starbucks 1

Jessica Lewis

April 14, 2010

Business Problem

Partner with CI to create a new label based on internal standards

Amend 2007 ICA to include a minimum price for specialty and premium imports

Low-cost competition entering specialty coffee market

Presentation Roadmap

Background Non-Market

Strategy #1

Non-Market

Strategy #2

Mini-Case Sensitivity

Analysis

3 Business

Lessons

BackgroundBackground

Starbucks’ Annual Revenues, 2005-2009

Source: Starbucks 2009 Annual Report

"Medium is the new grande” –

McDonald’s tagline, 2009

Non-Market Strategy #1

Partner with Conservation International to create a C.A.F.E. Practices label


Starbucks goal: to purchase 100% C.A.F.E. certified coffee by 2015

Increases the visibility of Starbucks’ C.A.F.E. practices to the consumer

Differentiates C.A.F.E. practices from other certifications on the market

Sets Starbucks apart from quick-service restaurant sector competitors

The label justifies premium prices for coffee


Partner with Conservation International to create a C.A.F.E. Practices label

In 2009, Starbucks bought

367 million pounds of coffee:

299 Million Pounds (81%)

C.A.F.E. certified


Why Conservation International?History of cooperation:

Partnership with Starbucks since 1998

C.I. helped create C.A.F.E. Practices in 2003

Similar vision and mission:

Ethical Sourcing

Environmental Sustainability (conservation and biodiversity)

Economic and social welfare of producers

"Our partnership engages one of the

great corporations, their customers

and coffee farmers in this battle

against climate change. By stepping

up this partnership we have aligned

our existing work and success to

address the most pressing

issue of our time.“

– Peter Seligmann, CEO of CI


Certification Comparison

2008 Minimum Price Paid (US dollars per pound)

Starbucks C.A.F.E. Practices

99%

1%Small Farms

Large Plantations

20%

80%

Small Farms

Large Plantations

Rainforest Alliance Certification

0

2

Rainforest Alliance

Fair TradeStarbucks

0

1.35 1.49

Source: Rainforest Alliance,

Starbucks, and TransFair


Marketing C.A.F.E. Label


C.A.F.E. Label and Competitors


• Highlight differences between labels

• Emphasize superiority of C.A.F.E.

1. Promote their own labels

• Brand and sell our label

• Sell the know-how for C.A.F.E. Practices

2. Buy/switch to our label

• 3rd party certification (SCS)

• Created C.AF.E. with CI

3. Discredit our label through “Nike Effect”

Competitors’

Reactions:

Starbucks’

Reaction:


Work with NGOs and the U.S. government to amend the 2007 International Coffee Agreement to include a minimum price for specialty and premium coffee imports

“Through Fair Trade, farmers and their families

are earning a better income for their hard work-

allowing them to hold on to their land, keep

their kids in school, and invest in the quality of

their harvest-so they can continue to grow

excellent quality coffee for your morning

brew.” – TransFair website


International Coffee Agreement 2007


Source: http://www.ico.org/documents/ica2007e.pdf

World Coffee Prices


Fair Trade and World Trade

Source: “Fair Trade: Turning Social Responsibility into

Competitive Advantage,” SCAA Conference April 2000


Starbucks and the ‘C’ Market

Source: Starbucks


Why NGOs?

Source: http://www.oxfamamerica.org/campaigns/trade


“Oxfam is working to influence agreements on trade

and investment rules so that they take into account the

asymmetries in development that exist between rich

and poor countries.”

Selling it the U.S. Government:“Falling coffee prices are forcing farmers to grow coca - the leaf from which cocaine is produced. The price of coffee remains at a 30-year low, despite the efforts of the major coffee-producing nations to reduce exports.” – BBC, 8/15/01

Source: BBC, Aug 15, 2001, http://news.bbc.co.uk/2/hi/business/1493104.stm


Drugs EnvironmentLiving

StandardsNational Security

Legal Framework

GATT, Art. XX

U.N. Economic and Social Council Resolution 30

(March 28, 1947)

Andean Trade Promotion and Drug

Eradication Act (ADTPDEA) 2002


Legal Framework


World Trade Organization, Article XX:

Legal FrameworkAndean Trade Promotion and Drug

Eradication Act (ATPDEA), as amended Aug.

6, 2002:

Public Law 107-210, Title XXXI, Sec. 3102(2):

“The Andean Trade Preference Act has been a key element in the United States counternarcotics strategy in the Andean region, promoting export diversification and broad-based economic development that provides sustainable economic alternatives to drug-crop production, strengthening the legitimate economies of Andean countries and creating viable alternatives to illicit trade in coca.”

U.S. Act to foster economic

development in Andean countries

and provide alternatives to cocaine

production:

Source: gpoaccess.gov


Competitors’ Options


• Costs increase

• Market share decreases

1. Comply with minimum price

standard

• Purchase poor quality “exchange grade” coffee

• Public image decline

2. Exit specialty coffee market

Reaction to Competitors


Mini-Case:

1. Clorox Green Works created and marketed internal standard

2. Partnered with NGOs to create a national standard for “natural” cleaning products

Mini-Case

Mini-Case:

"The NPA standard is science-based and was developed by a team of experts from the association as well as natural products manufacturers and retailers. The advisory panel drew from a variety of sources, including relevant international standards, third-party organizations, existing research, and years of experience in the field. Advisors to the association are the leading natural home care suppliers, manufacturers and retailers, including Green Works natural cleaners®, Seventh Generation®, J.R. Watkins®, Cognis®, Trilogy Fragrances®, Aubrey Organics®, Eco-Me®, PCC Natural Markets® and Sun & Earth®."

Source: Natural Products Association website

Mini-Case

Mini-Case:

Success and Market Share:

Mini-Case

Source: Green Works Annual Report 2009

Sensitivity Analysis

Sensitivity Analysis

Will Americans support a minimum price?

How will other countries react?

How much of an impact will a label have?

Business Lessons

Showcase your own strengths!

Don’t compromise

your standards!

Adapt to a changing market!

Business Lessons

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Documents