business ethics

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.

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.

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.

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.

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.

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.

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.

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.

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.

Although Starbucks achieved massive success in the last four decades, the company realizes it must modify its brand to appeal to changing consumer tastes. All established companies, no matter how successful, must learn to adapt their products and image to appeal to the shifting demands of their target markets. Starbucks is no exception. The company is associated with premium coffee beverages, an association that served it well over the years. However, as competition in specialty coffee drinks increases, Starbucks recognized the need to expand its brand in the eyes of consumers.

One way it is doing this is through adopting more products. In addition to coffee, Starbucks stores sell coffee accessories, teas, muffins, CDs, water, grab-and-go products, Starbuck Petites, upscale food items, hand-crafted sodas called Fizzios, as well as wine and beer in select locations. Food sales make up 20 percent of company revenue. The rise in coffee prices has created an opportunity for expansion into consumer packaged goods that will protect Starbucks against the risks of relying solely on coffee. In order to remain competitive, Starbucks made a series of acquisitions to increase the value of its brand, including Bay Bread (a small artisan bakery), Evolution Fresh (a juice brand), and Teavana (a tea brand). This allowed Starbucks to offer high quality breakfast sandwiches as well as Paninis and wraps for lunch. In 2017 Starbucks increased its menu and coffee options with items such as soups and its first gluten-free sandwich. It intends to use its expanded menu to help increase revenue growth by 10 percent over a five-year period.

To symbolize this shift into the consumer packaged goods business, Starbucks gave its logo a new look. Previously, the company’s circular logo featured a mermaid with the words “Starbucks Coffee” encircling it. In 2011 Starbucks removed the words and enlarged the mermaid to signal to consumers that Starbucks is more than just the average coffee retailer.

For decades Starbucks revolutionized our leisure time. Starbucks is the most prominent brand of high-end coffee in the world but also one of the defining brands of our time. In most large cities, it is impossible to walk more than a few blocks without seeing the familiar mermaid logo.

In the past few decades, Starbucks achieved amazing levels of growth, creating financial success for shareholders. The company’s reputation is built on product quality, stakeholder concern, and a balanced approach to all of its business activities. Of course, Starbucks does receive criticism for putting other coffee shops out of business and creating a uniform retail culture in many cities. Yet the company excels in its relationships with its employees and is a role model for the fast-food industry in employee benefits. In addition, in an age of shifts in supply chain power, Starbucks is as concerned about its suppliers and meeting their needs as it is about any other primary stakeholder.

In spite of its efforts to support sustainability and maintain high ethical standards, Starbucks garnered harsh criticism in the past on issues such as a lack of fair trade coffee, hormone-added milk, and Howard Schultz’s alleged financial links to the Israeli government. In an attempt to counter these criticisms, in 2002 Starbucks began offering Fair Trade Certified coffee, a menu item that was quickly made permanent. Approximately 99 percent of coffee in the United States is ethically sourced currently.

Schultz was successful, and Starbucks rebounded from the effects of the recession. The company is once again looking toward possibilities in international markets. This represents both new opportunities and challenges. When attempting to break into the U.K. market, for instance, Starbucks met with serious resistance. Realizing the homogenization of its stores did not work as well in the United Kingdom, Starbucks began to remodel its stores so they took on a more local feel. At the end of 2012, Starbucks came under public scrutiny for allegedly not paying taxes for the last 14 of the 15 years it was established in the United Kingdom. A protest group called UK Uncut began “sitting in” at the stores, encouraging coffee drinkers to buy their coffee elsewhere. Starbucks claims it did not pay taxes because it did not make a profit. However, the company said it would stop using certain accounting techniques that showed their profits overseas. Starbucks also agreed to pay 20 million pounds over the next two years, whether or not it makes a profit.

Starbucks is rapidly expanding in China, and the country is set to become the company’s second largest market behind the United States. Starbucks effectively overcame obstacles in tapping into the Chinese market and adapted its strategy to attract Chinese consumers. After the 2007 closure of the retail operation in the Forbidden City, resulting from cultural concerns of the presence of a Western staple in a sacred area, Starbucks became more sensitive to the specific needs and nuances of the country. Through educating Chinese consumers on coffee (because the beverage is not largely consumed there), they are now drinking as much coffee as Americans.

Political concerns have also become a challenge for Starbucks. After President Donald Trump’s executive order to put a hold on allowing refugees into the United States from seven majority-Muslim nations, Starbucks announced its intention to hire 10,000 refugees over the next five years. Although many consumers supported the company’s efforts, others believed the chain was making a political statement and called for a boycott of the brand. The company faced a backlash through social media, and investors became concerned that the decision might tarnish the Starbucks brand and lower sales. A YouGov brand survey indicated that consumer feelings toward the brand dropped immediately after the announcement. Starbucks claims that this decline in brand equity is not substantiated. It also reiterated its intent to hire more veterans over the next decade to provide them and their families with an opportunity to transition back into the workforce.

Despite the setbacks it experienced during the recession, the future looks bright for Starbucks. In 2015 the company underwent a 2-for-1 stock split as its way of addressing record highs in the company’s stock history. Since then revenue growth in the restaurant industry has decreased as more consumers are purchasing goods online and visiting restaurants less. However, although Starbucks performance was weaker than projected in the first quarter of 2017, the chain still experienced net revenue growth and remains a strong performer in the industry. Schultz believes focusing more on mobile technology will allow the firm to compete as the environment shifts toward more digital transactions.

1. Why do you think Starbucks has been so concerned with social responsibility in its overall corporate strategy?

2. Is Starbucks unique in being able to provide a high level of benefits to its employees?

3. Do you think Starbucks has grown rapidly because of its ethical and socially responsible activities or because it provides products and an environment customers want?