peet's coffee and tea supply chain analysis
TRANSCRIPT
Melissa Summers Kopavi Kinnaird
Ben Nebo
12/12/2011
IMGT 8659 Sustainable Supply Chains | Professor Arvinder Loomba
ASSESSING
SUSTAINABLE
VALUE AND
STAKEHOLDER
ENGAGEMENT
PEET’S COFFEE AND TEA
2 | K y o s e i
Industry Analysis
Thirty-five thousand companies make up the $25 billion a year specialty eatery industry.1
The 50 leaders in this industry account for 45 percent of industry revenues. Industry
leaders include the following companies: Starbucks, Tim Horton, Host International,
Dunkin‟ Brand Group, and Einstein Noah Restaurant Group.2 Coffee houses and coffee
manufacturers are a significant portion of this industry. Coffee manufactures buy higher-
priced Arabica beans for premium coffees and some companies rely on a single estate for
certain types of coffee. Weather, violent conflicts, trade policies, and popular taste
collaborate to determine the volatile annual, monthly, and even daily price of
coffee.3 Between 1999 and 2002, for example, the price of unroasted coffee fell by 55
percent to a century low.4
Coffee companies must navigate this difficult environment when buying green coffee
from brokers, farms, estates, exporters, or cooperative groups. Coffee is a major source
of income for several countries: families, from the rain forests of Colombia to the
mountains of Kenya, depend on coffee for their livelihoods. The crop, however,
originated in the coffee forests of the Ethiopian plateau.5 By the 15
th century, coffee was
being grown in the Yemeni district of Arabia and by the 16th
century it was known in
Persia, Egypt, Syria and Turkey.6 The Arabs were the first to not only cultivate coffee
but also begin its trade. In the 17th
, traders brought coffee to Europe, where it first
caused controversy but soon grew in popularity.
Coffee was introduced to the United States in the mid-1600s and began replacing tea as
the leading American beverage the decade before independence. As the popularity of
coffee grew in the 18th
century, Dutch companies established coffee plantations in
Indonesia and successfully overcame the Arab monopoly on coffee.7 Coffee cultivation
also spread to the Caribbean as well as South and Central America. By the beginning of
the 19th
century, coffee had established itself as the world‟s most profitable crop.8
Currently, the U.S. coffee market is estimated to be $34 billion, with the specialty coffee
1 McLellan, Michael. (2011). Peet’s Coffee and Tea, fact sheet. Retrieved from
http://subscriber.hoovers.com/H/company360/overview.html?companyId=53648000000000 2 Ibid.
3 Osland, A., & Lawernce. (2004).
4 Ibid.
5 National Coffee Association. (2011). The History of Coffee. Retrieved from
http://www.ncausa.org/i4a/pages/index.cfm?pageid=68 6 Ibid.
7 Ibid.
8 Ibid.
3 | K y o s e i
market at $16 billion.9 Although coffee consumers range in age and lifestyle, 61 percent
of 18-24 year old coffee consumers drink specialty coffee, while only 36 percent of
coffee consumers over 60 drink specialty coffee.10
Two important trends currently drive the growth of the coffee industry. First, consumers
have put specialty coffee into the mainstream by constantly requiring higher quality
coffee. According to the National Coffee Association, the United States has over 25,000
coffeehouses. Starbucks Corporation dominates this market and is larger than all other
players combined. Second, the single cup coffee maker market is growing rapidly and is
dominated by Green Mountain Coffee.11
In addition to Starbucks and Green Mountain,
The Coffee Bean and Farmer Brothers have substantial market share.12
While small
single unit coffee houses and local chains impact the industry‟s coffee house sub-
category, multinational corporations like Kraft and Folgers dominate the industry‟s
grocery channel.
Formed in 1971, Starbucks is the coffee shop industry leader with sales of over $11,700
million for fiscal year 2010.13
The Seattle based company purchases and roasts high-
quality whole bean coffees.14
Along with fresh rich-brewed coffees, Starbucks also sells
Italian-style espresso beverages, a selection of premium teas, and beverage-related
accessories and equipment, primarily through its coffee houses. Starbucks licenses its
trademark and sells its products through other channels such as other licensed retail
stores. Additionally, Starbucks distributes a variety of ready-to-drink beverages through
grocery stores.
Established in 1963, The Coffee Bean and Tea Leaf operates 750 coffee shops in
Arizona, California, Hawaii, Nevada, and Texas as well as in 20 countries.15
350 of these
locations are company-owned and the remaining stores are franchised. The Coffee Bean
sells a variety of fresh roasted coffees and specialty teas, along with baked goods and
blended ice drinks. It also sells bagged coffee and tea at a handful of grocery stores. In
2010, The Coffee Bean had sales of $195 million and 5,000 employees.16
Founded in 1993, Green Mountain Coffee leads the single-cup coffee maker sub-category
9 Peet‟s Coffee and Tea. (November, 2011). Investor Presentation, Online. PowerPoint retrieved from:
http://files.shareholder.com/downloads/PEET/1561178383x0x181791/4c1dc86f-22e0-413b-870c-
9618e50a3a4d/Peets08_IR_Presentation.pdf 10
Ibid. 11
Peet‟s Coffee and Tea. (2011). 12
McLellan, Michael. (2011). 13
Ibid. 14
Osland, A., & Lawernce. (2004). 15
McLellan, Michael. (2011). 16 Ibid.
4 | K y o s e i
and, as a result, is a leader in the coffee manufacturer industry.17
In fiscal year 2010,
Green Mountain Coffee had annual sales of about $2,651 million.18
The Vermont based-
company sells over 200 whole bean and ground coffee selections, cocoa, teas and coffees
in its patented K-Cup portion packs, Keurig single-cup brewers and other accessories in
domestic wholesale and retail stores and directly to customers.19
Green Mountain Coffee
also sells single-cup brewers to distributors for offices, and also to department stores and
club stores for at-home use.
Incorporated in 1923, Farmer Brothers Company is a California based coffee
manufacturer that achieved sales of $464 million in fiscal year 2010.20
The company,
however, had a net income loss of $543 million.21
Farmer Brothers roasts, packages, and
distributes coffee related products from 115 branch warehouses in several major U.S.
cities. The company‟s 400 products also include non-coffee products such as coffee
filters, sugar, creamers, and assorted teas. Farmer Brothers makes direct and brokered
sales to customers throughout the United States. The organization‟s 1,820 employees
provide products to institutional food service providers, grocery stores, and coffee
houses.22
Company Background
Like all the companies mentioned above, Peet‟s Coffee and Tea plays an important role
in the specialty eatery industry overall, as well as the coffee house and coffee
manufacture sub-categories. Peet‟s Coffee and Tea is the eighth largest company in the
specialty eatery industry and a leader in the aforementioned sub-categories.23
Peet‟s has
higher margins than the industry average. The industry‟s price per earnings margin ratio,
for example, is 23.40, but Peet‟s is 39.53.24
Unlike its competitors, however, Peet‟s
Coffee and Tea has implemented sustainable initiatives since its founding while
remaining profitable. This paper investigates Peet‟s Coffee and Tea‟s sustainable value
and stakeholder engagement to better understand what sustainability means to an
exemplary coffee company.
17
McLellan, Michael. (2011). 18
Ibid. 19
Ibid. 20 Ibid. 21
Ibid. 22
Ibid. 23
Ibid. 24
Ibid.
5 | K y o s e i
In 1966, Dutch immigrant Alfred Peet opened a coffeehouse at the corner of Walnut and
Vine in Berkeley, California.25
Alfred Peet purchased high-quality Arabica coffee beans
from all over the world, and used artisan-roasting techniques to produce a unique cup of
coffee. Soon, the coffeehouse attracted a loyal following of hippies, college students, and
liberal intellectuals who became known as Peetniks. In 1971, Peet leveraged this success
and established a corporation, Peet‟s Coffee and Tea, in Washington State.26
Although now a national corporation with 192 retail stores in six states and stock traded
on NASDAQ, Peet‟s Coffee and Tea has stayed true to its roots.27
Peet‟s practices the
same bean selectivity, freshness standards, and artisan-roasting style used by its founder
to gain market share in the specialty coffee industry. The company‟s operations,
however, have expanded into marketing fresh roasted whole bean coffee and premium
teas through multiple channels of distribution including grocery stores, home delivery,
food service, and office accounts.28
Since roasted coffee is perishable, Peet‟s does not
maintain inventory of roasted coffee. Instead, Peet‟s roasts-to-order, and ships fresh
coffee daily to stores and customers. Peet‟s is positioned as higher in quality and value
than its major competitors.
Since May 2002, Patrick O‟Dea has served as Peet‟s Chief Executive Officer, President,
and Director.29
Mr. O‟Dea has maintained a commitment to freshness, enabling Peet‟s to
control purchasing, roasting, packaging, and distribution. At the company‟s Emeryville,
California headquarters, Mr. O‟Dea and Peet‟s Chief Financial Officer oversee the
following departments that report to the respective vice presidents: IT, Operations and
Information Systems, Retail Operations, New Development, and Coffee and Tea. As of
March 2011, Peet‟s employed 3,523 people, about 765 of whom qualified as full-
time.30
Peet‟s competitive benefits package, offered since 1979, helps attract and retain
employees.31
Overall, Peet‟s maintains good employee relations.
For fiscal year 2010, Peet‟s achieved $333.81 million in sales; this translated into net
income of $17.50 million.32
Sales grew by 7.24 percent, but net income decreased by
9.10 percent from fiscal year 2009.33
Peet‟s retail segment currently provides 66 percent
of these revenues. The remaining 34 percent came through its specialty segment, which
25
Osland, A., & Lawernce, A. (2004). Peet‟s and the Berkly Sustainable Coffee Initiative. The Case
Research Journal, 24 (2),1-14. 26
Osland, A., & Lawernce, A. (2004). 27
McLellan, Michael. (2011). 28
Peet‟s Coffee and Tea. (2011). Form 10-K for the fiscal year ended January 2, 2011. Retrieved from
http://www.sec.gov/Archives/edgar/data/917968/000114420411015663/v215045_10k.htm 29
Osland, A., & Lawernce, A. (2004). 30
McLellan, Michael. (2011). 31
Peet‟s Coffee and Tea. (2011). 32 Ibid. 33
McLellan, Michael. (2011).
6 | K y o s e i
consists of different distribution channels such as grocery stores, home delivery, and food
service and office.34
Peet‟s stock currently trades at $59.05 per share.35
Federal laws
relating to customs, health and safety, building and land use, and environmental
protection regulate Peet‟s coffee roasting operations and retail stores. Additionally,
Peet‟s roasting facility in Alameda, California must abide by state and local air-quality
and emissions laws.
At its retail stores, 122 of which are in California, Peet‟s sells whole bean coffee,
beverages, pastries, tea, and other related products.36
The company also distributes Peet‟s
brand products and, beginning in 2009, Godiva brand products, through a network of
grocery stores, mass merchandisers and club stores such as Safeway, Wal-Mart, Target,
and Whole Foods Market.37
Peet‟s roasts-to-order and ships a wider selection of coffee
and teas directly from its „roastery‟ to customers‟ homes. The company also sells
equipment and products to food service institutions for brewing and re-sale Peet‟s coffee.
Additionally, Peet‟s grants licenses to institutions like airports, grocery stores, and
college campuses to create a full Peet‟s beverage store within their establishments.38
Company Operations
Peet‟s Coffee and Tea prides itself on the efficiency of its operations, which benefit
greatly from being internally integrated for the most part. They begin by engaging the
coffee farmers in their supply chain, allowing Peet‟s to ensure that sustainable practices
are used. Once beans are harvested, they are transported to the Peet‟s owned roasting
facility, where they are roasted by hand in small batches, packaged, and shipped within
two hours of roasting to ensure customers receive the freshest possible coffee.39
Peet‟s
adamant commitment to quality and freshness means that they keep no inventory in stock
at their factory. All orders from the previous twenty-four hours are processed and
shipped the next day.40
In addition to their central values of delivering the freshest, highest quality coffee, Peet‟s
also places great importance on the sustainability of its product and operations. Here
again, the integration of the operations is beneficial because it allows Peet‟s to exercise
considerable control over the entire supply chain, the production process, and the
34
Ibid. 35
McLellan, Michael. (2011). 36
Ibid. 37
Peet‟s Coffee and Tea. (2011). 38
Ibid. 39
Peet‟s Coffee and Tea. (2009). Retrieved from: http://www.peets.com/images/pdf/SRPBrochure.pdf 40
Ibid
7 | K y o s e i
distribution of its product from company stores or selected retailers. Peet‟s controls its
coffee from cradle to gate in order to uphold its quality and sustainability standards.
Process Map
The process map below illustrates the path Peet‟s coffee takes from cradle to grave as it
travels through the supply chain, to the customer, and ends in the landfill:
Raw Materials: In this stage, the coffee is cultivated, harvested, packaged in burlap
sacks and transported to the Peet‟s-owned roasting facility.
Manufacturing: Once the green coffee beans arrive at the facility, they are roasted by
hand in small batches, packaged in plastic bags specially designed with a one-way vent to
allow for the escape of the volatile gases the beans emit as they cool and settle over the
next few days. These specially designed packages allows Peet‟s to ship the beans within
two hours of roasting, fulfilling orders with fresh roasted coffee beans.41
Distribution and Retail: The fresh roasted coffee is transported in Peet‟s trucks from the
facility to Peet‟s stores, and other select retail stores. Online orders placed on the Peet‟s
website are shipped via UPS or USPS.42
Coffee intended for sale at Peet‟s stores is
shipped in bulk whole bean form for store use, and also pre-packaged for individual
customer purchase. Prior to consumption, the coffee is ground, and then brewed for
41
Denise Santoro Lincoln. (July, 2010). Touring the Peet‟s Coffe & Tea Roastery. Bay Area Bites produced by
KQED. Retrieved from: http://blogs.kqed.org/bayareabites/2010/07/08/touring-the-peets-coffee-tea-roastery/ 42
Peet‟s Coffee and Tea. (2011). Retrieved from: http://www.peets.com/cust/shipping.asp?#methods
8 | K y o s e i
sale.43
The method of brewing, preparation and additional inputs vary greatly depending
on the particular menu item sold, but additional inputs tend to be limited to minimal
amounts of water, milk, cream, sugar, chocolate, syrups and spices.
Consumption: The majority of Peet‟s sales take place at their retail stores, where
customers purchase an order, which is then prepared.44
Once prepared, the drink is
placed into disposable cups for which plastic lids are made available, and given to the
customer for consumption. At this point, customers may choose to add other additional
inputs to the menu item they purchased. As in the case above, these additional inputs are
of minimal amounts and generally adhere to the same listed ingredients. The rest of
Peet‟s sales are split between select grocery stores, home delivery to customers, and food
service or office distribution.45
Orders placed online are delivered either by the USPS or
UPS, depending on the delivery requirements.
Disposal: All processes along the way create waste that eventually ends up in the landfill
or as litter, unless re-used by individual consumers. This waste is generated primarily
from the various packaging stages the coffee passes through, including the plastic
packages the beans are sold in, and the disposable cups and lids used in brewed coffee
sales. Other waste products include organic matter from the harvesting process and used
coffee grounds, which may be used as inputs in compost.
Stakeholder Engagement
As a socially responsible business, Peet‟s highly values having positive interactions with
the stakeholders encountered throughout its operations. From the farmers who grow the
coffee beans, to the Peetniks and casual customers who enjoy the artisanal brews, Peet‟s
has always made efforts to include the needs and interests of its stakeholders in their
business model. In order to evaluate this interaction with stakeholders, and the
integration of their views into business operations, a Stakeholder Engagement
Assessment was conducted, focusing first on Saliency and then Engagement. Points are
allotted based on a 1 to 5 scale with 5 being the highest possible score.
Salience Assessment
In the Salience Assessment, Peet‟s was rated on their interaction with individual
nonprofit organizations, farmers and cooperatives, employees, and other external
43
Denise Santoro Lincoln. (July, 2010). Touring the Peet‟s Coffe & Tea Roastery. Bay Area Bites produced by
KQED. Retrieved from: http://blogs.kqed.org/bayareabites/2010/07/08/touring-the-peets-coffee-tea-roastery/ 44
University of Oregon Investment Group. (2010). Retrieved from: http://uoinvestmentgroup.org/wp-
content/uploads/2010/01/Peets-Coffee-Tea.pdf 45
Ibid
9 | K y o s e i
stakeholders using the criteria of Legitimacy, Philosophy, and Impact. These criteria are
intended to measure how legitimate society-at-large and other organizations view the
stakeholder, how similar the stakeholder‟s philosophies are to Peet‟s, and how much
impact the behavior of the individual stakeholder has on the operations and performance
of Peet‟s, respectively. Averages were calculated for each group of stakeholders, and an
overall Salience average score is provided for each criteria.
Legitimacy Philosophy Impact
Nonprofits
Technoserve 5 5 2
KIMSSA 2 5 2
Butterfly School 2 5 2
Coffee Kids 4 4 1
Grounds for Health 4 4 1
Kenya Auction 4 5 2
Group Average 3.5 4.7 1.7
Farmers
Finca Don Bosco 3 5 3
Peet‟s India Peaberry 4 5 3
Las Hermanas 3 5 3
Coope Dota 5 5 5
Group Average 3.8 5.0 3.3
Employees
Peet‟s Retail 5 5 3
Roasting Facility 5 5 5
Headquarters 5 5 5
Group Average 5 5 4.3
Other External
Certification 5 5 3
Customers 5 3 5
Law Makers 4 2 4
Non Peet‟s Retail 4 2 2
UPS 5 5 4
USPS 4 2 4
Earth 5 3 5
Group Average 4.6 3.1 3.9
Salience Averages 3.8 4.0 3.1
Nonprofits: Legitimacy 3.5 Philosophy 4.7 Impact 1.7
Legitimacy: In general, the nonprofit groups affiliated with Peet‟s are generally
considered to be legitimate, resulting in an average group ranking of 3.5. The highest
ranking among these organizations is Technoserve, an international nonprofit that
provides business training to rural farmers on how to process and export their own beans,
10 | K y o s e i
resulting in 70% higher prices.46
The increased profits are used to build stronger
infrastructures in the impoverished communities, such as schools and health care
services. Technoserve‟s perceived legitimacy is likely influenced by the support it
receives from the Bill and Melinda Gates Foundation.47
Philosophy: The assessment reveals a very high score for alignment of philosophies with
an overall group average of 4.7. This score is not at all surprising, considering most of
the organizations either receive considerable financial support from Peet‟s and/or shares
the same social mission as the philanthropic roaster. KIMSSA48
is a tutoring and
vocational school in Ethiopia for underprivileged kids, which helps them graduate and
find employment. Peet‟s underwrites the operating costs for the school, as well as the
salaries of the teachers.
The Butterfly School49
in Papua New Guinea was built in an isolated coffee farming
community in the highlands to provide children access to educational services. The
school also provides health services to the community and employs local teachers. Peet‟s
has underwritten the costs for this school for the next three years.
Coffee Kids50
is a nonprofit organization that operates in Mexico, Guatemala, Honduras,
and Peru. Coffee Kids works with coffee farming families to improve their lives and
livelihoods by creating programs in education, health awareness, microcredit, food
security and capacity building. These programs, and the benefits they produce, allow the
coffee farmers to have greater financial independence as they become less vulnerable to
the volatile changes of the coffee market and experience increased community
development. Peet‟s makes donations to support their operations, as well as supplying a
link to make donations on their company website.51
Grounds for Health52
is a nonprofit organization that works to improve cervical cancer
screening and female health issues awareness in coffee farming regions of Africa and
Latin America. Peet‟s supports the organization through financial donations.
Peet‟s supports the Kenya Auction53
by regularly buying lots from the auction and
featuring them in its product line. The coffee industry in Kenya manages and ensures fair
46
Peet‟s Coffee and Tea. (2009). Retrieved from: http://www.peets.com/images/pdf/SRPBrochure.pdf 47
Ibid 48
Peet‟s Coffee and Tea. (2011). Retrieved from : http://www.peets.com/who_we_are/community_kimssa.asp 49
Peet‟s Coffee and Tea. (2011). Retrieved from :
http://www.peets.com/who_we_are/community_bunum_wo.asp 50
Coffee Kids. (2011). Retrieved from: www.coffeekids.org 51
Ibid 52
Grounds For Health. (2011). Retrieved from: www.groundsforhealth.org 53
Peet‟s Coffee and Tea. (2011). Retrieved from: http://peets.net/shop/coffee_detail.asp?id=35
11 | K y o s e i
prices by auctioning lots sold by small individual farmers to the highest bidder, thereby
ensuring that quality coffee earns a premium price, regardless of the farm it came from.
Impact: The overall score for impact is relatively low, coming to 1.7. The low score
indicates that while Peet‟s shares a similar philosophy with these stakeholders, their
behavior does not greatly impact the company‟s operations. The support Peet‟s provides
to these organizations is external to the primary operations and serves as a conduit for the
company‟s philanthropic mission. While this bolsters the company reputation as a
socially conscious organization, this effect could be achieved by supporting other similar
organizations without greatly impacting Peet‟s operations.
Farmers: Legitimacy 3.8 Philosophy 5.0 Impact 3.3
Legitimacy: The overall group score for this category is a 3.8, indicating that Peet‟s
farms are generally viewed as legitimate. This would imply that other organizations and
society-at-large consider the farms to be sustainable and socially conscious, as they claim
to be.
Philosophy: In this category, the overall group rating was the highest possible score of 5.
This high rating reflects the great depth of engagement Peet‟s exercises with its farmers.
All of the farms employ sustainable agricultural practices, and implement social
programs that address poverty and underdevelopment in coffee farming communities.
For example, Finca Don Bosco, located next to La Amistad Biosphere Reserve on the
border of Panama and Costa Rica, is a family-owned farm that plants coffee on only one
third of their land, preserving the other two thirds for first growth rainforest. Every year,
Peet‟s buys the entire crop from this family farm at higher prices per pound than the
market would render for the product.54
Peet‟s India Peaberry Coffee at Elkill Estate, carries out programs similar to those of
Peet‟s partner nonprofit organizations. The farm employs over 500 salaried and
unionized workers who receive housing on site and a living wage, and who enjoy such
benefits as annual paid leave, maternity and retirement benefits, and access to services
such as health care, daycare and scholarship opportunities.55
Las Hermanas Cooperative in Nicaragua is another example of Peet‟s commitment to
engaging with the farmers from whom it sources its coffee. The farmland has been
owned and operated by women since 1999. Peet‟s has worked with the women of Las
Hermanas to help them become established as a cooperative, and to train them in
54
Peet‟s Coffee and Tea. (2009). Retrieved from: http://www.peets.com/images/pdf/SRPBrochure.pdf 55
Ibid
12 | K y o s e i
sustainable coffee farming practices. Peet‟s has bought nearly the entire production from
this farm since 2001.56
The Coope Dota Cooperative in Costa Rica enjoys one of the longest working
relationships with Peet‟s, resulting in an entire community that has developed with the
benefits of this relationship. Product purchases from this farm are made based on
multiple-year premium fixed contracts, locking in premium prices for the farmers. This
practice has enabled Coope Dota to provide health, education and sports programs to its
members. The cooperative even uses energy efficient technologies such as using coffee
hulls to fuel coffee driers and capturing methane from coffee pulp.57
Impact: The overall group rating for impact is a 3.3, indicating that the behavior of these
farmers does have a considerable impact on the company‟s operations. However, while
the behavior would affect the operations, Peet‟s would have many potential means by
which to mitigate this impact. They work closely enough with the farms that they would
be able to influence operations, and they always have the option of buying from another
source, or increasing the purchase quantity made from some of their other sources.
Employees: Legitimacy 5 Philosophy 5 Impact 4.3
Legitimacy: Overall, Peet‟s employees are viewed as being legitimate and standing for
the core company values, resulting in a group score of 5.
Philosophy: The group score for this category was a 5, indicating that employees of
Peet‟s share a similar philosophy with the company they work for.
Impact: The impact, however, of the Peet‟s employees is not so great as to score a 5
overall, resulting instead in a 4.3. Individual retail store employees do not perform tasks
that are crucial to long-term operations, and they are easily and relatively cheaply
replaced, compared to their more highly trained counterparts. Employees at the roasting
facility, on the other hand, have a huge impact on operations since the primary business
model is that of being a premium roaster. Similarly, the behavior of employees at
headquarters is weighted more heavily, due to the influence their actions and decisions
have on the operating practices of the company.
Other External: Legitimacy 4.6 Philosophy 3.1 Impact 3.9
Legitimacy: The perceived legitimacy of Peet‟s other external stakeholders vary
depending upon the organization. The other stakeholders include certification agencies,
56
Ibid 57
Ibid
13 | K y o s e i
Peet‟s customers, law makers, non-Peet‟s retail sites, and their delivery providers UPS
and USPS. We have also included Earth in order to provide a moderate reflection of how
Peet‟s interacts with the natural environment overall. The high group score of 4.6
illustrates that all of these other affiliated entities are widely considered to be legitimate.
Philosophy: The group score for this category came to 3.1, connoting a divergence
between the philosophies of some stakeholders from those of Peet‟s. Most notably, law
makers, non-Peet‟s retail sites, and the USPS all scored a 2 respectively. Law makers
obviously have entirely different agendas, which may at times happen to align with Peet‟s
philosophies. Non-Peet‟s retail sites include large chain grocery stores and other select
vendors, but similarity of mission and values is not currently a prerequisite for being
granted permission to sell Peet‟s coffee. Finally, while the UPS holds itself to high
standards of sustainability, these are not values shared by the USPS, evidenced by a
general lack of sustainable practices employed in its operations.
Impact: The impact these external stakeholders have over Peet‟s operations also varies
depending upon the organization. The two most notable aspects of this category are the
scores of 5 assigned to customers and the Earth. The behavior of Peet‟s customers is
crucial to its operations, since if they did not buy Peet‟s coffee, the organization would be
out of business. Additionally, Earth was rated with a score of 5 to reflect the
considerable impact environmental changes would have over all the processes in the
supply chain, from cultivation to consumption.
Engagement Assessment
In the Engagement Assessment, Peet‟s was rated on their interaction with the same
individual stakeholders, this time using the criteria of Strategic, Communicative, and
Absorptive. These criteria are intended to measure the extent to which Peet‟s integrates
engagement with the stakeholder into its strategic planning and implementation activities,
the extent to which they engage in proactive and two-way communications with the
stakeholder, and the extent to which Peet‟s seems to gain input and knowledge from the
stakeholder, respectively. Similarly, averages were calculated for each group of
stakeholders, and an overall Engagement average score is provided for each criteria.
Strategic Communicative Absorptive
Nonprofits
Technoserve 1 2 1
KIMSSA 1 4 1
Butterfly School 1 3 1
Coffee Kids 1 2 1
Grounds for Health 1 1 1
Kenya Auction 4 4 2
14 | K y o s e i
Group Average 1.5 2.7 1.2
Farmers
Finca Don Bosco 3 3 3
Peet‟s India Peaberry 3 3 3
Las Hermanas 3 3 3
Coope Dota 4 4 4
Group Average 3.3 3.3 3.3
Employees
Peet‟s Retail 2 2 2
Roasting Facility 5 5 5
Headquarters 5 5 5
Group Average 4.0 4.0 4.0
Other External
Certification 3 3 4
Customers 5 3 5
Law Makers 2 2 3
Non Peet‟s Retail 2 2 2
UPS 5 5 5
USPS 5 5 5
Earth 3 1 2
Group Average 3.6 3.0 3.7
Salience Averages 3.1 3.2 3.0
Nonprofits: Strategic 1.5 Communicative 2.7 Absorptive 1.2
Strategic: The low score of 1.5 in this category illustrates that Peet‟s does not make
common practice of integrating the engagement with these stakeholders into its
operations. The standout in this category is the Kenya Auction. While Peet‟s is able to
support the other nonprofits and schools with the revenues it makes from operations of
nearly any sort, they strategically purchase beans from the Kenya Auction on a regular
basis and feature the line in their product offerings.
Communicative: The score for two-way communication with this group is slightly
higher, resulting in a 2.7. Again, the Kenya Auction ranks highly due to the frequency
and significance of the engagement. Peet‟s must communicate with the auction to place
its orders, just as the auction must communicate with Peet‟s as a buyer. The KIMMSA
school was also rated highly here due to its heavy reliance on Peet‟s support to fund their
operations and the considerable interaction Peet‟s has with this school.
Absorptive: The low average score for this category of 1.2 reflects how independent the
actions of these stakeholders are from Peet‟s company operations. While Peet‟s gains
input and knowledge from the Kenya Auction, the other nonprofit organizations are all
geographically distant and carry out vastly distinct missions from their partners. While
some knowledge about progress and plans is most definitely shared between Peet‟s and
15 | K y o s e i
these groups, the information would not be heavily weighted in the decision making
process.
Farmers: Strategic 3.3 Communicative 3.3 Absorptive 3.3
Strategic: While engagement with coffee farmers is undeniably central to Peet‟s
operations, they have enough partner farms that no one farm exerts extreme influence
over the company. This diversity of resources results in an overall group average of 3.3,
with Coope Dota ranking the highest given its long-standing and intimate relationship
with Peet‟s.
Communicative: Likewise, the group average for two-way communication came out to
3.3, exemplifying again the benefit of diversifying input sources, allowing no one
provider to exert too much influence over the company. This score also reflects the fact
that farms are likely to communicate much of their activity to Peet‟s, but the company
may not necessarily reciprocate to the same extent.
Absorptive: In similar fashion, the average score is again 3.3 for this category for the
same reasons listed for the previous categories – Peet‟s gains knowledge and input from a
myriad of sources, and only certain aspects of the farming operations are of relevance to
the company. While the farms no doubt provide Peet‟s with extensive input and
knowledge, these are not necessarily absorbed into the company‟s plans and practices.
Employees: Strategic 4.0 Communicative 4.0 Absorptive 4.0
Strategic: The scores in this category are expectedly higher, all averaging at a solid 4.0.
Peet‟s retail employees and their needs must be considered and accounted for in planning
and decision-making. Even more pressing is the need to include the concerns of roasting
facility and headquarters employees, as their engagement is central to daily and long-term
operations.
Communicative: The average of 4.0 was earned in this category as a balance between
the largely one-way communication that happens between the company and its retail
employees, and the mutually-disclosive relationship that exists between the company and
its roaster and headquarter employees.
Absorptive: The 4.0 in this category comes from the same balance of scores, with retail
employees earning a 2, and both roasting and headquarter employees scoring at 5 as a
result of the need for two-way communication to happen between all critical
administrators and employees of the company.
16 | K y o s e i
Other External: Strategic 3.6 Communicative 3.0 Absorptive 3.7
Strategic: The overall group ranking here was a 3.6, with three notable scores.
Customers, UPS and USPS all ranked the highest as the needs of these stakeholders must
be central to operations. Peet‟s relies on UPS and USPS to deliver all of its online, front
door deliveries, so the engagement with these organizations must be strategically
integrated into plans and activities. Similarly, customers are always central and
strategically considered.
Communicative: Mutual communication between these stakeholders ranked moderately
at 3.0, with the highest scores found again among the delivery agencies. Of all their
external stakeholders, UPS and the USPS are undeniably the most regularly engaged, and
two-way communication is a requisite for the successful operations of all parties involved
with the deliveries – information about orders must flow both ways.
Absorptive: The overall ranking of 3.7 for this category results from Peet‟s need to input
the knowledge and information they gain from these organizations into their plans. As
with the other category scores in this group, customers, UPS and USPS take the lead,
illustrating how crucial the input of these stakeholders is to improving and streamlining
operations.
Sustainable Value Framework
A core value of Peet‟s Coffee and Tea is that quality coffee requires social,
environmental, and economic sustainability. The company had a strong sustainability
reputation before “green business” became a buzzword. The following framework
summarizes Peet‟s current approach to promoting sustainability from source to cup.
INTERNAL EXTERNAL
T
O
M
O
R
R
O
W
Uses new lighting technology
HVAC systems reduce greenhouse
emissions
Heat exchange technology
Use of Microsoft Dynamic AX,
Junction Solutions MCR and
Junction F/B to integrate and manage
supply chain expansion
Educates coffee growers on product
improvement
Donates to organizations improving
lives of people living in coffee
growing regions
Provides Fair Trade and/or premium
prices to farmers
Women‟s empowerment: project in
Nicaragua
LEED Certified Roaster Certifications: Fair Trade; UTZ;
17 | K y o s e i
T
O
D
A
Y
LEED Certified coffee houses
Treatment of storm water runoff
87% reduction in water usage due
to efficient landscaping and
irrigation
40 % energy reduction through use
of natural light
Diversion of 75% of construction
waste from landfill to recycling
HVAC systems reduce emissions
Recycled materials, like coffee chaff,
used in mulching
Organic; Rainforest Alliance
Form direct relationship with
producers and pay them above the
Fair Trade Certified Brand price
Over 20% of construction materials
come from local and regional
sources
LEED Certified Roaster
Partner with socially and
environmentally progressive coffee
farmers
Response to Measure-O
Communication of Peet‟s quality
requirements to origin country
farmers
Compliance with regulation
Today Internal
To reduce cost and manage risks Peet‟s has taken several steps to minimize waste and
emissions from its operations. In 2008, Peet‟s built the nation‟s first LEED Gold
certified roaster. The building followed strict guidelines set by the U.S. Green Building
Council and produced major environmental benefits. During the plant‟s construction, for
example, 75 percent of waste was re-diverted to recycling rather than a landfill.58
The
plant‟s heat exchange technology recovers roasting heat and has led to a 40 percent
reduction in natural gas.59
High efficiency HVAC systems have also reduced green
house gas emissions. Natural light and lighting technology have produced a 40 percent
reduction in energy use.60
Efficient landscaping and improved irrigation systems have
helped reduce water usage by 87 percent at the plant.61
All storm water runoff at the
plant is processed through bio-swales or treated.62
Additionally, roasting by-products and
coffee chaff are recycled into mulch. Peet‟s LEED certified coffee houses produce
similar waste and emission reduction benefits.
Tomorrow Internal
Peet‟s has used innovative and disruptive technology in all of is LEED certified
buildings. It‟s heating, ventilation, and air conditioning systems, for example, have not
58
Peet‟s Coffee and Tea. (2009). Lasting Quality: Sustainably Peet‟s. Retrieved from:
http://www.peets.com/images/pdf/SRPBrochure.pdf 59
Ibid. 60
Ibid. 61
Ibid. 62
Ibid.
18 | K y o s e i
only helped the company reduce its corporate footprint, but also helped develop
sustainable competencies for the future. Peet‟s use of highly efficient lighting technology
also shows the company‟s commitment to nurturing green technology. Peet‟s has
integrated other disruptive technologies into its supply chain operations. Peet‟s fast
expansion during the early 21th century produced major challenges for its supply
chain. Growing order volumes made Peet‟s patchy combination of older software and
custom software applications obsolete.63
Peet‟s worked with Junction Solutions, a Microsoft Gold Certified Partner, to integrate its
supply chain expansion. Junction Solutions created an integration template that gathers
product orders from various distribution channels and maintains them within Microsoft
Dynamics AX as unique order types. Additionally, a touch screen inventory system
enabled roasters, packagers, and shipping employees to provide real-time updates.64
This
innovative system simplified the work of roasters and gave Peet‟s reliable, timely
information for good decision making. Peet‟s, consequently, has maintained its excellent
quality standards alongside rapid growth.
Today External
Peet‟s has earned a good reputation as a socially responsible company by integrating
stakeholder views into its business model. Peet‟s communicates its quality requirements
to socially responsible coffee farmers throughout the world. The company also pays its
partners more than the fair trade minimum price for consistently producing high quality
coffee beans.65
In doing so, Peet‟s enables coffee farmers to maintain excellent land
stewardship. Domestically, twenty percent of construction materials for Peet‟s roasting
plant originated from local and regional sources.66
Peet‟s has also complied with all
government laws and regulations and has obtained all operating licenses.67
Peet‟s has integrated best practices from civil society organizations into its business by
working with farmers who have obtained the following certifications: Fair Trade; UTZ;
Organic; Rain-forest Alliance.68
Fair trade certified coffee is purchased at a minimum
price set by FLO international. In response to Berkeley‟s Measure-O that required all
63
Microsoft Case Studies. (July, 2010). Premium Specialty Coffee Roaster and Distributor Manages
Growth with Outstanding Quality. Retrieved from: http://www.microsoft.com/casestudies/Microsoft-
Dynamics-AX/Peet-s-Coffee-Tea/Premium-Specialty-Coffee-Roaster-and-Distributor-Manages-Growth-
with-Outstanding-Quality/4000007910
64
Microsoft Case Studies. (July, 2010). 65
Peet‟s Coffee and Tea. (2009). 66
Ibid. 67
Peet‟s Coffee and Tea. (2011). 68
Peet‟s Coffee and Tea. (2009).
19 | K y o s e i
coffee shops to offer Fair Trade certified coffee, Peet‟s increased its selection of fair trade
coffee.69
However, since Fair trade certification is only given to cooperatives, high
quality coffee that is family owned cannot bear the fair trade label.
Peet‟s, therefore, purchases coffee from farmers that have received other forms of
sustainability certification. UTZ certified, for example, is an independent organization
that certifies sustainably produced coffee bearing its label. Peet‟s coffee originating from
Brazil and Indonesia are UTZ certified.70
Peet‟s organic coffee bears the USDA certified
organic label. Organic coffee is grown using low-impact practices, organic fertilizers, and
minimal chemicals. Farms that have received certification from the Rainforest Alliance
conserve biodiversity. A Peet‟s partner in Guatemala was the second farm ever to
become Rainforest certified.71
Peet‟s LEED certified buildings also follow its strong
trend of incorporating societal best practices into its business model.
Tomorrow External
Peet‟s has also responded to population pressures, poverty and inequity by working with
a myriad group of partners to meet unmet needs. Peet‟s pays its own farmers above
market prices and educates growers on how best to improve their crops. For example,
Peet‟s has partnered with TechnoServe and the Association of Kilimanjaro Family
Farmers to help farmers improve coffee quality.72
Peet‟s experts donate their time to
evaluate coffee from these farms in Peet‟s lab and advise farmers on the ground. Peet‟s
also makes coffee purchases at a Kenyan auction lot that provides higher prices to
farmers.73
As a result, these farmers have experienced major increases in coffee
profits. Peet‟s also creates an enabling environment for women‟s empowerment. For
example, since 2001 Peet‟s has purchased the entire production of a women‟s collective
coffee farm in Nicaragua.74
Peet‟s buyers work with these women to improve their
coffee‟s quality, and, thereby improve their livelihoods.
In addition to directly improving the quality of life of farming communities through
profits, Peet‟s also provides financial support to organizations assisting people living in
coffee growing areas. Peet‟s pays the operating costs and salaries of an Ethiopian
nonprofit that provides vocational and traditional education to underprivileged
children.75
Peet‟s also supports a school in Papua New Guinea for children from farming
families. Along with providing employment for teachers, this school provides health care
69
Osland, A., & Lawernce. (2004). 70
Peet‟s Coffee and Tea. (2009). 71
Ibid. 72
Peet‟s Coffee and Tea. (2009). 73
Ibid. 74
Ibid. 75
Ibid.
20 | K y o s e i
to students. Similarly, Peet‟s provides considerable financial support to regional NGOs
that improve the health and livelihoods of farming communities in Mexico, Guatemala,
Peru, and Honduras.76
By combating poverty and inequity, Peet‟s will continue its solid
growth trajectory.
Recommendations
Stakeholder Engagement Recommendations In A Sustainable Value Framework
Given that Peet‟s takes a relatively holistic stance on stakeholder engagement, it was
challenging to find many potential recommendations for the company to take in regards
to its stakeholders specifically. For this reason, we followed the quadrants of the
Sustainable Value Framework to guide all of our proposed recommendations.
INTERNAL EXTERNAL
T
O
M
O
R
R
O
W
Biodegradable and/or recyclable
packaging for all products
Community composting
programs and training seminars
Set long-term goal of zero waste
in Peet‟s retail stores
Expansion of programs in coffee
growing communities
Offer tastings and tours of the roasting
facility to highlight sustainability in
operations
T
O
D
A
Y
LEED certification for all
facilities, office building and
coffee houses
In-store composting
Lawmaker engagement
Communicate with customers
CSR reporting
Carbon neutral coffee
Today Internal
LEED certification for all facilities: Peet‟s already has many locations and facilities that
are located in LEED certified buildings. It is recommended that this practice be made
compulsory, as it will ensure that the company‟s facilities are held to high standards for
sustainability. This addresses the drivers of pollution, consumption and waste found in
76
Ibid.
21 | K y o s e i
the “Today Internal” quadrant, but also addresses some of the drivers found in the
“Tomorrow Internal” quadrant, such as footprint and clean technology. For this reason
we would include it somewhere on the spectrum of “Today-Tomorrow Internal.”
In-store composting: Coffee grounds are excellent additions to compost, and the paper
from filters is a necessary requirement for composting, along with other eligible
discarded food products and packaging materials (see Recommendations for “Tomorrow
Internal”). As all of these things are abundant in the waste generated at Peet‟s retail
stores, the sites are ideal for in-store composting programs. Ideas would be to potentially
give compost to Peetniks, local community gardens or to sell locally at a discount. Not
only would there be direct benefits to the community from such a program, but it would
also provide an excellent opportunity to educate customers on composting
practices. Engaging in such practices would educate consumers, encourage individual
behavior change among Peet‟s consumers, and allow Peet‟s to have a highly positive
impact in the communities in which they operate.
Today External
Lawmaker engagement: Engage more proactively with lawmakers to prevent laws, like
Measure-O, that may negatively impact operations. Peet‟s should make a concentrated
effort to communicate the nuances of sustainable coffee cultivation and certification to
ensure that lawmakers have the information necessary to make decisions that would
benefit Peet‟s operations.
Communicate with customers: Peet‟s has a tremendously loyal customer base, and there
is significant potential for a high level of engagement with this group of stakeholders. It
is recommended that Peet‟s increase the level of marketing and communication to
customers regarding the sustainable initiatives the company has taken to benefit coffee
communities above and beyond fair trade standards. With such a captive audience, this
would be an effective way to educate the customers on the sustainable company
practices.
CSR reporting: Additionally, it is recommended that Peet‟s begin to use standardized
metrics for measuring the company‟s impact with CSR and carbon footprint analysis,
among others. The results of these analyses should be publicized as a means of
communicating the organization‟s impact to their loyal customers and potential investors.
Carbon neutral coffee: As sustainable initiatives and business operations become more
mainstream, customers will hold organizations to ever-higher standards. In order to
maintain a competitive position, it is recommended that Peet‟s create long-term goals of
22 | K y o s e i
selling carbon neutral coffee. The details and methods used in pursuit of this goal would
require in-depth research and planning, but such a goal would ensure that Peet‟s would
remain a forerunner in the sustainable coffee industry.
Tomorrow Internal
Biodegradable packaging: It is recommended that Peet‟s use biodegradable packaging
and disposable items (cups, lids, etc.) in its daily operations. Since Peet‟s relies heavily
on inputs like coffee that must be shipped from locations around the world, Peet‟s
generates a large amount of waste with packaging materials. With a strong focus on to-
go specialty drinks in retail stores, there is a significant amount of waste created just in
daily operations. Using biodegradable materials will allow the company to substantially
decrease their environmental impact.
Community composting program and training seminars: In expansion upon the idea to
create an in-store composting program, if Peet‟s were to implement such a plan it could
be built upon by evolving into a community-wide composting program. Such a program
would require a larger composting site, but would allow for community members to
donate food and paper inputs into the composting process. Further ideas include hosting
educational composting workshops to train the community on individual composting
techniques and practices.
Long-term zero waste goal for Peet’s retail stores: Depending on the success of other
sustainable programs and reception of these efforts by Peet‟s consumers, Peet‟s may also
consider adopting the long-term goal of implementing a zero-waste policy in their stores.
While such a move would be extreme and would require compliance, willingness, and
possibly even enthusiasm on the part of Peet‟s consumers, the potential impact and
benefits are numerous and profound.
Tomorrow External
Expansion of programs in coffee growing communities: Peet‟s already engages raw
coffee suppliers and their communities, but it is recommended that the company both
broaden the scope of their community engagement to encompass new and existing
suppliers, and that the company deepen its involvement within existing areas. Peet‟s
could leverage its extensive experience in community programs and apply best practices
to suppliers around the world to expand the company‟s reach and impact. Ideas for
deeper community engagement could include the creation of additional revenue streams
for suppliers and their families. This might occur through selling artisanal goods in
stores and online, among other possibilities. This will not only ensure better futures for
23 | K y o s e i
the communities themselves but will also lead to an increase in long-term successful
supplier relations and new revenue streams for the company.
Offer tastings and tours at roasting facility: Part of what makes Peet‟s so special is the
hand roasting process its beans undergo at the LEED Gold certified roasting facility in
Alameda, CA. Offering public tours of the facility coupled with a coffee tasting event
would provide Peet‟s a means of demonstrating to its customers how the company
implements sustainable values into its operations. Such an event would allow customers
to meet the roasters and feel more engaged with the product and the company. This
deepened level of engagement with the customer may also provide the company greater
influence on the behavior of its customers, which may be leveraged to encourage
sustainable behavior change.
Implications for Other Companies
Overall, Peet‟s is accomplishing a tremendous feat by maintaining large-scale operations
and consistently achieving profitability over the long term while simultaneously
employing many sustainable practices. Though more can always be done, Peet‟s sets a
good example in the competitive world of corporate coffee. As an industry leader in
sustainability initiatives, Peet‟s practices should be adopted by companies in the specialty
eatery industry.
As big players in this industry, large coffee companies are in the position to have a
substantial effect on the world around them. Following the examples of Peet‟s activities,
from those benefitting coffee farmers at the „cradle‟ down to the engagement of loyal
customers at the „gate,‟ large coffee companies could leverage their massive potential to
develop sustainable practices. As a result, coffee companies would foster continued
success and a more holistic approach to coexisting with the world in which they operate.