The Cutting Edge: Starbucks

Starbucks was founded in 1971 by friends, two of whom had met as students at the University of San Francisco, and another who was a neighbor (“Howard Schultz”). Jerry Baldwin, Zev Siegl, and Gordon Bowker created the coffee company after meeting Alfred Peet, who showed them his method for brewing coffee beans. The trio came up with the name Starbucks after trying to decide on a name that started with the letters “st,” after being told by an advertising executive that these words were particularly viewed as powerful. The actual name that was selected came from the name of the first mate in the classic tale of Moby Dick. The partners also came up with the iconic mermaid logo. The first Starbucks store was established in Seattle, Washington. In the early days, the company sold only whole roasted coffee beans, without actually selling brewed coffee on site. They did offer small coffee samplers, so that customers could taste the quality of their beans. Initially, the company purchased their beans from Peet, but after the first year, they identified remote growers and purchased directly from them.

In 1984, Baldwin and his partners bought Peet’s amid floundering coffee sales, though they found that specialty coffee sales were on the rise. In 1986, there were six Starbucks in the Seattle area, and they introduced the sale of expresso to the sale of their coffee beans. Howard Schultz, current CEO and chairman of Starbucks, first came to the company in 1981. He made what amounts to a historic visit because he was the sales director at Hammarplast, a European coffee makers sales company in the United States. Schultz noticed that at the time, Starbucks was buying more coffee machines to the Seattle-based company than he was selling to Macy’s. The numbers continued to increase month, after month, quarter after quarter. Schultz decided that he had to visit the store. When he arrived at Starbucks, he somehow felt that he had arrived at home. He talked with the owners and was told the company story and said that it was the first time he had had a really good cup of coffee. Schultz was hooked. In 1982, Schultz was hired as the marketing and retail operations director. Howard was acknowledged for his amazing ability to communicate.

On a trip to Milan, Italy, in 1983, Schultz noticed how many coffee bars were strewn throughout the city. During his travels he had an epiphany. He decided that Starbucks should not just be a purveyor of coffee beans, but a seller of coffee drinks, as well. He was so excited about his inspiration, he could not wait until he returned home to share his discovery on his vision for the future of the company. However, when he communicated his enthusiasm for the idea with the owners, he met with firm objections. But Schultz was not to be dissuaded. The partners agreed to try his idea in a new store that was opening up. The store was an immediate success and introduced Seattleites to the world of the coffeehouse. Despite the success, the owners did not want the success they saw in the new store. They wanted the company to remain small – big was not their goal. In 1985, probably shocked by their reaction, Schultz started his own coffee bar chain of stores which he named Il Giornale. The company took off immediately.

Schultz coordinated a group of investors two years later, bought the coffee bean company from the trio, and combined his Il Giornale with Starbucks. The company was then named the Starbucks Coffee Company. A true visionary, Shultz had to persuade the investors that charging a higher dollar for the coffees would be the way to go. At the time, Nescafe, the instant coffee, was the brew of choice, while general coffee sales were on the decline. 

In 1989, Starbucks International President Howard Behar, was brought onboard initially as vice president of sales and operations, where he grew the number of stores from 28 to 400 (Schawbel), and then as president Starbucks International and of its North American operations (Yeager). Since his arrival, Starbucks has become a global phenomenon, up from the 28 stores that existed in Seattle when he started. Behar started a coffee house in Tokyo in 1996, and began the process of spreading the Starbucks’ brand across Asia and the United Kingdom (Schawbel). Of the company culture, Behar says that it comes directly from the top. “I saw it was all about the people,” Behar added. “We’re not in the coffee business serving people, we’re in the people business serving coffee” (Yeager). Behar retired from the company in 2003, but continued on as a director until 2008 (Schawbel). In an interview conducted with him after leaving the company, he was asked how the culture of the company has changed. He responded that he likely would not be hired by the company now, which is quite a thing to say for someone under whose management Starbucks grew ubiquitously, and is known and loved worldwide. But Behar acknowledged that he had never obtained a college degree, and it is quite unlikely that he would have ever made it into the position he held under the current leadership, formalities, rules, systems and regulations.

Fair Trade for Farmers

As ethics often does, it has become an important issue in the coffee growing world, similar to conflict minerals and blood diamonds are in the world of minerals and technology manufacturing. Fair trade coffee helps the farmers who grow the beans to pull themselves out of poverty (“Coffee”). Small farmers often live in remote areas and do not have access to the resources that urban centers afford. As a result, many farmers fall victim to cartels and bad players who offer substantially less to the growers than what their efforts are worth. The fair trade concept is an effort to offer the small scale growers a minimum price for their efforts and aligns them with coffee bean importers, allowing them to develop long-term relationships and sustainability. Through this scheme, the farmers are able to gain a substantial wage, retain their land and grow quality produce. Fair trade has significant impact in many ways. The fair trade effort provides a better life for women and children, helps to establish sustainable businesses, provides children with an education, farmers learn about productive tools that help them with their work, and workers are able to gain access to healthcare facilities, doctors, nutritional education and medicine (“Coffee”).

As a partner in fair trade, Starbucks takes ethical sourcing very seriously ("Ethical Sourcing: Coffee"). The Starbucks Coffee Company is the largest coffeehouse chain on earth, with over 20,000 locations and growing (Sicoli). The company runs over 8.800 of its own retail locations and the others are run by licenses and franchises (Kasireddy, Jung, Ayala and Eryorulmaz). Consequently, any efforts the company makes to influence the lives of farmers is one that will make a substantial difference ("Ethical Sourcing: Coffee"). Starbucks approaches its sourcing methods in a comprehensive approach to ensure that no stone is left unturned. The company’s approach includes, offering support to their farmer partners; ensuring that their standards are socially, economically and environmentally sound; embracing purchasing practices that are ethical; engaging in strategic collaborations within the industry; and participating in programs that enhance community development. The Coffee and Farmer Equity (C.A.F.E.) Practices strategy is Starbuck’s sustainability effort, it is one of the first programs in the industry ("Ethical Sourcing: Coffee"). C.A.F.E. Practices standards and programs are also verified by third party auditors. C.A.F.E. Practices was created with the support of Conservation International (CI), and it assists Starbucks to create a long term relationship with its farmers to ensure that the coffee is high quality and that the relationship has a productive impact on the farmers’ financial lives, their general lives and the lives of their communities. The C.A.F.E. Practices focuses on four pillars, quality, social responsibility, transparency and economic accountability and environmental leadership, with an eye on “people and the planet” ("Ethical Sourcing: Coffee").

Quality. As is evidenced in their coffee, consistency and high quality has always been a foundation of the products they sell.

Social Responsibility. The social responsibility component addresses farmers’ economic viability, their rights as workers, the safety of the techniques they use and the environment they work in, including the conditions in which they live, and assurances that child and slave labor practices are prevented ("Ethical Sourcing: Coffee").

Transparency and Economic Accountability. Part of ensuring responsible sourcing is making sure that the proper proportion of payment is made to the farmer and that the supply chain is handled in a transparent manner.

Environmental Leadership. It is also important to make sure that the actions taken today do not have a negative impact on the environment of tomorrow. C.A.F.E. Practices ensures that water quality is protected, waste is handled in an environmentally responsible way, water and energy is conserved, and biodiversity is preserved and chemical use is kept at a minimum ("Ethical Sourcing: Coffee"). 

Finally, to ensure that the C.A.F.E. Practices program improves on an ongoing basis, monitoring, measurement and evaluation are substantial parts of the overall process. Third party certification is provided by SCS Global Services. The program has advanced over time to include coffee renovation or replanting programs, monitoring the impact of climate change and making plans to make adaptations, also, the C.A.F.E. Practices program has been made available to all in the industry, including their competitors ("Ethical Sourcing: Coffee"). 

A particularly interesting program is the Hacienda Alsacia, located on the side of an active volcano named Poas in Costa Rica, which is a former family farm Starbucks purchased which is now an agronomy research and development center, to allow the company to learn about best farming practices and sustainability principles ("For Partners, From Partners”).

The Starbucks Supply Chain: A Lesson in Complexity

Starbucks’ supply chain spans 19 countries (Boyer). Their beans can come from one country, while their milk can come from another country. The company sources coffee beans, milk, sugar, paper cups, and other paper products like napkins and bags. As a result of their expansive reach, they are able to supply their customers with high quality ingredients at low prices. The company has six roasting facilities, where it manufactures its products and then packages them. Although six might sound like a small number of locations, but the centralized systems makes for good controls, allowing every bean to be manufactured and packages according to precise standards. A little known fact is the number of different temperature requirement for the various products that it prepares for delivery. There is no other word for it other than complexity in action. The company has over 70,000 deliveries to its global retail outlets per day (Boyer).

In addition to its global coffee houses, Starbucks also owns Seattle’s Best Coffee and Torrefazione Italia coffee brands (Kasireddy, Jung, Ayala and Eryorulmaz). The retail outlets sell a variety of foods in addition to its roasted coffee beans and tea. The company sells hard goods, such as coffee accessories and also offers its brands in grocery stores. Revenues are quite strong, so the organization will be around for a long time to come.

Works Cited

Boyer, Ken. "Behind the Scenes at Starbucks Supply Chain Operations it’s Plan, Source, Make & Deliver." Supply Chain 24/7. Peerless Media, LLC., a Division of EH Publishing, Inc. 20 September 2013. Web. 6 August 2016. <http://www.supplychain247.com/article/behind_the_scenes_at_starbucks_supply_chain_operations>.

"Coffee." Fair Trade USA. n. d. Web. 6 August 2016. <http://fairtradeusa.org/products-partners/coffee>.

"Ethical Sourcing: Coffee." Starbucks. Starbucks Corporation.  n. d. Web. 6 August 2016. <http://www.starbucks.com/responsibility/sourcing/coffee>.

"For Partners, From Partners: The First Crop of Coffee from Starbucks Costa Rica Farm." Starbucks. Starbucks Corporation. 15 October 2015. Web. 6 August 2016. <https://news.starbucks.com/news/hacienda-alsacia-coffee>.

"Howard Schultz." Biography. A&E Television Networks, LLC. n. d. Web. 6 August 2016. <http://www.biography.com/people/howard-schultz-21166227#continued-success>.

Kasireddy, Preethi, Jung, Billy, Ayala, Esmeralda, Eryorulmaz, Ari. "Starbucks Coffee Distribution Network." Supply Chain 24/7. Peerless Media, LLC., a Division of EH Publishing, Inc. 4 July 2016. Web. 6 August 2016. <http://www.supplychain247.com/paper/starbucks_coffee_distribution_network>.

Schawbel, Dan. "Howard Behar: What You Can Learn About Branding From Starbucks." Forbes. Forbes, Inc. 7 October 2015. Web. 6 August 2016. <http://www.forbes.com/sites/danschawbel/2015/10/07/howard-behar-what-you-can-learn-about-branding-from-starbucks/#629d3d0e1435>.

Sicoli, Carlo. "The Five Largest Coffee Shop Chains On Earth." The Richest. TheRichest.com. 9 Februrary 2014. Web. 6 August 2016. <http://www.therichest.com/business/companies-business/the-five-largest-coffee-shop-chains-on-earth/>.

Yeager, Don. "The Secret Recipe To Starbucks' Success." Forbes. Forbes, Inc. 1 June 2016. Web. 6 August 2016. <http://www.forbes.com/sites/donyaeger/2016/06/01/the-secret-recipe-to-starbucks-success/#2b48cd55182f>.