Paper 2- Beyond the Coffee: The Ethics of Starbucks


 Starbucks’ Ethics from a Barista’s Point of View :

Source: Youtube

Intro: More than 100 million American adults drink an average of three to four cups of coffee a day (Neal). Of those 100 million coffee-drinkers, 25 million of them visit a Starbucks daily.  That is a lot of customers! So, it is unsurprising that Starbucks is one of the world’s best-known and best-liked brands (Johnson). In addition to its popularity, Starbucks’ commitment to being a socially responsible company is widely known and respected. Through its mission statement and corporate values, Starbucks makes it clear (so clear that it is highlighted on its website) that businesses can – and should – have a positive impact on the communities it serves.  But being ethical and socially responsible is not always cheap, as many Starbucks’ consumers are aware. Compared to competitors, the price of coffee at Starbucks is significantly higher; however, the higher prices do not seem to affect Starbucks’ profitability, and one could argue that this means consumers are willing to pay a higher price if the company is committed to its stakeholders. Regardless of how much consumers are willing to shell out for a cup of Joe, I question whether or not Starbucks’ high prices are justified through its commitment to society, or is Starbucks just like many of the other powerhouse companies that we have studied in class that are really driven by its bottom line?  In this essay, I will examine Starbucks’ history, profitability, responsibility, and criticisms to determine whether Starbucks is an ethical company through Thomas Donaldson and Edwin Hartman’s theories.

History: Starbucks first opened its doors to consumers on March 31, 1971 in Seattle, Washington as a single store that offered some of the world’s finest fresh-roasted whole bean coffees (Starbucks Corporation). In 1981, Howard Schultz (chairman, president, and CEO of Starbucks) was introduced to Starbucks and had an immediate attraction to the company that drew him in for years to come. Schultz traveled to Italy in 1983, and the Italian coffee bars he frequented inspired him to develop a vision that would bring the Italian coffeehouse tradition to the United States. This vision would create a place for conversation and a sense of community between work and home – a third place. In August 1987, Schultz purchased Starbucks with the help of local investors, and in that same year, Starbucks opened its first location outside of Seattle. By the time Starbucks went public in 1992, the chain had grown to 165 stores across the country. In just 20 years, Starbucks has grown to 17,000 stores in 55 countries, and even though it is no longer the single coffee store that it once was, Starbucks claims still hold true to Schultz’s original vision. “Every day, we go to work hoping to do two things: share great coffee with our friends and help make the world a little better. It was true when we first opened in 1971, and it’s just as true today” (Starbucks Corporation).  Not only did this vision lead to phenomenal growth, it led to Starbucks’ dedication to balancing profitably and social conscience.

Profitability: “Before Starbucks, there was coffee. Now there’s Brazilian Dark Roast, Ethiopian Yergachaffe Medium Roast, double cappuccinos, and lattes galore. This alone opened up the doors for a multitude of roasters. Think about it – did you ever hear someone order a double iced mocha from a coffeehouse before Starbucks went big? But now, every coffee shop has regulars who drink them daily” (Markham). Starbucks’ explosive growth changed the way consumers think about coffee, and it continues to remain profitable and successfully change the coffee industry despite the current economic reality and pressure from competitors. The following is Starbucks’ net revenues from 2007 to 2011: 2007 – $9.4 billion; 2008 – $10.4 billion; 2009 – $9.8 billion; 2010 – $10.7 billion; 2011- $11.7 billion.  With the exception of 2009, Starbucks has outperformed its revenue substantially from the previous year. This past year was a record-breaker for Starbucks as global revenues reached $11.7 billion, which is an 11% increase from 2010. Starbucks’ ability to succeed even during tough economic times speaks volumes; however competitors were not as fortunate to see such steep numbers from sales.

Starbucks’ competitor Dunkin’ Donuts charges $1.95 for a 20-ounce cup of coffee, while Starbucks charges $2.25 (Ovide). With a competitively lower price, one would think that Dunkin’ Donuts would generate similar (if not greater) revenues than Starbucks during difficult economic times – not the opposite. In 2011, Dunkin’ Donuts only saw a 9.3% increase from 2010 in its net revenues, increasing from $400.3 million to $437.7 million (Dunkin’ Brands).  So, how did Starbucks manage record-breaking global revenues in 2011? Starbucks attributed its strong performance to its unique business model that leverages its emotional connection to consumers, its global retail footprint, its diversified Consumer Products Group (CPG) distribution capabilities, and ongoing innovation across all areas (Starbucks Corporation).  In addition, by the end of 2011, Starbucks’ stock price had increased 43% from 2010, which provided an above satisfactory level of performance for shareholders. In the annual report, Schultz notes that one way to measure the incredible success that Starbucks had in 2011 was to look at the shareholder value that was built as “Starbucks’ balance sheet has never been stronger and our profits never higher.” However, this value is not the only measure of success that Schultz points out in the annual report; he still believes that the shareholder value must be linked to the value created for a company’s people, its customers, and the communities it serves.

Responsibility: “We continue to believe that the ultimate way to scale the power of our brand is to share the good we do so that Starbucks and everyone we touch – can endure and thrive” (Starbucks Corporation). Starbucks has had a commitment to social responsibility since its first year in 1971, and Schultz has attributed much of its success today to this relationship. Likewise, analysts agree as Starbucks has appeared on the list of the Most Admired Companies in the U.S., the list of 100 Best Companies to Work For, and the list of 100 Best Corporate Citizens in recent years (Johnson). Starbucks earned its reputation through its obligation to its mission statement and values. According to its mission statement, Starbucks aims “to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time” (Starbucks Corporation).  Starbucks has defined principles that explain how it fulfills its mission every day. These principles are exemplified through Starbucks’ coffee, partners, customers, stores, neighborhood, and shareholders.

  • Coffee:  “It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done.”
  • Partners:We’re called partners, because it’s not just a job, it’s our passion. Together, we embrace diversity to create a place where each of us can be ourselves. We always treat each other with respect and dignity. And we hold each other to that standard.”
  • Customers: “When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers – even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. It’s really about human connection.”
  • Stores:When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. It’s about enjoyment at the speed of life – sometimes slow and savored, sometimes faster. Always full of humanity.”
  • Neighborhood:Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do business. We can be a force for positive action – bringing together our partners, customers, and the community to contribute every day. Now we see that our responsibility – and our potential for good – is even larger. The world is looking to Starbucks to set the new standard, yet again. We will lead.”
  • Shareholders:We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders. We are fully accountable to get each of these elements right so that Starbucks – and everyone it touches – can endure and thrive” (Starbucks Corporation).

In addition to its mission statement, Starbucks also has established corporate values that are very well publicized throughout its stores, products, press releases, and annual reports (Johnson). These values include community, environment, ethical sourcing, wellness, and diversity.

  • Community: “When it comes to the neighborhoods, cities and countries where we operate, Starbucks is committed to the helping communities thrive.”
  • Environment: “We are committed to minimizing our environmental footprint and inspiring others to do the same.”
  • Ethical Sourcing: “We are committed to offering the highest-quality, ethically purchased and responsibly produced products. Through our responsible purchasing practices we invest in our farmers, suppliers and their communities.”
  • Wellness: “Our dedication to wellness means supporting policies and efforts to improve the health of our communities in addition to offering balanced food and beverage options to our customers.”
  • Diversity: “By welcoming a diversity of people and ideas to our business, we create more opportunities for learning and success that benefit customers, partners (employees) and suppliers.” (Starbucks Corp.)

For a company to state and act on its values is one thing, but Starbucks takes it one step further by measuring the performance of its values.

Starbucks measures its company compliance to its values through its “Global Responsibility Goals and Progress Report.” In the 2011 report, Starbucks focuses its goals on three main areas: environmental stewardship, ethical sourcing and community involvement. Data and analysis showed that Starbucks’ did well in 2011 by meeting or exceeding its goals (See Tables 1-4 for further information).  Although Starbucks’ achievements have certainly made it an admirable company, it is not as flawless as it may appear to be.

Criticisms: “It’s not about coffee. It’s about status. It’s about the corporate takeovers, the loss of a small town feeling, industrializing, standardizing, and conformity. Every city corner, every shopping mall, every airport seems to come standard with a Starbucks” (Markham).  Criticism towards Starbucks stems around its 17,003 stores all over the world that are often found right around the corner from one another. The growth of stores have posed a threat to local coffee shops as many are going out of business, which leaves some people questioning if Starbucks’ operations are really 100% ethical. Researcher Chris Grimshaw from Corporate Watch believes that “Starbucks’ CSR program is being used as a ‘smokescreen to create the illusion of ethics,’ and the company is committed solely to making money for its shareholders” (Ferrell). Is Grimshaw right – has Starbucks really managed to fool everyone?

Ethical Analysis: To answer this question, I looked at the ethical theories of Thomas Donaldson and Edwin Hartman. According to Donaldson, a corporation has a correlative duty to fulfill certain human rights. These duties include:  1.) avoid depriving people of their rights, 2.) help protect people from such deprivations, and 3.) aid those who are deprived. Hartman introduces a fourth duty to Donaldson’s list- the duty to avoid helping to deprive. ‘To fulfill this duty the company need not contribute to protecting anybody from privation; it need only make sure that nothing it does helps the depriver get the job done” (Hartman).  So, has Starbucks fulfilled its duties?

Looking at the first duty, Starbucks has fulfilled its obligations. Starbucks ensures people have their basic rights through its commitment to diversity. Starbucks has a company-wide diversity strategy that focuses on four areas: partners, customers, suppliers, and communities.

  • Partners (employees): “We seek out and engage partners who are as diverse as the communities we serve.”
  • Customers: “We extend the Starbucks Experience to all customers, recognizing and responding to their unique preferences and needs. We aim to provide an exceptional customer experience by connecting with our customers in a culturally relevant way.”
  • Suppliers: “We are a trusted and welcoming company for suppliers. Through our supplier diversity program, we work to increase our business relationships with minority- and women-owned suppliers.”
  • Communities:   “We support and invest in local neighborhoods and global communities through strategic partnerships and economic development opportunities that deepen our ties in the communities where we do business” (Starbucks Corporation).

By acting with a spirit of kinship, tolerance, and humanity, Starbucks fulfilled the first duty outlined by Donaldson.

The second duty is another area in which Starbucks has fulfilled its obligations. One example of this fulfillment is through Starbucks’ Social Responsibility Standards for Manufactured Goods and Services Program, which launched in 2006. Since its launch, Starbucks monitors efforts in over 450 factories in 28 countries. Starbucks expects its suppliers to adhere to the standards outlined in its program and offers assistance when adjustments need to be made in suppliers’ business practices; however, if a supplier fails to meet a corrective action, Starbucks will terminate the supplier relationship, and hence protects basic human rights.

The way in which Starbucks fulfills the third duty is apparent through its active role in the communities it serves. Starbucks’ commitment to community can be seen through the Starbucks Foundation, which started in 1997 by funding literacy programs in the United States and Canada. Today, the Starbucks Foundation funds programs around the world. One program that the Starbucks Foundation supports is Starbucks China Education Project. In recognition of China’s placed importance on education, Starbucks began this $5 million project in 2005 in order to help foster education for the Chinese.

In regards to the fourth duty, Starbucks has both met and failed its obligations. On the one hand, Starbucks met its obligations through its support to farmers and their communities. “During the growing and harvest cycles, many coffee farmers dip into their modest reserves to cover expenses until they can sell their crops. Some farmers may even experience a cash shortage, prompting them to sell their crops early and for less to local farmers” (Starbucks Corporation). Starbucks has a loan program that provides financial resources to its farmers in order to fulfill their cash flow needs during harvest season. So, an argument can be made that Starbucks is helping farmers avoid deprivation by providing financial resources. On the other hand, Starbucks failed to meet its obligations due to its rapid growth that has put many small, local coffee shops out of business. By opening new shops in communities across the world, Starbucks has deprived a lot of coffee shops of a significant amount of profits, often forcing stores to shut down operations. Likewise, an argument can be made that Starbucks is not helping local business people avoid deprivation by its mass amount of stores.

Conclusion: Through my analysis and taking into account Starbucks history, profitability, responsibility, and criticisms, I conclude that Starbucks has carried out its obligations and corporate responsibility, and can therefore be considered an ethical company. Despite its criticisms, Starbucks has demonstrated in a magnitude of ways how its profitability is justified through its ethical actions and social responsibilities. While Starbucks’ fulfillment of its fourth corporate duty is unclear, I believe Donaldson and Hartman would argue that the ways in which Starbucks has fulfilled all of its other duties far exceeds its inability to meet the fourth. Starbucks’ continued efforts to responsibility from the first day it opened its doors until now have proved to make it the ethical company that it claims to be.

Table 1 – Starbucks Global Responsibility Report: Environmental Stewardship

Table 2 – Starbucks Global Responsibility Report: Environmental Stewardship

Table 3 – Starbucks Global Responsibility Report: Ethical Sourcing

Table 4– Starbucks Global Responsibility Report: Community Involvement

Citations:

Dunkin’ Brands. 2012. Retrieved from http://dunkinbrands.com .

Ferrell, O.C., John Fraedrich, and Linda Ferrell. Business Ethics: Ethical Decision Making and Cases. Mason: Cengage Learning, Inc. , 2009. 446-451. eBook. <http://books.google.com/books?id=GiQMr5w1N_kC&pg=PA447&lpg=PA447&dq=starbucks ethical criticism&source=bl&ots=OYp0DaZFJq&sig=0NVGYkgr4HfzjyOS44cXRCCs6FU&hl=en&sa=X&ei=QYGkUO6rK-WB0QGXvoCYDw&ved=0CFcQ6AEwBA

Johnson, Craig. Ethics in the Workplace:Tools and Tactics for Organizational Transition . Thousand Oaks: Sage Publications, Inc. , 2007. 272-274. eBook. <http://books.google.com/books?id=oJN5MTcrh6IC&pg=PT300&dq=starbucks ethics&hl=en&sa=X&ei=V_aaUPvWGujV0gHauYGgDw&ved=0CDwQ6AEwBA Ethics in the Workplace>.

Markham, Derek. “The Impact of Starbucks .” Green Lifestyle Magazine. 2012: 29-32. Web. 18 Nov. 2012. <http://www.organiclifestylemagazine.com/green/issue-5/impact-of-starbucks.php&gt;.

Neal, Rome. “Caffine Nation.” CBS News . 11 2009: n. page. Web. 18 Nov. 2012. <http://www.cbsnews.com/8301-3445_162-529388.html&gt;.

Ovide, Shira. “Face Off! Dunkin’ Donuts vs. Starbucks.” Deal Journal. The Wall Street Journal, 27 Jul 2011. Web. 18 Nov. 2012. <http://blogs.wsj.com/deals/2011/07/27/face-off-dunkin-donuts-vs-starbucks/&gt;.

Starbucks Corporation. 2012. Retrieved from http://starbucks.com .

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