Starbucks case notes PDF

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Kreft Starbucks case in class debrief notes...

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Starbucks In-class Debrief Within the case, Global Exchange chose the issue of fair trade coffee. What is fair trade coffee? What made Starbucks a strategic target for Global Exchange? What other targets could they have chosen, and would any others be as strategic as Starbucks? 

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5 Key Principles to Fair Trade Coffee o Fair price o Democratic Organization o Direct Trade and Long Term Relations o Access to Credit o Environmental Protection The first 4 of the above principles are intended to help farmers financially, especially the small ones Starbucks is a target because they already have a premium price o They pay $1.20 for their beans at the time of the case  $1.26 is the minimum for certified fair trade o The industry average is $.80 o Global Exchange targets Starbucks because they only have to raise their price 6 cents, it would take a lot to get other firms 40 cents up  This sets a precedent  they want a quick victory  more volunteers and more donations They’ve already showed interest in helping society in the past, meaning they’re likely to continue this and agree with the activists

Starbucks has been committed to social responsibility since its inception, does this mean that it has never strived to be profitable? In other words, does social responsibility contradict the notion of being profitable?  Starbucks runs a high cost business model (higher than their peers as well). But this does not mean that they are unprofitable o They charge really high prices for their goods // they also have very loyal customers (repeated revenue) o They have very high PRICE and very high QUANTITY (they gauge their customers) o Socially responsible investors can get behind Starbucks, they like their mission  this helps drive profits too // investors help supply great real estate o Such high labor costs

What were the costs (risks) and benefits (rewards) surrounding the issue of Starbucks moving to fair trade coffee? Think about all the stakeholders in Starbuck’s business model when trying to assess the risks and rewards to the change. 

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Risks: o Supplier risks:  Current  Fair trade certified o Consumer risks  Low quality  Higher price o Look weak  you’re going to be a future target Rewards: o Enhanced corporate reputation  SRI’s  Employees o Stop the boycott o Leader of a new market (the market hasn’t started yet, but there’s potential for it)

Given the risks and rewards potential with fair trade coffee, weigh the merits of each of Starbucks options in responding to the demands of Global Exchange: Do nothing and ignore the campaign. Fight back and actively defend your position.  These two options have a lot in common  they both assume that Starbucks has a defendable position on the issue of fair trade coffee o Starbucks is so close, if not all the way there on all 5 of the metrics (Starbucks view) o “we’re so close, leave us alone”  activists will protest and the issue will become that Starbucks won’t pay $0.06 to do good and be socially responsible Negotiate for a compromised agreement.  They gave 1 brew a month to the fair trade suppliers, in domestic stores for a year (gets rid of supplier risk) o They gave up 12/365 brews to fair trade suppliers o This gives up consumer risk, taste doesn’t really change o They don’t look weak because they are complying o They stop the boycott for a year o They are NOT a leader in a new market

Since facing the Global Exchange campaign, Starbucks has increased its investments in fair trade coffee; for example it has collaborated with Oxfam America, CEPCO, and the Ford Foundation to make advancements in fair trade coffee. Given that world demand for fair-trade coffee is stagnant, is this a strategically sound decision.  Yes, it’s very strategic  This enhances corporate reputation  They are positioned to be a leader in the new market (potentially)  Starbucks did not just stop at eliminating risk  after risks were eliminated they then went out and sought what opportunities existed

UPDATE ON SLIDES...