Wake up and smell the coffee (Episode One)

As I promessed in my previous post, I’m starting my “What some companies did in real life when facing customer demands” series with a case that involves Starbucks. When I started writing down all the relevant information I realised that the case is quite long, and since I want to go over a couple of points I decided to divide it into several episodes so that you don’t get lost. This first part is kind of a background… so let’s get started.

Maybe you’re familiar with the Starbucks brand, maybe not. The company, devoted to the specialty coffee segment, started in the early 1970s in the city of Seattle, and in 1982 Howard Schultz -current CEO- joined as head of marketing and overseer of the retail business. After two years he had problems when the owners didn’t accept his ideas for extending Starbucks’ reach, and eventually left. In 1987, the owners were looking to sell the company and Schultz acquired the entire operation, merging it with a line of espresso bars he had founded after leaving.

In 1992 Starbucks went public; simultaneously the company started its international expansion, and established strategic partnerships with PepsiCo for the production of bottled Frappucino and Dreyer’s for a line of ice creams. By the last quarter of 2002, Starbucks had 4.000 stores in the United States and 1.500 in 22 other countries, with plans to expand to 10.000 stores in 60 countries by 2005, and 15.000 by 2007.

In 2001 the coffee industry was going through hectic times. Increased production at a worldwide level had made the market prices fall to their lowest in 30 years: out of the seven million tons produced, less than six million were actually sold. Two main concerns arose then: on the one side, Fair Trade movements started to pressure large coffee buyers to pay higher prices to small growers; and on the other side, environmental groups claimed that growing practices were leading to habitat destruction.

By 2001, the North American coffee market purchased 17% of the coffee beans produced worldwide, and around 16% of the beans consumed in the US corresponded to the specialty market. Still, less than 1% of the coffee sold in the United States as a whole was grown in sustainable conditions. By that time, Starbucks was already getting letters from its customers asking why weren’t they buying shade-grown coffee and contributing to the protection of the rain forest where coffee crops were generally grown.

This is the scenario for the case… My next post will revolve around how Starbucks dealt with the environmental part of the equation, and in the following one I’ll tell you more about the social aspects of the project the company was part of.