Starbucks Essay in Microsoft 97-2003

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(BUSI 30565):

Ethical and Strategic Issues in Management: Starbucks

The most consumed drink after water, UK coffee shop sales are well over 1.2 billion pounds

a year. Costa and Starbucks are the most popular coffee shops in the UK, with each having

been visited by around a quarter of all adults during the past three months (Mintel 2008).

Costa has the largest number of outlets, however Starbucks total network turnover sees it

remain the larger of the two, putting it as the market leader. Cafe Nero is the closest rival to

the top two, with the only other sizeable national chain.

FIGURE 1. Leading operators in the UK coffee shop market (Mintel 2008)

% of

outlets

Costa 27

Starbucks 25

Caff Nero 13

The market has continued to grow despite the recession, due to intense advertising and new

store openings of the market leaders, Starbucks, Costa and Cafe Nero.

Figure 2. Financial Indicators of the Market Leaders 07-08 (MINTEL)

Starbucks Costa Caffe Nero

Turnover m

(2007)

286.6 175.1 108.8

Turnover m

(2008)

328.2 216.3 129.3

% Increase 14.5 23.5 18.8

This table reflects the higher sales per outlet and levels of footfall experienced by Starbucks

who give more focus to segmenting niche markets, customer footfall and corporate social

responsibility than their rivals (Starbucks 2011). A growth in the coffee shop markets key

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demographics of both 16-34 year olds and those in the ABC1 category in the next five years

suggest a positive and growing market (Mintel 2009).

A change towards consumer awareness and expectation demands companies to be more

socially responsible; be it in their sourcing, production or dispensing. The main issues that the

coffee shop market face are, fairer sourcing, recycling and as in any retail industry, a concern

with employee satisfaction, i.e. minimum wage.

Ethical Sustainability in Starbucks: Sustainability in economics could be described as conditions,

under which a certain level of production and consumption can be sustained forever.

Starbucks missions statement: To inspire and nurture the human spiritone person, one

cup, and one neighborhood at a time (Starbucks business and ethics compliance policy

2011). This threefold mission statement reflects the three key elements of competitive

advantage to attract (new customers), withstand (competition) and strengthen (market

position). Starbucks focus on niche markets, caring and proactive culture and investment in

stakeholders has made them what they are.

There is no mention of being market leader, price, customer or any business language at all

used in Starbucks mission statement. Instead they pose as a metaphor (one person =

individualistic approach, catering to niche markets, encompassing everyone in a stakeholder

approach, one cup = the quality of their product, and also the recycling and sustainable

initiatives they are so passionate about, and the neighbourhood = society, their commitment

to community stewardship, supplier relationships and the environment). It is also reflective of

their corporate culture, the experience of visiting a store. This all culminates into a highly

focused brand and communications mix for the Starbucks image.

The communications mix is very tight, public relations is very quick to react to media

coverage and issue strategic press releases. Staff are trained to a consistently high level and

instilled with the corporate mandate, you could be anywhere in the world when you step into

a Starbucks, as they all follow suit. A cloned corporate chain but with a friendly face. This

standardisation has help them become the iconic symbol they are today, having just launched

their new wordless logo, it has, put the coffee chain in a select category of companies so

well known that a nameless logo was sufficient for recognition (Andrew Collins 2011).

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Their market position and long term strategies have given them a lot of strength within the

market. Based around Porters 5 forces model, Starbucks strategy of giving the highest

quality products, in a luxurious environment, being ethical and responsible to their

stakeholders, with focus to their suppliers sees only threat of substitution being an issue, as

an external factor such as, a change in trend to drink more instant coffee or cold beverages

could weaken them. To maintain competitive advantage a company must adapt and be

flexible; Starbucks now have bags of coffee beans, freeze dried and instant coffee to take

home and make yourself and have a large cold beverage selection.

Figure 3. Porters 5 forces model, Porter 2008

A SWOT analysis of Starbucks reveals that their weaknesses are not so much specific to

them as they are just general market weaknesses such as pressure groups slating coffee shops

for not treating coffee growers well enough. The stigmatism surrounding Starbucks in the

black & gold video is old news now and Starbucks ongoing ethical and fair sourcing

initiatives have more than combated this negative press. Other issues highlighted are merely

potential weaknesses rather than actual ones, such as their standardisation of stores could not

fit everywhere in the world. To agree with the findings from the Porter model, Starbucks

current business model is highly successful and secure for long term strategy and growth, the

main possible threat is from unlikely potential external changes in a trend away from coffee

shops.

Figure 4. SWOT analysis

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Strengths

Market leader price & concept (business model

doesnt have to conform to host country, set their

own culture)

Global dominance, internationally known there

are few high streets in the cities of Europe, Asia or

North America now without the ubiquitous

McDonalds, KFC or Starbucks Crane & Matten,

2010

Strong brand always what is referenced and used

in film/television, etc.

Known for their ethical stance, fairtrade, etc

Starbucks have one of the best sustainable practicein the world Crane & Matten, 2010

Weakesses

Bad press for:

1. corporate chain the exposure to the competition of an

MNC such as Starbuckscan crowd out localenterprises and severely threaten the business of

indigenous competitorsKlein, 2000

2. Unfair trade most of the economic value is captured

by the companies who act as middlemen between

farmers and the consumerglobal corporations that

dominate international coffee industry namely

Starbucks, that the film targets as the main culprits for

causing the Ethiopian farmers misery.Forest, 2007

Price high end, luxury good, there are manycompetitors that ar cheaper.

Unchanging business model doesnt lend itself to all

cultures.

Opportunities

The recession and reduction in consumer spending

could force Starbucks into changing their strategies,

this could welcome a use of adaptation letting them

move into other, non-americanised /western cultures

or change their pricing strategy to reposition them

and not out-price themelves.

Threats

The recession could mean they have outpriced

themselves. With a reduced disposable income, luxury

snacking out will be one of the first things to stop if

people try to save money.

If the media turn, such films such as black & gold

highlighting Starbucks as treating Ethiopian farmers

badly.

The local community could vote with their feet to

keep out large corporate chains over their home-grown

businesses.

Mounting pressures on corporations for being ethical

if laws were introduced regarding recycling,

sustainability and fairtrade sourcing could seriously

damage profit margins and brand reputation (although

Starbucks do more than most with regards to CSR

initiatives).

The key points to be taken out of the PESTEL analysis are that even though Starbucks is the

leader in being socially responsibly in the coffee shop market, if the government decide to taxor ban things such as corporate waste or having ethical ambivalent sourcing, then it still could

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have serious ramifications on Starbucks, both profit and image wise as its progress to change

is steady but slow.

Figure 5. PESTEL analysis

Political

- If the government want a push towards entrepreneurial activities, they might impose larger taxes on MNCs.

- Other countries could impose trade barriers to keep foreign competition out this could reduce/ stop growth.

Economic

- Reduced disposable income equals less spending on luxury / non-essential goods, leading to damaged profit

margins

- Trends towards cheaper, more homely coffee houses

Social

- Corporate chains are damaging to local competition, community could protest against it (like in the case of

Tescos).

Technological

- Improvement in coffee making technology could reduce the need for skilled baristas. Starbucks products

already sell in shops. If you can get the same, unique taste at home, for less money, why wouldnt you?

Environmental

- Trade barriers, fairtrade

Legal

- If laws are brought in to regulate recycling, fairtrade buying, sustainability, etc, a lot of time & money, aswell

as PR damage control would have to b spent changing the processes and practices of Starbucks.

- When moving into other countries, employee ethos might be different due to wage levels affecting motivation,

job loyalty, etc. This could change their business culture.

In the short term, Starbucks keep flexible by updating their product range, by listening to

their customers wants and needs and trying to cater to their different market segments as

much as possible.

Figure 6. Starbucks customer segments profile

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To be sustainable is to meet the needs of the present without compromising theability of future generations (United Nation General Assembly 2010).

Having been voted and winning awards for the most ethical company in the industry,

(Starbucks 2011) Starbucks still faces environmental and social sustainability issues.

Environmentally, pressures facing Starbucks and the industry as a whole are ethical sourcing

issues. This includes farmers pay and rights from the varying countries, deforestation and the

carbon footprint of the product in shipping. Moreover in concern with the carbon footprint is

energy and water consumption and recycling in store. Social issues concerning Starbucks are

their duty by their employees and stakeholders. As the market leaders they have to lead by

example to be doing the right thing as negative media and pressure group attention would be

extremely detrimental.

Figure 7. SWOT Matrix for choice of an environmental management strategy

Ethical sourcing Issues External Factors

Internal Factors Opportunities Threats

(Use strengths to avoid threats)

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Strengths

(use strengths to take

advantage of opportunities)

Use potential buying power to entice new

countries/markets to become available

Continue to improve on 77% of ethically grown

and fair-trade coffee

Help develop the vertical integration of the

supply chain (Sourcing Diversity Programme)

Conclusion: Continual increased investment in ethical

sourcing

Continuing investment in farmers loan

programmes/support centres in Africa

Use global marketing more effectively to advertise

strategy for continuing improvement on ethical

source products Failure = long term negative PR

Conclusion: Redefine current marketing strategy

Weaknesses

(Overcoming weaknesses by

taking advantage of

opportunities)

Slower to cash in on tea drinking market

Missing resources on successful implementation

hard to integrate quickly across all stores

Conclusion: Missed opportunity

Lack of differentiation in products (therefore

focusing on the green aspect)

Increased competition from non specialised

competitors

Market becoming saturated improve customer

base

Conclusion: Increase customer loyalty

(minimise weakness and avoid threats)

We get more customer comments about recycling than any other environmental issue

(Starbucks 2011). Recycling is seemingly the biggest issue for Starbucks currently, as their

other focuses of ethical sourcing and green building etc., are more in their control and they

are on track to make their changes. With the issue of recycling, Starbucks treads a fine line

with giving customers the freedom of choice and being responsible. Starbucks are rolling out

a three tiered program to better their recycling situation. Firstly to produce a take-out cup that

is fully recyclable, secondly to implement front-of-house recycling in the company owned

stores (harder to control the franchises) by 2015, and finally serve 25% of beverages in

reusable server wear or tumblers by 2015 by promoting use of flasks with an incentive

scheme and advertisement of their recycling programme.

At the moment, the majority of cups being used are take-out, throw away cups. This is a two-

fold problem as it is adding to deforestation to make them and landfills to throw them awayas they are not fully recyclable and out of Starbucks control when they leave the store. A

consumer watchdog observed that Starbucks previous target of increasing reusable mug

usage by tenfold by 2010 seems to have been abandoned for its latest initiative of working to

ensure that all of its single use cups will be recyclable by 2012 (Andrew Teasdale 2010).

However, Starbucks states that we served 4.4 million more beverages in reusable cups in

2009 than in 2008 (Starbucks shared planet progress 2011).

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Carrolls CSR Pyramid 1991

Corporate Social Responsibility theory has been a growing trend for the past ten years.

Starbucks take their commitments very seriously and by Carrolls standards fulfil the desired

philanthropic top piece of the pyramid by their outreach programmes and discussions with

local authorities to better recycling schemes as a whole, not just for themselves. Starbucks

aim is to, by 2015 we plan to have recycling available in all storeswhere we control waste

collection and serve 25% of beverages in reusable cups.

For different reasons, both Friedman and Porter disagree with CSR as a workable framework

so to solidify the argument I shall use the very current stakeholder model (Freeman 1991).

Placing Starbucks at the centre, Freemans stakeholder approach is generally regarded as a

basis for ethical decision making, as it attempts to consider all its stakeholders interests when

making a decision.

When applied to Starbucks business model this is their approach across the supply chain,

from the community ethos of caring from everyone to their coffee bean farmers, to their niche

market customer, minimize environmental impacts across our supply chain, minimize

deforestations by using innovative ways to grow more (Starbucks 2011). To further show

this model is working order, Starbucks dont just consider their direct stakeholder but indirect

groups to, for instance the surrounding community. Starbucks work with local governments

and bodies such as the U.S. Green Building Council (USGBC) to apply Leadership in Energy

and Environmental Design or LEED (Starbucks Shared Planet Goals & Progress report

2009). Concerning Starbucks main environmental issue they are trialling front-of-house

recycling in several US stores with aims of bringing it over here.

Philanthropic desired (by

society)

Ethical expected (by

society)

Legal required (by

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A criticism could be that a lot of Starbucks initiatives are being rolled out in the US and

Canada only. However, their business model of ethical stewardship has given big ethical

credentials in the UK aswell as US, being cited as doing more for fairer farming than the fair-

trade label. Pressure groups that once made such films as black & gold citing companies

such as Starbucks as bad corporations are a thing of the past and heated discussions between

Starbucks chief executive Howard Schultz and politicians such as Peter Mandelson have been

mended having Schultz labelled as a business guru from which others could learn.

(Starbucks goals and progress report 2009)Starbucks is committed to a role of environmental leadership in allfacets of our business.

We fulfil this mission by a commitment to:

Understanding environmental issues and sharing information with ourpartners Developing innovative and flexible solutions to bring about change Striving to buy, sell and use environmentally friendly products Recognizing that fiscal responsibility is essential to our environmentalfuture Instilling environmental responsibility as a corporate value Measuring and monitoring our progress for each project Encouraging all partners to share in our mission

Starbucks are perfect advocates of the triple bottom line, (Elkington 1998) by not just being

concerned with adding economic value, but social and environmental aswell. Economically their

strength and focus of their long term commitments and solidarity amongst their communicated

message have seen them stay the market leader and it looks as if they will for the foreseeable future.

Socially and environmentally they are the industry champions, doing more for ethical sourcing than

fairtrade and ensuring staff are getting treated fairly and above minimum wage. However much more

can still be done to make sure they are as carbon efficient as possible in their sourcing, energy

efficiency in stores, and most importantly their recycling scheme.

The problem facing Starbucks with the cups situation is that they want to please everyone at

once which of course is impossible, to succeed in their attempts to get to 25% reusable cups

being used by 2015 they need to engage their stakeholders more to help them along their

way. If I were the public relations or sustainability manager, I would give more attention to

Starbucks initiatives through advertising at least in store. If people dont know about it, how

can they help? To give an incentive to use your own/buy a Starbucks reusable flask, they

could bring the discount offered in the US and Canada to the UK and to launch it initially,

perhaps create a media event where they give away/heavily discount the flasks, i.e. when you

buy any tall drink get a flask for only 1. The most significant difference would be if all

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take out cups were completely recyclable and then the focus could be given to further work

with districts authorities to improve recycling facilities/capabilities.

When spreading oneself to thin, often the case is you end up not covering anything properly, I

think it might be beneficial to narrow the focus of their recycling strategy by prioritising what

the most important change would be, impact wise. Applying Virtue ethics to the situation,

this strand of ethics born within the likes of Plato and Aristotle makes the applicant find a

balance between their vices (normally seen as weaknesses) and their virtues (good points).

As a business, Starbucks has to adhere to customer wants and be profitable, i.e. take enough

to be successful, yet also do what is right to the environment when you can (getting rid of

excess) by giving enough back to be philanthropic. It seems that Starbucks also have a

deontological underpinning of seeing it as their duty and responsibility to do the right thing.

This theory is fine up to a point, however it is not easily adhered to in a business

environment, as business duties can conflict with moral duties; hence why my suggestion of a

more balanced, virtue ethics would be more suitable in my opinion.

References:

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