to apply for loans from the funds supported by Starbucks to help improve livelihoods and
promote environmental stewardship and economic stability in the coffee industry.

In 2010, loan committed to Verde Ventures, Root Capital and the Calvert Foundation totalled up to
$14.6 million which helped nearly fifty six thousand farmers growing Starbucks coffee beans in ten
countries. By investing in programs that provide access to credit, Starbucks is helping farmers manage
risk and strengthen their businesses.

Forest Carbon Programs

With coffee-growing regions being impacted by threats from climate change, Starbucks has partnered
with CI, where it works with 33 coffee-producing communities in Mexico, Chiapas, Indonesia, and
Sumatra, for improving coffee production, conserving and restoring natural habitat, and exploring
opportunities for farmers to get facility for them to access to forest carbon markets.

Service to Community

In 2010, around the world, Starbucks working together with its customers and partners performed more
than 191,000 hours of community service, which was nearly three percent increase from 2009. This
resulted in Starbucks celebrating its fortieth anniversary on a global month of community service in
2011.

Donating

Starbucks and other private donations also funds “The Starbucks Foundation”, a separate 501(c) (3)
charitable organization. In 2010 non-profit organizations were given more than 100 grants, this also
included giving Starbucks Youth Action Grants $1.6 million and $1 million being given to American
Red Cross for the Haiti earthquake relief effort.

Recycling and Reusable Cups

In 2010, in New York, a test pilot was done whether cups can be recycled or not which has helped the
company to get a better understanding of local recycling processes which can be taken to increase
recycling opportunities. In the same year, waste control program was done in seventy five percent of
Starbucks stores in U.S and Canada. Here back of store items and cardboard boxes were recycled.

The investment was done to promote customers bringing their own tumblers and also increase
awareness about tumbler use will give them an everyday discount. On 15th April 2010, free brewed
coffee was given to customers getting their tumblers to stores. Though the activity resulted in 1.8
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percent of total beverage serving but Starbucks continued this environment-friendly campaign and it
resulted in landfills being saved from 1.45 million pounds of paper.

Water and Energy

Use of compact fluorescent lights which are energy efficient combined with LED lighting in stores has
been done in order to replace halogen and incandescent lighting which has resulted in conservation of
energy. This activity has been done in U.S, Canada, U.K, Singapore and China stores resulting in
electricity consumption saving by 3.3 percent when compared to 2008.

In company-owned stores, Starbucks made a goal in 2008 to reduce water consumption by twenty five
percent by 2015. This has resulted in a decrease in water consumption by twenty two percent in past
two years.

Dipper wells were replaced by a hand-meter faucet which was manually operated, which resulted in
water usage reduction without compromising on maintenance of food safety standards. These hand
faucets were installed in Starbucks-owned stores in U.S and Canada by end of 2010, which resulted in
conserving nearly hundred gallons of water usage per store every day.

Conclusion

We have seen how Starbucks has evolved as a brand and more than just a coffee. It has created a set of
loyal customers who don’t want to switch to other brand and want to start their day with Starbucks
coffee. Although it is very successful in the United States which is its home country, but by going
through journals and articles where it is observed that the brand is still yet to gain domination in Europe
and Asia when it comes to low cost, quality coffee, purchasing power of people, acceptance of
Starbucks as an American brand taking over local coffee drinking culture and a threat to not so well
established local players. Moreover, with small private shops having more time to develop a
relationship with consumers and offering low cost, quick service coffee to consumers, thereby taking
away a small portion of Starbucks market share, it is up to Starbucks that whether it wants to continue
catering to the niche segment or lower down its coffee prices. In India, it is present only in 5-6 urban
cities which clearly shows that the brand cannot operate till people in a region have sufficiently high
income and the city has a developed infrastructure. Threats from international competitors such
McCafe, Costa and Dunkin Doughnuts is also heating up the competition. Starbucks in this regard has a
strength of a brand when it comes coffee in the mind of consumers and can leverage itself through its
pricing strategy and also making people wait less in line and for orders when compared against quick
service of McDonalds and other outlets. Training of baristas and developing a relationship with
customers along with innovation in coffee and its customer service has become a core competence of
Starbucks which can be continually improved if the brand wants to continue staying at the top as the
best coffee retailer in the world.
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