A Latte on Their Mind: How Climate Change is Endangering Starbucks’s Business Model and What They Need to Do About It

Climate change is causing ripples throughout the global economy, but arguably no company has as much to lose as Starbucks, which relies on steady supplies of coffee and other agricultural commodities.

There are very few people in the world who don’t instantly recognize the brand name of Starbucks. As the world’s largest premier roaster, marketer and retailer of coffee, tea, and other food and beverage offerings under an assortment of brand names – including its namesake Starbucks, Teavana, Tazo, and Ethos – the business and operating model is heavily reliant on the supply-demand dynamics of specific agricultural commodities, particularly Arabica coffee beans. Starbucks has recognized the importance of confronting the implications of this incredible reliance and has been proactive for many years around the issue of climate change, given that agriculture faces enormous exposure to the consequences, and how they plan to adapt (1).

In September 2016, the Climate Institute, a nonprofit organization that works to increase global awareness and action around climate change, published a report highlighting the threats of climate change to the world’s coffee supply. A slight change in temperature, sometimes just half of one degree, or humidity and rainfall doesn’t just impact the quality of coffee beans, in terms of flavor and aroma, but also the quantity of beans that can be harvested. For example, in Tanzania, coffee crop yields have fallen by 50% over the last 50 or so years. Moreover, changes in climate have led to a proliferation of plant diseases, like the fungus called Coffee Leaf Rust, and pests, like the Coffee Berry Borer, which has caused even further declines in yields. Coffee producers in Guatemala lost between 50% and 85% of their crops in 2012 after an uncommon increase in temperature and rainfall led to the spread of the Rust fungus into areas it had previously never been seen. Across the ocean, in the Congo, the Coffee Berry Borer has caused damage of more than $500 million every year as they move into areas that have become warmer, wetter, and thus more hospitable (2).

Starbucks has been exceptionally nimble in responding not just to the issues posed by decreasing coffee yields resulting from climate change but also in supporting the farmers whose livelihoods and welfare hinge upon the survival of their coffee crops in the long term (3). In fact, a report by the International Coffee Organization back in 2002 estimated that the livelihoods of over 125 million people across the globe depend on the income received from coffee crops (4).

As a company, Starbucks has taken several measures to combat the problems that it and its suppliers are facing. At a high level, they are focused on running a more sustainable and environmentally friendly business in order to keep from further contributing to climate change. They carefully track their own greenhouse gas emissions, as can be seen in Exhibit 1 below (3). They are also focused on purchasing larger quantities of renewable energy and have committed to the RE 100, a group of large corporations that have committed to eventually using 100% renewable power to fuel their operations (5). Starbucks has also supported farmers directly by promoting and supporting farming practices to help improve crop yields. Furthermore, they have started experimenting with breeding new types of coffee plants that are more resistant to diseases, pests, and / or changes in temperature and moisture. While these projects are still on a small scale, the company is distributing modified coffee plant seeds to farmers in the coffee industry’s version of open source (6).

But there is plenty of room for improvement. Tracking and quantifying their own greenhouse gas emissions footprint is simply not enough. Again, looking at Exhibit 1, we can see that total emissions have gone up over the three-year time horizon. Starbucks should hold themselves accountable to their customers and shareholders for actual reductions. Given that their business continues to grow and that absolute numbers may not indicate underlying improvements, I would recommend they do this on an emissions-per-store basis that scales the comparison.

On the whole, Starbucks is a pioneer in tackling the impacts of climate change on its business model – but it is important to remember that it’s taking action because the repercussions of not doing so endanger its profits and ultimately its very existence. I believe the company has done well so far but it needs to step up its game if it’s going to make a real difference.

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Exhibit 1. Starbucks Greenhouse Gas Emissions, 2013 – 2015.

Exhibit 1. Starbucks Greenhouse Gas Emissions, 2013 – 2015.

 

 

Sources:

1. Starbucks 2015 10-K filing: http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNTc1MzA3JkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3#sA37AFEAC4F4B5F26E93ADB052E6FABB6

2. The Climate Institute’s A Brewing Storm: The Climate Change Risks to Coffee: http://fairtrade.com.au/~/media/fairtrade%20australasia/files/resources%20for%20pages%20-%20reports%20standards%20and%20policies/tci_a_brewing_storm_final_24082016_web.pdf

3. Starbucks statement on climate change (also source for Exhibit 1): http://www.starbucks.com/responsibility/environment/climate-change

4. International Coffee Organization’s The Global Coffee Crisis: A Threat to Sustainable Development: http://www.ico.org/documents/globalcrisise.pdf

5. RE 100 website: http://there100.org/

6. MIT Technology Review Business Report Starbucks Responds to Climate Change with Mixed Results: https://www.technologyreview.com/s/601404/starbucks-responds-to-climate-change-with-mixed-results/

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8 thoughts on “A Latte on Their Mind: How Climate Change is Endangering Starbucks’s Business Model and What They Need to Do About It

  1. As climate changes, do you think it’s possible that areas which are not currently conducive to growing coffee will warm enough / become humid enough to fit the coffee-growing conditions? If that’s the case, what do you think Starbucks can do, either from a R&D or organizational perspective, to prepare these communities for the introduction of the new crop?

  2. While I agree that tracking store emissions is an important measure for Starbucks’ sustainability, I’m not sure company-level metrics are the solution to the coffee growers’ dilemma. Your post really makes me wonder how global corporations should ensure the long-term viability of their supply chain (e.g., IKEA and its supply of wood). Candidly, Starbucks’ efforts to reduce its own emissions is fantastic but will not be the solution to saving the future of coffee. Instead, as you suggest, its R&D efforts around coffee crops could be a solution to adapt to climate change. In this context, should major corporations seek to just combat climate change or should they focus more on making sure that their business models survive through climate change?

  3. Interesting read. I am not sure I agree with you on the fact that Starbucks has done well so far. I think they have done the essential part to keep their business going and to keep their reputation of a cool and sustainable coffee chain. As your exhibit displays, their greenhouse emission has gone up on an absolute scale, which is the most important indicator. I think they can and have to do much more that goes beyond simply ensuring their profitability and existence

  4. The recommendation of using the metric “emissions-per-store” is a fascinating one that is something Boston Chicken overlooked by not paying attention to its “sales per store” metric. As Starbucks expands, it is natural that their overall carbon footprint will expand so I think focusing on per-store efficiency will better demonstrate how Starbucks is changing. That being said, you mention that Starbucks may not be implementing their changes on a large enough scale to make an impact. Do you believe that increasing its scale would make a material impact on reducing emissions? How would it be implemented? Also, are their alternative ways of growing coffee beans in new climates or even using new technology like AeroFarms (http://aerofarms.com/technology/) to increase output and control climates of coffee beans?

  5. I think your article does a great job at highlighting what SBUX can do from from a sourcing perspective. Other things that I think SBUX can do to improve its carbon footprint from a consumer-facing perspective:

    – How it operates its stores – perhaps using more solar installations and alternative energy methods
    – Packaging of its products – although I know that SBUX’s cups are recyclable, I think there’s more we can do here. I find it somewhat ironic that one of SBUX’s major viral marketing methods in the fall/winter is its signature “red cup,” yet I’m not sure this strategy is aligned with being sustainable when they are encouraging customers to purchase coffee just to take a picture of that one-time-use red cup. Maybe what SBUX can do is heavily promote a reusable “red cup” during the holiday season instead, and incentivize customers to use that cup (i.e. buy 10 cups of coffee with the reusable cup, get one cup of coffee on us).

    As you mentioned, tracking and quantifying their carbon emissions is not enough – SBUX will need performance drivers/incentive structures that encourage those across its supply chain to push sustainability forward.

  6. Thanks for your insights. What really stuck out to me was Exhibit 1 on the source of greenhouse emissions that are emitted – over 75% of Starbucks’ GHG emissions come from electricity usage. Given the company’s massive store footprint, being able to shift electricity usage to renewable or any other carbon neutral sources could significantly reduce the amount of pollutants in the air, as well as set a precedent for other retailers to do the same. While I agree with the other commenters that Starbucks will also need to address its coffee bean supply chain in order to combat the most detrimental effects of climate change, for long term sustainability, it needs to have a two-pronged approach.

  7. You raise many interesting points about Starbucks’ potential motives for its sustainability initiatives (namely – the security of its raw materials). Though of course the company is financially motivated to ensure a stable supply of coffee beans for its ongoing operations, I believe that the company as a whole does believe in a “greater purpose” as evidenced by the way that it approaches other critical business challenges such as employee compensation and community engagement. There are certainly companies that engage in sustainable practices only if they can benefit monetarily (or from positive PR buzz), but I believe that these companies will find it difficult to stay committed to such initiatives if they do not also fall in line with core company values. Starbucks has a long history of corporate social responsibility, especially as it relates to the sourcing of its coffee beans. I hope that this high level of commitment will spell success for Starbucks as it (hopefully) spearheads some of the ideas mentioned above.

  8. Extremely informative article! Interesting to see that coffee houses have their fate intimately tied to climate change. I am worried that the industry might be more inclined towards distributing and improving insecticides/pesticides to address the fungus/pests rather than tacking the core issue of climate change. Securing their supplies by running a “social” effort of supporting their farmers by providing additional insecticides and pesticides will be a easier but less optimal solution to the problem. I feel that this might be one of the situations where the symptoms get treated but the core issue is left unaddressed.

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