Since Facing the Global Exchange Campaign

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? What business drivers do think Starbucks is trying to capitalize on with its continued investment in fair trade coffee, given the customer base is not really materializing, or is this extra investment just irrational?         Starbucks began working with NGOs in 1996 and the company’s relationships with various NGOs illustrate both the spectrum of business responses to NGOs and the changing NGO landscape. The company’s visibility in the marketplace makes it a target for NGOs, the media, and consumer. Global Exchange first focused its spotlight on Starbucks in 2000, criticizing it for not buying Fair Trade coffee. Social change is the goal by working collaboratively with NGOs. Coffee was the second most traded commodity on worldwide markets after oil in 2000 and an $80 billion industry. o Coffee market is fragmented o Because Starbucks focused heavily on the quality of its coffee beans, the company paid an average of $1.20 per pound—well above the market price—in 2000. Starbucks, however, is much more than just a premium coffee retailer; Starbucks has also been committed to social responsibility since its founding. o People first and profits last  Focus is on social responsibility not growth Global Exchange, as the popular leader of the “corporate accountability” movement, primarily targets companies that move their assets toward the cheapest labor sources to maximize profits. One of the primary issues on which Global Exchange focuses its efforts is fair trade. Fair trade is an economic model based on fair labor compensation and mutual respect between producers and consumers. Global Exchange decided to take an anti-corporation approach to this issue and focused its attention on the most visible brand in specialty coffee: Starbucks. o Starbucks met several of Global Exchange’s criteria for a target company. It was a large company that could make a big difference in the Fair Trade coffee industry o Also, Starbucks was based in the United States, making it an easier target for Global Exchange, which uses tactics such as demonstrations in front of retail locations and attendance at shareholder meetings. o Strong brand o Global Exchange not only believed that Starbucks claimed to be socially responsible without backing it up, but the organization was also attracted to Starbucks’ visible national presence through its ubiquitous retail locations    Because roasters and retailers of the specialty coffee industry were already accustomed to paying a premium for their coffee, they were perceived as more likely to agree to purchase Fair Trade coffee. o If Starbucks didn’t offer Fair Trade coffee in all of its United States stores, we would conduct a nation- wide campaign. “We felt that they weren’t moving fast enough. . . . We believed this was the way to get the CEO to buy into Fair Trade coffee. While Starbucks could fight Global Exchange on the Fair Trade coffee issue, it could not always know whether the farmers got their fair share of the high prices. However, capitulation had its drawbacks as well. Starbucks was concerned that if it succumbed to one NGO’s pressure, it could be perceived as an “easy target” for activist campaigns by other NGOs. Fair Trade certified co-ops do not have the volume or consistency of quality that Starbucks requires  Starbucks has embarked on other initiatives to increase stability and predictability at the producer level. Initiatives include purchasing green coffee at outright prices (independent of the market prices), creating direct relationships where possible, and implementing long-term contracts with suppliers.  Global Exchange, along with other activists, still do not believe the company is responsible enough.  Global Exchange has continued to express its disappointment in Starbucks, claiming the company “negotiated in bad faith” because it has not achieved Fair Trade coffee sales of five percent  Global Exchange now demands that Fair Trade coffee be brewed in its domestic stores once a week instead of once a month, as is the current standard. Case Debrief  Guiding principles of Fair Trade Coffee o Fair price: fair trade price is $1.26  Starbucks is $1.20. 6 cents away o Democratic Organization o Long term relations: Direct trade and Long term relations o Access to Credit o Environmental Protection  The brand closest to fair trade: Starbucks o Social leader o And has all the characteristics of fair trade  Dunkin Donuts is at $.80  Social strategy of Starbucks is cost o Cost is a threat on profit o Is customer is loyal, they will pay more for the brand o It makes money off customers, employees, and investors  Profit center  Employee turnover is lower than most, 60% vs 220%  Risks of fair trade coffee for starbuck’s o Consumers risk: low quality and higher price o Supplier risk: current and fair trade o Look weak: NGO asking for more  Rewards: o Stop the Boycott o Leader in new market o Enhanced corporate reputation  Option 1: do nothing, ignore campaign o Let position defend themselves  Option 2: fight back and actively defend yourself. Marketing o We have a defendable position, but need to put out to the media  Option 3: give in to some degree to the NGOs. Compromise.  Do they have a defendable position on fair trade? o Starbucks can’t avoid 6 cents? o They don’t have a defendable position o They had to compromise o They had to carry fair trade, brew once a month (12), only for a year. Trial compromise.      This doesn’t risk supply only for 12 a year  Current 353 Not open for consumer risk either. Don’t have to change the price for 1 day a month Only once per month that it is bad quality Don’t look weak anymore