Respond to Case Starbucks Venti Social Responsibility and Brand Strategy

Howard Schultz joined Starbucks in 1982 as director of retail operations and marketing. Returning from a trip to Milan, Italy, with its 1,500 coffee bars, Schultz recognized an opportunity to develop a similar retail coffee bar culture in Seattle.

In 1985 the company tested the first downtown Seattle coffeehouse, served the first Starbucks café latté, and introduced its Christmas Blend. Since then, Starbucks expanded across the United States and around the world, now operating over 25,000 stores in 75 countries. The company serves 90 million customers and has revenues of approximately $21.3 billion a year. It is the largest coffeehouse company in the world.

Starbucks locates its 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 regarding size and format, it locates stores in or near a variety of settings, including office buildings, bookstores, and university campuses. It can situate retail stores in select rural and off-highway locations to serve a broader array of customers outside major metropolitan markets and further expand brand awareness.

In addition to selling products through retail outlets, Starbucks sells coffee and tea products and licenses its trademark through other channels and partners. For instance, its Frappuccino coffee drinks, Starbucks Doubleshot espresso drinks, super-premium ice creams, and VIA coffees can be purchased in grocery stores and through retailers like Walmart and Target. Starbucks partnered with Courtesy Products to create single-cup Starbucks packets marketed toward hotel rooms. Starbucks also partnered with Green Mountain Coffee Roasters to introduce Starbucks-branded coffee and tea pods to the market. These pods target consumers who own Keurig single-cup brewing machines. Although the two businesses would normally be rivals, this partnership was beneficial for both Green Mountain and Starbucks. Since Green Mountain owns Keurig’s single-serve machines, the partnership enabled Starbucks to access this technology to market a new product. Green Mountain benefited because the partnership generated new users of Keurig single-cup brewing machines attracted to the Starbucks name.

This partnership between Green Mountain and Starbucks did not stop Starbucks from launching its own line of single-serve machines. In 2012 Starbucks introduced its Verismo 580 Brewer that allows consumers to brew a cup of Starbucks coffee in their own homes. The coffee has the strong, bold flavor of a cup purchased in any Starbucks retail location. Starbucks also introduced the Verismo® Milk Frother to allow customers to whisk milk and make lattes. The company continues to innovate with its single-serve machines; its newer Verismo® V Brewer, for instance, makes it possible for users to brew both coffee and espresso shots. Not to be outdone, Green Mountain released another type of single-serve coffee brewer called the Rivo. The race to conquer the single-serve coffee market is intensifying between the two companies.

A common criticism of Starbucks is the company’s strategy for location and expansion. Its “clustering” strategy, placing a Starbucks literally on every corner in some cases, forced many smaller coffee shops out of business. This strategy dominated for most of the 1990s and 2000s and Starbucks became the butt of jokes. Many people began to wonder whether two Starbucks directly across the street from each other were really needed. The last 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. Now Starbucks is beginning to focus on U.S. expansion once more.

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. Among the coffees roasted at the roaster are small-lot coffees called Starbucks Reserve®. These types of coffees come from unique parts of the world and are only available in small batches. Out of 250,000 cups of coffee evaluated in Starbuck’s tasting room each year, only 1 percent are selected to become a Starbucks Reserve coffee. Starbucks Reserve has become so popular that the company announced it would open 1,000 Reserve stores and 20–30 roasteries in the coming years.

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New Product Offerings
Starbucks introduced a number of new products over the years to remain competitive. In 2008 Starbucks decided to return to its essentials with the introduction of its Pike Place Blend that the company hoped would return Starbucks to its roots of distinctive, expertly blended coffee. In order to get the flavor perfect, Starbucks enlisted the input of 1,000 customers over 1,500 hours. To kick off the new choice, 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. Also, after feedback revealed many of its customers desired a lighter blend, Starbucks introduced Blonde Roast blend in 2011. In 2015 the company commercialized the Flat White based 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.

Starbucks executives believe the experience customers have in the stores should be consistent. Therefore, Starbucks began to refocus on the customer experience as one of the key competitive advantages of the Starbucks brand. To enhance the European coffee shop experience for which Starbucks is known, shops are replacing their old espresso machines with new, high-tech ones. To keep the drink-making operation running efficiently and accurately, Starbucks mandated baristas to make no more than two drinks at the same time. It is also introducing more lines of single-origin coffees to appeal to coffee enthusiasts interested in where their coffee comes from.

Additionally, Starbucks fosters brand loyalty by increasing repeat business. One of the ways it accomplishes this is through the Starbucks Card, a reloadable card introduced in 2001. For the tech-savvy visitor, Starbucks introduced the Starbucks mobile app. With the app customers are able to order or pre-order their coffee and scan their phone for payment. Today 21 percent of transactions in U.S. stores are performed using the mobile app. Starbucks sees the app as an opportunity to increase sales in countries like China—it is estimated that the app has already increased U.S. sales by 15–20 percent. Howard Schultz believes the future is digital and is placing more emphasis on digital marketing strategies. For this reason, the company is testing out its first mobile order and pay-only store to see if this method will reduce lines at stores and increase customer satisfaction.

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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 determining the appropriateness of later decisions and actions. After drafting the mission statement, the executive team asked all partners of Starbucks to review and comment on the document. Based on their feedback, the final statement put “people first and profits last.” In fact, the number one guiding principle in the company’s 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, it distributes the mission statement and comment cards for feedback during orientation to all new partners. Second, Starbucks continually relates decisions back to the guiding principle or principles it supports. 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.

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 confirmed by research. 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 lose sight of its core values.

The care the company shows its employees is a large part of what sets it apart. 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 partnered with Arizona State University (ASU) to offer tuition assistance to those who want to earn a degree from the university’s online program. In 2017 it was voted as one of the most ethical companies on Ethisphere’s annual list for the eleventh consecutive year.

Another key part of the Starbucks image involves its commitment to ethics and sustainability. To address concerns related to these issues, Starbucks uses its website to describe how well it fares on achieving its social responsibility goals. This information provides a means for customers to learn things like the nutrition data of Starbucks offerings and other concerns related to its products. One major goal of Starbucks is to increase the use of reusable cups and personal tumblers among its consumer base, thereby reducing the amount of waste Starbucks generates with its disposable cups. Starbucks offers a small rebate to customers who bring in their own personal tumblers. Starbucks set a goal to sell 5 percent of in-store beverages in personal tumblers by 2015. However, by 2015 only 1.6 percent of Starbucks beverages were served in personal tumblers. Starbucks recognizes that consumers must change long-ingrained behaviors to make a difference in reducing waste, and it continues to offer incentives for consumers to bring in their own reusable cups.

Starbucks is taking its sustainability efforts beyond reducing waste with its goals to reduce energy usage, increase renewables, and decrease water usage. It surpassed its water usage reduction goals and reached its goal of purchasing renewable energy equivalent to 100 percent of the electricity used in its company-owned global-operated stores. It did not reach its 2015 goals to reduce store energy consumption but claims it served far more customers in its stores than it had originally anticipated.

Starbucks is also looking toward other ways to increase its environmental impact, including encouraging investors to get involved in funding its sustainability efforts. In 2016 the firm issued sustainability bonds with the goal of raising $496 million in investments for its sustainability projects. This is the first time the coffee chain has asked for investments solely to fund sustainability-related projects.

Starbucks actively partners with nonprofits around the globe. It is one of the largest buyers of Fair Trade Certified as well as certified organic coffee and has invested millions in programs for farmers around the world. It successfully increased small loans to farmers by $20 million and donated over 1 million coffee trees to 70,000 farmer families. In 1998 Conservation International joined with Starbucks to promote sustainable agricultural practices, including shade-grown coffee, and help prevent deforestation in endangered regions around the globe.

Starbucks works with many other organizations as well, including the Eastern Congo Initiative and Business for Social Responsibility. The company’s efforts at transparency, the treatment of its workers, and its dozens of philanthropic commitments demonstrate how genuine Starbucks is in its mission to be an ethical and socially responsible company.

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Corporate Social Mission
Although Starbucks supported responsible business practices virtually since its inception, as the company has grown, so has the importance of defending its 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 its performance. Starbucks is concerned about the environment, its employees, suppliers, customers, and communities. Howard Schultz has commented that achieving social change to improve society is an important part of the company’s core identity.

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Environment
In 1992, long before it became trendy to be “green,” Starbucks developed an environmental mission statement to clearly articulate the company’s environmental priorities 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 its website that clearly outlines its environmental goals and how Starbucks fares in living up to those goals.

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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 believes 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 health care programs in the coffee shop industry. Schultz’s key to maintaining a strong business is 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.” Approximately 48 percent of vice presidents of the company are women and 15 percent are minorities. The firm developed a goal to increase the percentage of top leaders who are women or minorities to 50 percent by 2020.

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 its guiding principle of “people first, profits last,” shows how much the company values its employees. Employees also have an opportunity to join the Starbucks stock-sharing program called Bean Stock. They have generated $1 billion in financial gains through stock options. In 2015 Starbucks gave employees a raise and increased starting pay rates across the country.

Starbucks is committed toward the well-being of its employees—both physically and intellectually. 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 such as smoking cessation, 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 40 programs online or in person. More than 2,000 employees applied to the program when it was initially launched. The rising cost of education is an important issue that CEO Howard Schultz wants to help alleviate.

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Suppliers
Even though it is 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. It builds positive relationships with small coffee suppliers while also working with governments and nonprofits wherever it operates. 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 that receive high scores in best practices. Starbucks pays coffee farmers premium prices to help them make profits and support their families. More than 99 percent of total coffee purchases are C.A.F.E. verified.

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 seven Farmer Support Centers, located in Asia, Africa, and Latin America. Farmer Support Centers provide technical support and training to ensure high-quality coffee into the future. It is a major purchaser of Fair Trade Certified, shade-grown, and certified organic beans that further support environmental and economic efforts. In 2013 Starbucks bought its first coffee farm, located in Costa Rica. The purchase was one step toward the company’s goal of increasing its ethically sourced coffee to 100 percent.

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Customers
Strengthening its brand and customer satisfaction is more important than ever as Starbucks seeks to regroup after the latest recession forced the company to rethink its strategy. Starbucks refocused the brand by upgrading its coffee-brewing machines, introducing new food and drink items for health- and budget-conscious consumers, and refocusing on its core product. Recognizing the concern over the obesity epidemic, Starbucks ensures that its grab-and-go lunch items are under 500 calories. The company focuses more on the quality of the coffee, the atmosphere of the coffee shops, and the overall Starbucks experience, rather than continuing its rapid expansion of stores and products. Enhancing the customer experience in its stores became a high priority. As a way to encourage people to relax and spend time there, Starbucks offers free wireless Internet access in all its U.S. stores.

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Communities
Starbucks coffee shops have long sought to become the “instant gathering spot” wherever they locate, 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 six such locations (including one in Thailand). Additionally, the company has partnered with the Schultz Family Foundation (founded by Howard Schultz) to provide training to disadvantaged young people in retail and customer service. Starbucks announced it would train or hire 100,000 disadvantaged youth. Schultz even used the advance and ongoing royalties from his book, Pour Your Heart into It, to create the Starbucks Foundation that 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 the goal to hire 10,000 veterans by 2018. Not only did Starbucks achieve this goal before the scheduled deadline, it increased its hiring commitment to 25,000 additional veterans and military spouses by 2025.

Although Starbucks is known for putting its corporate muscle behind social issues—including unemployment—not all of its social activities have been perceived positively. After the Ferguson, Missouri shooting of a young African American man by a white police officer and the resulting protests, Starbucks created the campaign “Race Together” to encourage discussions of race relations among customers. For one week during the campaign, baristas were encouraged to write “Race Together” on customer cups. Despite Schultz’s intention to encourage discussion of a serious topic, many consumers reacted negatively to the campaign. Outrage over Twitter was so intense that the senior vice president of global communications at Starbucks temporarily deleted his Twitter account. Because the issue of race is such an emotionally charged issue and can be difficult to discuss even with family and friends, some marketing experts believe Starbucks took on too much with its campaign. Critics also claimed that they did not want to be reminded of this serious topic on their morning cups of coffee, and some believed the campaign was more of a public-relations stunt. Even in the face of backlash, Schultz and Starbucks continue to support the company’s involvement in discussing serious issues that affect the communities in which it does business.

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