The Starbucks Story (15 page)

1994

1995      
New York, United Airlines

1996      
Japan, Singapore

1997      
The Philippines

1998      
Taiwan, Thailand, New Zealand, Malaysia, UK (England, Wales, Scotland)

1999      
China, Kuwait, Korea, Lebanon

2000      
Dubai, Qatar, Bahrain, Saudi Arabia, Australia

2001      
Switzerland, Austria

2002      
Oman, Indonesia, Germany, Spain, Puerto Rico, Mexico, Greece

2003      
Turkey, Chile, Peru, Cyprus, Netherlands
(European roasting plant)

2004      
France, Costa Rica
(Farmer support center)

I arranged to meet Neil McClelland at a Starbucks near his office in Victoria, London. I’ve known Neil for many years, in particular through his work as director of the National Literacy Trust. Ten years ago I had led the project to create the identity for this new charity that aimed to improve literacy skills. Today, the identity still looks fresh, and the National Literacy Trust is celebrating its most significant anniversary yet.

I wanted to talk to Neil because I had seen that Starbucks was promoting a “Book Drop” in association with the Trust. We talked for an hour over coffee, and I learned that Starbucks had been supporting the Trust financially for three years, funding one full-time member of staff. The main project involved Starbucks partners working as volunteers with libraries in 16 local authorities throughout the UK to bring mothers, carers and children into early, enjoyable contact with books and storytelling. Other projects, such as the Book Drop (encouraging customers to donate new books to children), had come along later as the partnership developed. Neil was in no doubt that Starbucks had delivered. His only frustration was that no one had heard of the literacy scheme. Starbucks had been adamant that the purpose of the scheme was to help mothers, children and the partners themselves, not to gain publicity.

I had first come across the link with the National Literacy Trust when I had seen the Christmas 2003 table card in Starbucks’ Covent Garden store. There were two main messages on its three sides. One side was about Starbucks’ Christmas Blend Whole Beans, a special seasonal blend of beans from Kenya and Guatemala. It was written in the language of the wine buff translated to coffee, with the heading “Special Reserve – Harvest 2003.” It read like this:

“Every year, Starbucks invites the world’s
coffee farmers to send us their finest beans
for our Special Reserve competition.

This year’s Starbucks Special Reserve Blend
combines two remarkable regions. From
Kenya’s equatorial highlands, we found a
coffee with an intense, citrusy taste, balanced
with delightful winey notes. And from
Guatemala’s Antigua and San Marcos regions,
we found coffees with a sparkling acidity and
a hint of cocoa in their profiles. . . .

In addition to the recognition, there is a
greater prize that comes with being named
a Starbucks Special Reserve coffee – help for
the farming communities that produced the
winning coffees.”

With after-knowledge I recognize the influence of Cecile Hudon, Seattle-based head of coffee education, in those “winey notes.” You might critique them as a piece of writing, but what is more interesting is the way they confront what has become the big issue facing Starbucks. Pressured by anti-globalization protesters, we need to ask: what is Starbucks doing for the Third World farmers it relies on? What has it been doing throughout its existence as a company? And is that enough?

The table card brings before us, when we turn it to read its other two sides, an extension of the debate. Starbucks needs to think of local as well as global communities. I say “needs,” but this is an imperative of relatively recent origin. Corporate social responsibility has been a live issue for companies for less than a decade. When British prime minister Edward Heath used the phrase “unacceptable face of capitalism” in the early 1970s, it took the corporate world by surprise; most business people at that time took their ethical responsibilities rather lightly. There was little thought that companies
needed
to do anything at all for local or global communities, except in a very paternalistic sense. Things have moved on, driven on the one hand by campaigners for environmental and social issues and, on the other, by the development of branding as a discipline.

What makes Starbucks produce a table card like this? It has very little to do with pushing up sales. It is almost entirely to do with Starbucks’ awareness that it is a brand and that it has to demonstrate the reality of that brand: its values, its beliefs, its purpose, beyond selling cups of coffee at a profit. So in this context we see the Starbucks Book Drop. The idea is to help a local child to read, and to encourage reading as an essential element in the learning process, by asking customers to donate new books for children. The store has a box where customers can put their donations. The scheme is run is association with the National Literacy Trust, and Starbucks provides funds and volunteers. It is a small initiative, modeled on a bigger scheme called “All books for children” organized by Starbucks in the US. Some 4,000 British children have benefited in the two years that the scheme has run. But this is only one of many initiatives by Starbucks to put something back into the community.

Starbucks does this to show that its brand values mean something to the company; they are not used merely to generate sales in some way. The aim is also to involve Starbucks’ own people in tangible projects that enable them to channel their own energies, interests and beliefs into good causes inside and outside working hours. By doing so they become more rounded people, more satisfied employees and more understanding ambassadors for the brand.

We should look again at the mission statement and its six principles. How do you demonstrate these through a working day of making coffee, collecting used crockery and wiping down tables? It is easier to do so if you see yourself as working in a framework that guides your behavior, and if you are also encouraged to play a deeper role in the community where you work.

This altruistic streak has always been present in the Starbucks brand. When the first shop opened in Seattle in 1971, there was a natural inclination to reach out to the needy in the neighborhood. But as the years have passed, Starbucks has given more and more official license to these philanthropic instincts. As understanding of the brand and its meaning has developed, Starbucks has realized its potential to do good not just by giving donations of money, as most corporations would approach it, but by harnessing the energy of its own people. In 2003, this translated into a new message on its US recruitment leaflets: “Create community.”

Starbucks’ understanding of its potential role and awareness of the need to engage with the deeper emotions of its workforce to encourage their commitment started with its successful creation as a public company in 1992. For Howard Schultz in particular, this raised questions about rewards, loyalty and sustaining the brand. His instinct, as with the healthcare provision and stock options, was to build the sense of a team and to set working life within a broader picture. So he became determined to focus more of his attention on local communities, and to encourage the partners in stores to channel their energies into good works.

In 1994, a natural event occurred that made the picture much bigger again. News broke that there had been a severe frost in Brazil, destroying much of the coffee crop. Starbucks bought none of its coffee from Brazil; the quality is generally not high enough, and most of it ends up in cans and jars of instant coffee. But the prospect of shortages meant that prices of coffee started to soar, the big coffee manufacturers immediately hiked their prices, and speculation drove commodity prices up. Starbucks already paid a premium for its coffee, but prices now doubled and were heading higher still.

Starbucks decided not to raise its coffee prices early but to protect customers in the hope that prices would stabilize. In the mean time, it would live off its supply of green beans – coffee bought in advance to ensure it had the quality it needed in sufficient quantity. Then Brazil suffered a second frost, causing further decimation to the crops. Coffee prices rose to 330 percent of the level three months earlier. This threw everything into turmoil. A further complication was the fact that Wall Street was now watching Starbucks’ every move. There were financial expectations to be met, and Wall Street was not inclined to philanthropic gestures.

Orin Smith had just been promoted from chief financial officer to president, and he took command. He decided that Starbucks should manage its way through the crisis, as far as possible cutting costs on backroom operations rather than passing on price rises to customers. The company had grown fast, without real planning, so there were savings to be made. People worked hard, under pressure; but the irresistible price rises to customers did not cover replacement costs of buying new coffee at high prices. A decision was made to buy a large quantity, effectively a year’s supply, of Colombian coffee beans. The price was high, but it might go higher. A risk was taken. If prices fell, Starbucks would be left with a lot of expensive coffee beans, but it would have to manage its way through without raising prices to customers to recover its position.

Then, soon after, prices started to come down. Everyone stuck by the decision, without recriminations. In the long run, the economy measures strengthened the company, though it would never have chosen to take them without the impetus of the coffee crisis. They ensured that when the next crisis came, Starbucks would be better placed and stronger. The crisis had also highlighted the plight of the coffee grower, and this had a long-lasting effect on the company.

For many years previously, Dave Olsen, who bought the coffee for Starbucks, had seen worrying signs of distress among the farmers and their crops. Much of the world’s coffee crop had been sold at below the price of production to the big coffee manufacturers. The farmers had to skimp, and bad farming practices had been introduced. Pruning was neglected; fertilizers were not bought. In many regions the coffee crops were weakening. Dave Olsen saw at first hand the effects on the farmers he knew. He was convinced that it was in Starbucks’ best interests to keep paying a premium price to its farmers for high-quality coffee, and to take other steps to protect them from crippling price reductions.

From this time on, Starbucks knew that its fifth principle – “Contribute positively to our communities and our environment” – could not be compromised. It had never merely been paid lip service, but now it became a driving principle for the brand. When it was exposed to the fluctuations of coffee prices, understood what that did to the farmers and at the same time felt the scrutiny of Wall Street, the effect was to temper the steel of the brand. Decisions had to be made, and those decisions drew on the principles of the brand.

Starbucks emerged a better company from the process. It could have saved itself millions by buying cheaper and poorer coffee. It could have abandoned the farmers who were supplying better quality at a higher price. Most of its customers might not even have noticed. But Starbucks would have noticed. Howard Schultz put it like this: “What, then, would keep us coming into work every day? Higher profits, at the cost of poorer quality? The best people would leave. Morale would fall. The mistake would eventually catch up with us. And the chase would be over.”

So now Starbucks decided that the principle of putting things back into its communities should go beyond encouragement. It entered the business model. Starbucks was convinced that not only was it right to have a conscience, but it needed to act on it. It started putting more efforts into developing programs: both local, around its stores, and in the coffee-growing regions with the farmers. It also decided that the benefits of doing these works were principally to do with its own partners and the communities themselves. The activities were never given PR objectives, so there was no extensive communication about them, partly because the overall thrust consisted of thousands of small initiatives rather than a single massive example of corporate benevolence. Because Starbucks wanted and needed to grow – not least now that it had to keep investors and Wall Street happy – it decided that it could succeed in the long term only by truly engaging with the emotions of its own people. So it set out to provide the environment for its partners to follow their own altruistic tendencies, to grow as people and to develop their skills in the process.