Specialty coffee industry

-Starbucks and Green Mountain Coffee

Jay Nam: Jay.nam@sunbeltnetwork.com

Starbucks

Now Before

Green Mountain Coffee

Newman’s Own Tully’s

K-cups for Keurig Timothy’s

Keurig brewer

Before Now

Coffee facts (1)

3 cups of coffee a day per year

=

30 fully grown coffee trees a year

+

Plus

Farmers’ labor

Coffee facts (2)

Fair Trade Coffee = $1.26 /LBS

Starbucks Verona Ground Coffee, 1 lb. Bag = $18.99 /lbs

One pound of ground coffee can yield from 32 to 45 eight ounce of cups of coffee

X 32 cups of coffee = $1.5 X 32 = $48

X 45 cups of coffee = $1.5 X 45 = $67.5

Source: Ask.com

Commodity - Grower 2 cents per cup

Goods - Manufacturer 5-25 cents per cup

Service – Corner Diner 50 cents -$1 per cup

Experience– Premium Coffee Shop

$1 - $4 per cup

Ultimate – Café Florian Venice, Italy $5 - $15 per cup

Coffee facts (3)

Source: Experience economy,1999

Nature of business (1)

• Coffee production: $90-billion-a-year industry

• $ 10.8 billion : Combined revenue of the two companies in specialty coffee industry

- Starbucks : $ 10.3 billion

- Green Mountain Coffee : $ 0.5 billion

• 25 million coffee farmers in the world and an estimated 100 million people working in the coffee industries in total

Nature of business (2) • 76% of coffee is drunk at home, and 72% of

that is bought from a supermarket – (National Coffee Association of America)

• The growth in the specialty coffee market is attributable to its spread to fast-food restaurants and convenience stores as well as to the increased demand for specialty coffee in the workplace.

• Consumers are insisting ethical sourcing and aware of environmental effect of coffee. More companies are conscious of those factors – Coffee facts

Integrity- (1)Starbucks

• Starbucks seems to be conscious of ethics and social responsibilities to its stakeholders

• Starbucks was the largest corporate contributor in North America to C.A.R.E., humanitarian aid programs for the Third World countries it purchased its coffee supplies

• But, the company seems to comply minimum of its duty as a socially responsible entity, judging from some conflicts with Fair Trade Coffee by using very tiny portion and advertising overly

Integrity- (2)Green Mountain Coffee

• Green Mountain Coffee has been focusing on the duty of integrity and honesty to stakeholders and suppliers when few people were conscious of the practice of ethical management and sourcing

• From the beginning the company has been trying to go beyond the regulated minimum of ethical and environmental responsibility

• Green Mountain Coffee has been among the top 10 companies on Business Ethics’ list for four years running.”(Business Ethics Magazine Lists “100 Best Corporate Citizens”, 2006)

Governance role - Starbucks

• Governance issue in Starbucks seem not to be so complicated as we have seen at example of GM.

• Howard Schultz focused more on dealing with externalities, like resistance of local competitors and debt control for management continuity than the board

• The boards seems to have executed an auditing role rather than a supervising role

• Even when Howard Schultz stepped down from CEO for 8 years, he just supported CEO and did not take the rein of the company before return

Governance role - Green Mountain

• Green Mountain Coffee also seems not to have serious governance issue as Starbucks

• Bob Stiller has been President, CEO and Chairman from 1981 till 2007. The board seems to be playing the auditing role after Bob Stiller’s stepping down

• Bob Stiller also dominantly focused on externalities regarding environmental and social responsibilities by establishing environmental committee and partnering with a lot of farmers in the coffee producing countries.

Governance roles

Effective power

Monitoring

Externalities

Broad View

Efficient rules

Focused

Ineffective

Involved

Supervising Auditing

Counseling Steering

Leadership style - Starbucks

• Howard Schultz, being hooked at the first experience of Starbucks coffee, established his vision and has been trying to execute it in reality sine 1981

• Initiated extending health care benefits to part time employees working at least 20 hours a week, even though there were resistance from board members who feared rising cost

• He encouraged employees and mainly generated urgency issue from top, but shared information in horizontal ways.

Leadership style – Green Mountain Coffee

• From 1981,when Bob Stiller met Green Mountain Coffee at ski resort and bought it, he spent about 30 years growing the coffeehouse into an international coffee supplier

• He managed company with a role of chairman because the business has been more recession-proof with low urgency than Starbucks

• He is more conscious of social responsibility and environmental agenda than Howard Schultz does

Leadership style

Low Urgency Deliberate

Employee closed Top-down

High urgency Fast

Employee open Bottom-up

Chairman

Catalyst

Commander

Coach

Organization mode - Starbucks Divisional power through empowerment

1. US - 14,225 Stores

Company-operated stores(5,393), licensed stores(8,832), food service accounts

2. International

Retail store licensing operation in more than 40 countries, food service account in Canada, UK and Japan

3. Global Consumer Product Group(CPG)

Packaged coffee and tea, branded products in 3300 grocery & warehouse, 5500 international accounts

Organization mode - Green Mountain Coffee Divisional power through empowerment

1. Green Mountain Coffee division

Whole bean and ground coffee, hot cocoa, teas and coffees in K-cups, Keurig brewers and other accessories, Newman’s Own Organic products mainly in domestic wholesales and retail market.

2. Keurig division

Premium single-cup brewing systems for customers at home or away-from-home

Organizational Modes

Resource Scarcity Collaborative

Low Complexity Controlled

Availability Entrepreneurial

High Complexity Flexible

Centralized roles

Network of entrepreneurs

Divisional power

Interconnected teams

Business model - Starbucks

• In 2009 initiated a cost reduction program to improve its operational efficiencies

• In 2010 completed the closure of nearly 1000 company-operated stores

• Enter the ready-to-drink coffee product in Europe in January 2010

• Introduction of VIA coffee essence in Japan, which successfully launched in the US

• Plan to sell wine and beer in retail stores

Business model - Green Mountain Coffee

• Completed acquisition of Keurig in 2006

• In 2009, completed acquisition of Tully’s coffee which had over 5,000 distributors

• Serial acquisitions expanded the Green Mountain Coffee’s brand portfolio

• Agreement with McDonald’s USA to source, roast and package Newman’s Own Organic Blend coffee

• In 2009, Keurig entered into a licensing and distribution agreement with Conair

Business Models

Platform Efficiency

Differentiating Innovation

Solutions Innovation

Volume Efficiency Pioneering Innovation

Process Efficiency

Organic Unique coffee ambience

Roasting Ready to Capacity drink goods

Multi brand Frappuccino Product Caramel Macchiato

Keurig Wine & beer

Conclusion (1) • The two companies have started small and

developed into public companies by inspired founders from the beginning.

• Starbucks seems to be more affected by changing needs of customers and be exposed to market volatility than Green Mountain Coffee which sells coffee to wholesalers and offices.

• Green Mountain Coffee seems to be more faithful to the spirit of foundation, emphasizing on social responsibility and environmental consideration, which Bob Stiller had conceived at the beginning.

Conclusion (2) • There is a common dilemma to the company

experienced high growth rate. “In general, every company that begins small and authentic eventually finds it hard to retain that image as it expands.” (Thompson, A. A. & Strickland, A. J., 1999)

• As of 2010, Green Mountain Coffee seems to have a more solid ground for right trajectory and sustainable growth than Starbucks that exposed to pressure of short–term profits for shareholders and volatile economy than ever before.

Citation • 1. Business Ethics Magazine Lists “100 Best Corporate Citizens” For 2006. (2006, June). Business Credit,

108, 53

• 2. “Green Mountain Coffee Roasters, Inc.” (2010). International Directory of Company Histories, Retrieved from http://galenet.galegroup.com/servlet/BCRC

• 3. Kaczanowska, A. (2010, November). Coffee production in the US – 31192a. Retrieved from

• http://www.ibisworld.com/industryus/default.aspx?indid=272

• 4. Neville, M. G. (2008, Winter). Positive deviance on the ethical continuum: Green Mountain Coffee as a case study in conscientious capitalism. Business & Society Review, 44, 555-576. doi:10.1111/j.1467-8594.2008.00332.x

• 5. Rachael, L. (2001, June 21). Starbucks not playing fair. The Christchurch Press, pp. 9

• 6. Pine, B. J. & Gilmore, J. H. (1999). The experience economy: Work is theatre and every business a stage. Boston: Harvard Business School Press.

• 7. Seieeni, R. (2008). The gort cloud: the invisible force powering today’s most visible green brands. White River Junction, Vt: Chelsea Green Pub.

•

• 8. “Starbucks Corporation.” (2010). International Directory of Company Histories. Retrieved from http://galenet.galegroup.com/servlet/BCRC

• 9. Starbucks Corporation company profile. (2010, Apr. 30). Retrieved from http://www.nwmissouri.edu/Library/IPChecking.asp?http://search.ebscohost.com/login.aspx?direct=true&db=buh&authdb=dmhco&AN=E86AFA79-07E1-4115-AA0C-0016416541FE&site=bsi-live