starbucks 1
DESCRIPTION
A project for my "International Business Diplomacy: Business, Government, and the Global Economy" class.TRANSCRIPT
Jessica Lewis
April 14, 2010
Business Problem
Partner with CI to create a new label based on internal standards
Amend 2007 ICA to include a minimum price for specialty and premium imports
Low-cost competition entering specialty coffee market
Presentation Roadmap
Background Non-Market
Strategy #1
Non-Market
Strategy #2
Mini-Case Sensitivity
Analysis
3 Business
Lessons
BackgroundBackground
Starbucks’ Annual Revenues, 2005-2009
Source: Starbucks 2009 Annual Report
"Medium is the new grande” –
McDonald’s tagline, 2009
Non-Market Strategy #1
Partner with Conservation International to create a C.A.F.E. Practices label
Non-Market Strategy #1
Starbucks goal: to purchase 100% C.A.F.E. certified coffee by 2015
Increases the visibility of Starbucks’ C.A.F.E. practices to the consumer
Differentiates C.A.F.E. practices from other certifications on the market
Sets Starbucks apart from quick-service restaurant sector competitors
The label justifies premium prices for coffee
Non-Market Strategy #1
Partner with Conservation International to create a C.A.F.E. Practices label
In 2009, Starbucks bought
367 million pounds of coffee:
299 Million Pounds (81%)
C.A.F.E. certified
Non-Market Strategy #1
Why Conservation International?History of cooperation:
Partnership with Starbucks since 1998
C.I. helped create C.A.F.E. Practices in 2003
Similar vision and mission:
Ethical Sourcing
Environmental Sustainability (conservation and biodiversity)
Economic and social welfare of producers
"Our partnership engages one of the
great corporations, their customers
and coffee farmers in this battle
against climate change. By stepping
up this partnership we have aligned
our existing work and success to
address the most pressing
issue of our time.“
– Peter Seligmann, CEO of CI
Non-Market Strategy #1
Certification Comparison
2008 Minimum Price Paid (US dollars per pound)
Starbucks C.A.F.E. Practices
99%
1%Small Farms
Large Plantations
20%
80%
Small Farms
Large Plantations
Rainforest Alliance Certification
0
2
Rainforest Alliance
Fair TradeStarbucks
0
1.35 1.49
Source: Rainforest Alliance,
Starbucks, and TransFair
Non-Market Strategy #1
Marketing C.A.F.E. Label
Non-Market Strategy #1
C.A.F.E. Label and Competitors
Non-Market Strategy #1
• Highlight differences between labels
• Emphasize superiority of C.A.F.E.
1. Promote their own labels
• Brand and sell our label
• Sell the know-how for C.A.F.E. Practices
2. Buy/switch to our label
• 3rd party certification (SCS)
• Created C.AF.E. with CI
3. Discredit our label through “Nike Effect”
Competitors’
Reactions:
Starbucks’
Reaction:
Non-Market Strategy #2
Work with NGOs and the U.S. government to amend the 2007 International Coffee Agreement to include a minimum price for specialty and premium coffee imports
“Through Fair Trade, farmers and their families
are earning a better income for their hard work-
allowing them to hold on to their land, keep
their kids in school, and invest in the quality of
their harvest-so they can continue to grow
excellent quality coffee for your morning
brew.” – TransFair website
Non-Market Strategy #2
International Coffee Agreement 2007
Non-Market Strategy #2
Source: http://www.ico.org/documents/ica2007e.pdf
World Coffee Prices
Non-Market Strategy #2
Fair Trade and World Trade
Source: “Fair Trade: Turning Social Responsibility into
Competitive Advantage,” SCAA Conference April 2000
Non-Market Strategy #2
Starbucks and the ‘C’ Market
Source: Starbucks
Non-Market Strategy #2
Why NGOs?
Source: http://www.oxfamamerica.org/campaigns/trade
Non-Market Strategy #2
“Oxfam is working to influence agreements on trade
and investment rules so that they take into account the
asymmetries in development that exist between rich
and poor countries.”
Selling it the U.S. Government:“Falling coffee prices are forcing farmers to grow coca - the leaf from which cocaine is produced. The price of coffee remains at a 30-year low, despite the efforts of the major coffee-producing nations to reduce exports.” – BBC, 8/15/01
Source: BBC, Aug 15, 2001, http://news.bbc.co.uk/2/hi/business/1493104.stm
Non-Market Strategy #2
Drugs EnvironmentLiving
StandardsNational Security
Legal Framework
GATT, Art. XX
U.N. Economic and Social Council Resolution 30
(March 28, 1947)
Andean Trade Promotion and Drug
Eradication Act (ADTPDEA) 2002
Non-Market Strategy #2
Legal Framework
Non-Market Strategy #2
World Trade Organization, Article XX:
Legal FrameworkAndean Trade Promotion and Drug
Eradication Act (ATPDEA), as amended Aug.
6, 2002:
Public Law 107-210, Title XXXI, Sec. 3102(2):
“The Andean Trade Preference Act has been a key element in the United States counternarcotics strategy in the Andean region, promoting export diversification and broad-based economic development that provides sustainable economic alternatives to drug-crop production, strengthening the legitimate economies of Andean countries and creating viable alternatives to illicit trade in coca.”
U.S. Act to foster economic
development in Andean countries
and provide alternatives to cocaine
production:
Source: gpoaccess.gov
Non-Market Strategy #2
Competitors’ Options
Non-Market Strategy #2
• Costs increase
• Market share decreases
1. Comply with minimum price
standard
• Purchase poor quality “exchange grade” coffee
• Public image decline
2. Exit specialty coffee market
Reaction to Competitors
Non-Market Strategy #2
Mini-Case:
1. Clorox Green Works created and marketed internal standard
2. Partnered with NGOs to create a national standard for “natural” cleaning products
Mini-Case
Mini-Case:
"The NPA standard is science-based and was developed by a team of experts from the association as well as natural products manufacturers and retailers. The advisory panel drew from a variety of sources, including relevant international standards, third-party organizations, existing research, and years of experience in the field. Advisors to the association are the leading natural home care suppliers, manufacturers and retailers, including Green Works natural cleaners®, Seventh Generation®, J.R. Watkins®, Cognis®, Trilogy Fragrances®, Aubrey Organics®, Eco-Me®, PCC Natural Markets® and Sun & Earth®."
Source: Natural Products Association website
Mini-Case
Mini-Case:
Success and Market Share:
Mini-Case
Source: Green Works Annual Report 2009
Sensitivity Analysis
Sensitivity Analysis
Will Americans support a minimum price?
How will other countries react?
How much of an impact will a label have?
Business Lessons
Showcase your own strengths!
Don’t compromise
your standards!
Adapt to a changing market!
Business Lessons