The Evolution of Free Enterprise

Starbucks Success: It’s More than the Beans

Starbucks is an American cultural icon. Steaming lattes and ink-black espresso fuel the digital economy. Comfy Starbucks cafes, wired for Wi-Fi, are modern oases for weary warriors traversing today’s urban landscapes. With some 9,250 outlets and 94,000 partners, Starbucks is a top player in the transformation of capitalism. Corporate social responsibility, says president and CEO Orin Smith, who succeeded founder Howard Schultz in 2000, “is such an inherent part of the business model, our company can’t operate without it.” Long a fixture on Fortune’s 100 Best Companies list, Starbucks famously extends benefits, even stock options and health plans, to part-timers.

But how many of Starbucks’ 33 million weekly customers realize that the $5.3 billion firm is committed to stakeholders—from coffee growers to partners (employees)—while growing at a breakneck pace that satisfies shareholders?

Starbucks is making its mark on the planet through its towering impact on the commodity that made it rich and famous—the noble coffee bean. When coffee farmers raise the bar on quality, environmental, social and economic standards, Starbucks grants them “preferred supplier” status and pays top dollar for their crops. In 2004, Starbucks paid an average of $1.20 per pound for green (unroasted) coffee, 74 percent higher than the market price.

That might mean, for example that a Colombian farmer will decide to grow coffee rather than the coca plant—which becomes cocaine, and in turn destroys communities North and South.

Starbucks promotes sustainable agriculture and biodiversity by favoring shade-grown coffee—which saves land that might be used for coffee production as tropical forest. In 2002, Starbucks bought 20 times more shade-grown coffee than in 1999. In 2004, Starbucks bought 2.1 million pounds worth of shade-grown coffee, up from 1.8 million pounds in 2003. In recognition of such efforts Starbucks and partner Conservation International won the World Summit Business Award for Sustainable Development Partnerships.

The Evolution of Free Enterprise

Capitalism mirrors the awareness of its members. And we capitalists are in the midst of a massive awakening. Thanks to the booming 90s, tech bubble, market crash, recession and corporate accounting scandals, we are all feeling the unhappy result of a business doctrine whose only goal is profit— at any cost. For more and more of us, the moral consequences of unconscious capitalism are intolerable.

What we don’t yet realize is that the moral high ground is actually very profitable.

Starbucks is everywhere. It seems that every other person that you meet in the street has a Starbucks coffee cup in his or her hands. The book entitled Starbucked: A Double Tall Tale of Caffeine, Commerce, and Culture by Taylor Clark looks at what made Starbucks an international success. The world’s largest coffee-shop chain, Starbucks Corporation had $7.8 billion in sales in 2006, 40 million customers, and more than 13,000 stores around the world.

According to Clark, Starbucks “took a commodity that Americans could get for a quarter … reshaped it into a luxury product, convinced customers to buy it at hugely inflated prices, and built stores only a few blocks apart in every major city.”

Well, small businesses may not have the resources to duplicate Starbucks’ winning strategy of opening a store at every corner, but there are some factors that small businesses can do to emulate the success of Starbucks.

Here are the key elements essential to the appeal and success of Starbucks.

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