Case 9 Starbucks Takes on Coffee Culture
Introduction
The first Starbucks store was opened in Seattle’s Pike Place Market in 1971. Howard Schultz joined Starbucks in 1982 as director of retail operations and marketing. Returning from a trip to Milan, Italy, with its 1,500 cof- fee bars, Schultz recognized an opportunity to develop a similar retail coffee bar culture in Seattle.
In 1985, the company tested their first downtown Seattle coffeehouse, served the first Starbucks Caffè Latte, and introduced their Christmas Blend. Since then, Starbucks has expanded across the United States and around the world, now operating over 30,600 stores in 76 countries. Historically, Starbucks grew at a rate of about three stores a day, although the company cut back on expansion in recent years. The company serves approximately 85 million customers per week and has an annual revenue of over $24 billion. The firm is the largest coffeehouse company in the world.
Starbucks locates their retail stores in high-traffic, high-visibility locations. The stores are designed to provide an inviting coffee bar environment that is an important part of the Starbucks product and experience. It was the intention of Howard Schulz to make Starbucks into “the third place” for consumers to frequent, after home and work. Because the company is flexible regard- ing store size and format, many of their locations are in or near a variety of settings, including office buildings, bookstores, and university campuses. Retail stores are also situated in select rural and off-highway locations to serve a broader array of customers outside major metro- politan markets and to further expand brand awareness.
In addition to selling products through retail outlets, Starbucks sells coffee and tea products and licenses their trademark through other channels and partners. For instance, their Frappuccino coffee drinks, Starbucks Doubleshot espresso drinks, iced espresso drinks, almond milk Frappuccino coffee drinks, and VIA coffees can be purchased in grocery stores and through retailers like Walmart and Target.
A common criticism of Starbucks is their strategy for location and expansion. The company’s “clustering” strategy—placing a Starbucks on nearly every corner in some areas of operation—forced many smaller coffee shops out of business. This strategy dominated for most of the 1990s and 2000s, and Starbucks became the source of parodies and pop culture jokes. Many people began to wonder whether two Starbucks directly across the street
from each other were really needed. The Great Recession brought a change in policy, however. Starbucks pulled back on expansion, closed hundreds of stores around the United States, and focused more on international markets. In the years following the recession, Starbucks began increasing U.S. expansion once more. However, in response to criticism from consumers about their “clus- tering” strategy, the company closed stores that were perhaps redundant. In June 2018, Starbucks announced the closing of 150 store locations, which is three times the number of stores the corporation typically closes in a year. The affected stores were in densely populated urban areas that already had multiple Starbucks locations.
At the end of 2014, Starbucks opened a 15,000 square-foot Starbucks Reserve Roastery and Tasting Room in Seattle, a place where coffee is roasted, bagged, sold, and shipped internationally. Equipped with a Coffee Library and Coffee Experience Bar, the roastery is intended to redefine the coffee retail experience for customers. The roastery sells 28 to 30 different coffees and gets 1,000 to 2,000 customers daily. Starbucks has also added local Mora ice cream to the product line at the roastery so consumers can create Affogato- style beverages (espresso poured over ice cream). The Starbucks Reserve Roastery in Shanghai has been called the “biggest Starbucks in the world.” Starbucks also has roasteries in Milan, Tokyo, Manhattan, and Chicago. While the roasteries have been extremely successful, CEO Kevin Johnson is slow to continue further expan- sion due to a desire to perfect the existing roasteries first.
New Product Offerings Starbucks introduced a number of new products over the years to remain competitive. In 2008, Starbucks decided to return to the essentials with the introduction of their Pike Place Blend. The company hoped that the blend would return Starbucks to their roots of distinctive, expertly blended coffee. In order to perfect the flavor, Starbucks enlisted the inputs of 1,000 customers over 1,500 hours. To kick off the new offering, Starbucks held the largest nationwide coffee tasting in history. To make the brew even more appealing, Starbucks joined forces with Conservation International to ensure the beans were sustainably harvested. After feedback revealed many of their customers desired a lighter blend, Starbucks introduced the Blonde Roast blend in 2011. In 2015, the company commercialized the Flat White based
Starbucks Takes on Coffee Culture CASE 9
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on a latte drink popular in Australia. Unlike previous new offerings, the company did not perform limited- market testing but instead introduced it nationwide in an attempt to remain competitive with rivals. In 2018, Starbucks and Nestlé partnered under a global coffee alliance. This alliance has produced Starbucks Creamer as a new product with a variety of flavors.
Not only does Starbucks have a variety of coffees, bakery items, and breakfast and lunch options, they also have six different sizes of drinks for patrons to choose from: short (8 fl. oz.), tall (12 fl. oz.), grande (16 fl. oz.), venti hot (20 fl. oz.), venti cold (24 fl. oz.), and trenta (31 fl. oz.). Trenta, Starbucks’ largest drink size, was first introduced in 2011. Starbucks has developed multiple ways to stay competitive, and in a society that values choice, having six different size options is yet another way the company appeals to consumers.
The Starbucks Reserve Roasteries in Europe, Asia, and the United States also sell alcoholic beverages such as beer and wine. A unique aspect of the alcoholic drinks is that many of them are mixed with the company’s famous coffee. Starbucks aims to give customers an experience they cannot get anywhere else, and the roasteries have proven to be valuable in this endeavor.
Additionally, Starbucks fosters brand loyalty by increasing repeat business. One of the ways they accomplish this is through the Starbucks Card, a reloadable card introduced in 2001. For the tech-savvy visitor, Starbucks also introduced the Starbucks Reward Mobile app. With the app, customers are able to order or pre-order their coffee and merely scan their phone for payment. Today, the Starbucks Rewards mobile app has 44 million active users—making it the fourth most popular digital payment app in the country. Howard Schultz believed that the future is digital, and, thus, Starbucks is placing more emphasis on digital market- ing strategies.
Starbucks Culture In 1990, the Starbucks’ senior executive team created a mission statement that specified the guiding principles for the company. They hoped the principles included in the mission statement would assist partners in determin- ing the appropriateness of later decisions and actions. After drafting the mission statement, the executive team asked all Starbucks partners to review and comment on the document. Based on their feedback, the final statement put forth the mantra of “people first and profits last.” In fact, the number one guiding principle in the Starbucks’ mission statement is to create a great and respectable work environment for its employees.
Starbucks has done three things to keep the mission and guiding principles alive over the decades. First, they distribute the mission statement and comment cards for feedback during orientation to all new partners.
Second, Starbucks continually relates company decisions back to the guiding principle or principles they support. These principles focus on coffee, partners, customers, stores, neighborhoods, and shareholders. And finally, the company formed a “Mission Review” system so partners can comment on a decision or action relative to its consistency with one of the six principles. These guiding principles and values have become the cornerstone of a strong ethical culture of predominately young and educated workers.
Former Starbucks founder and CEO Howard Schultz has long been a public advocate for increased awareness of ethics in business. In a 2007 speech at Notre Dame, he spoke to students about the importance of balancing “profitability and social consciousness.” Schultz is a true believer that ethical companies do better in the long run, something that has been backed by research. According to the Ethisphere Institute, ethical companies perform better and have higher shareholder returns. Schultz maintains that, while it can be difficult to do the right thing at all times, in the long term, it is better for a company to take short-term losses than to lose sight of their core values.
The care a company shows their employees is a large part of what sets them apart from other firms. Starbucks offers all employees who work more than 20 hours per week a comprehensive benefits package that includes stock options as well as medical, dental, and vision benefits. In another effort to benefit employees, Starbucks partners with Arizona State University (ASU) to offer tuition assistance to those who want to earn a degree from the university’s online program.
Another key part of the Starbucks image involves their commitment to ethics and sustainability. Social responsibility, transparency, and sustainability are all important values of Starbucks. In an effort to become more transparent about ethical harvesting, as well as to build trust in the company among consumers, Starbucks partnered with Microsoft in 2019 to use blockchain technology to allow customers to trace where and how their coffee came to be.
With an eye toward reducing the company’s nega- tive impact on climate change and waste, Starbucks has also created plastic drinkable lids to replace their plastic straws. While the lids are still made of a type of plastic, they are recyclable and, thus, safer for the environment. Considering that about half of Starbucks drink orders are now cold drinks, this change could make a significant impact on the company’s sustainability practices. Straws will still be available, particularly for Frappuccinos; however, these will be made out of a material that can be recycled. In addition to helping the environment, Starbucks is hoping that the move from plastic straws to sustainable materials will drive more business from younger generations. According to a Nielsen poll, 73 percent of Millennials are willing to spend more money
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for sustainable goods. Starbucks, a company already popular with both generations, may be able to increase their sales even more among young people with a simple change to their straws.
Despite these efforts to be more environmentally conscious, there is some controversy among environ- mental groups about the positive results of the switch. Questions remain about other ecological issues, such as the company’s cup waste. In order to stay ahead, Starbucks will have to continue to innovate and meet the demands of sustainability-minded consumers.
Starbucks actively partners with nonprofits around the globe and is one of the largest buyers of Fair Trade Certified as well as certified organic coffee. Conservation International joined with Starbucks in 1998 to promote sustainable agricultural practices, namely shade-grown coffee, and to help prevent deforestation in endangered regions around the globe. The results of the partnership proved to be positive for both the environment and the farmers. For example, in Chiapas, Mexico, shade-grown coffee acreage (that reduces the need to cut down trees for coffee plantations) increased well over 220 percent, while farmers receive a price premium above the market price. Starbucks and Oprah, two of the biggest global brands, also joined forces to create the limited edition Oprah Chai Tea in 2014.
Starbucks works with many other organizations as well, including the African Wildlife Foundation and Business for Social Responsibility. The company’s efforts at transparency, the treatment of their workers, and their philanthropic commitments demonstrate how genuine Starbucks is in their mission to be an ethical and socially responsible company.
Corporate Social Mission Although Starbucks supported responsible business practices virtually since their inception, as the company has grown, so has the importance of defending their image. At the end of 1999, Starbucks created a Corporate Social Responsibility department, now known as the Global Responsibility Department. Global Responsibility releases an annual report in order for shareholders to keep track of the company’s performance.
Environment In 1992, long before it became trendy to be “green,” Starbucks developed an environmental mission state- ment to articulate the company’s environmental priori- ties and goals. This initiative created the Environmental Starbucks Coffee Company Affairs team, the purpose of which was to develop environmentally responsible policies and minimize the company’s “footprint.” As part of this effort, Starbucks began using environmental purchasing guidelines to reduce waste through recycling,
conserving energy, and educating partners through the company’s “Green Team” initiatives. Concerned stakeholders can now track the company’s progress through their website where there is a clear outline of Starbucks’ environmental goals and how the company fares in living up to those goals. Starbucks also began offering a $1 plastic cup for purchase that is good for a recommended 30 uses. In addition, the company has set a goal to reach 10,000 “greener stores” by 2025.
Employees Growing up poor with a father whose life was nearly ruined by an unsympathetic employer who did not offer health benefits, Howard Schultz always considered the creation of a good work environment a top priority. He believed companies should value their workers. When forming Starbucks, he decided to build a company that provided opportunities his father did not have. The result is one of the best healthcare programs in the coffee shop industry. Schultz’s key to maintaining a strong business was developing a shared vision among employees as well as an environment to which they can actively contribute. Understanding how vital employees are, Schultz is the first to admit his company centers on personal interactions: “We are not in the coffee business serving people, but in the people business serving coffee.” Starbucks is known for their diversity, and 46 percent of their baristas are ethnic minorities.
However, being a great employer does take its toll on the company. In 2008, Starbucks closed 10 percent of stores in order to continue to provide employees with health insurance. This decision, based on their guiding principle of “people first, profits last,” shows how much the company values their employees.
As a way to improve employee health, Starbucks established a program for employees called “Thrive Wellness” that offers various resources aimed at assisting employees in incorporating wellness into their lives. The program offers resources to assist with smoking cessa- tion, weight loss, and exercise. Starbucks also estimates that 70 percent of employees are either currently in college or desire to earn a degree. The aforementioned partnership with ASU provides this opportunity as students can choose from 80 online programs with no obligation to remain a Starbucks employee while receiving or achieving their degree. More than 2,000 employees applied to the program when it was initially launched. The rising cost of education is an important issue that former CEO Howard Schultz wanted to help alleviate. By 2025, Starbucks hopes to have 25,000 graduates among their employees.
Along with educational opportunities, employees have an opportunity to join Starbuck’s stock-sharing program called Bean Stock. Starbucks has generated over $1 billion in financial gains through stock options. After receiving a tax cut in 2018, Starbucks used their saved
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money to raise employee pay and provide $500 grants to workers.
Suppliers Even though they are one of the largest coffee brands in the world, Starbucks maintains a good reputation for social responsibility and business ethics throughout the international community of coffee growers. They build positive relationships with small coffee suppliers while also working with governments and nonprofits wherever they operate. Starbucks practices conservation as well as Starbucks Coffee and Farmer Equity Practices (C.A.F.E.), a set of socially responsible coffee buying guidelines that ensure preferential buying status for participants who receive high scores in best practices. Starbucks pays coffee farmers premium prices to help them make profits and support their families. Starbucks is close to their goal of 100 percent of total coffee purchases being C.A.F.E. verified. The company is currently at 99 percent.
The company is also involved in social development programs, investing in programs to build schools and health clinics, as well as other projects that benefit coffee- growing communities. Starbucks collaborates directly with some of its growers through Farmer Support Centers, located in Costa Rica, Rwanda, Tanzania, South America, Ethiopia, Indonesia, Mexico, and China. Farmer Support Centers provide technical support and training to ensure high-quality coffee into the future. The company is a major purchaser of Fair Trade Certified, shade-grown, and certified organic beans that further support environmental and economic efforts. In 2018, Starbucks welcomed the public into the coffee process and experience through their new Visitor Center in Costa Rica. Again, the goal is transparency and educat- ing the public on how coffee beans go from the fields to the stores.
Customers Starbucks is focused more on quality coffee, the atmo- sphere of their stores, and the overall Starbucks experi- ence rather than the rapid expansion of stores after the company began missing same-store sales targets in 2016. Additionally, strengthening their brand and customer satisfaction is more important than ever as Starbucks seeks to regroup after the latest recession forced the company to rethink their strategy. Starbucks refocused the brand by upgrading their coffee-brewing machines, introducing new food and drink items for health and budget-conscious consumers, and refocusing on their core product. Recognizing the concern over the obesity epidemic, Starbucks ensures that their grab-and-go lunch items are under 500 calories and is involved in two sodium reduction programs: the National Salt and Sugar Reduction Initiative in New York and the UK Food Standards Agency’s salt campaign. Conscious of
dairy allergies, Starbucks also offers milk alternatives such as almond, soy, and coconut milk for the majority of drinks.
Communities Starbucks coffee shops have long sought to become an “instant gathering spot” and a “place that draws people together.” The company established “community stores,” which not only serve as a meeting place for community programs and trainings but also as a source of funding to solve issues specific to the local community. There are currently twelve such locations, including one in Thailand.
Schultz used the advance and ongoing royalties from his book, Pour Your Heart Into It, to create the Starbucks Foundation, which provides opportunity grants to nonprofit literacy groups, sponsors young writers’ programs, and partners with Jumpstart, an organization helping children prepare developmentally for school. The company also announced their intention to hire 10,000 veterans by 2018. In 2018, Starbucks proudly confirmed that they had not only reached that goal but had more than doubled it for a total of 21,000 veteran hires.
Additionally, Starbucks takes a proactive approach to addressing employment opportunities and job train- ing. The company has joined other firms to support the “100,000 Opportunities Initiative,” with the goal of creating 100,000 employment and internship opportuni- ties for lower-income youth between 16 and 24 years of age. Former CEO Howard Schultz helped spearhead the initiative and announced plans to hire 10,000 young workers over a three-year period. Achieving this goal early, Starbucks now has 75,000 young workers. Starbucks also announced that they were building 15 new store locations in lower-income, predominately minority neighborhoods in an attempt to improve com- munities through employment, education, and training. For instance, their location in Ferguson, Missouri, acts as a coffee shop as well as a job training facility for com- munity members. Starbucks also plans to partner with local organizations to sell their products in local stores.
Brand Evolution Although Starbucks achieved massive success in the last four decades, the company realized they had to modify their brand to appeal to changing consumer tastes. All established companies, no matter how successful, must learn to adapt their products and image to appeal to the shifting demands of their target markets. Starbucks is no exception. The company is associated with premium coffee beverages, an association that has served them well over the years. However, as competition in specialty coffee drinks increased, Starbucks recognized the need to expand their brand in the eyes of consumers.
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472 Case 9 Starbucks Takes on Coffee Culture

Summarize case study 9 in 5-6 paragraphs. Go through the case in its entirety before summarizing and responding.
Do all three questions:
1. What impact do you think recyclable plastic lids and straws will have on the sustainability goals of Starbucks?

2. Is Starbucks unique in being able to provide a high level of benefits and college tuition reimbursement to their employees?

3. Do you think Starbucks has grown because of their mission to put people ahead of profits or because of innovative ideas like online ordering and global roasteries?