A project for my "International Business Diplomacy: Business, Government, and the Global Economy" class.

1. Jessica Lewis
April 14, 2010

2. Business Problem
Low-cost competition entering
specialty coffee market
Partner with CI to create a new label
based on internal standards
Amend 2007 ICA to include a
minimum price for specialty and
premium imports

3. Presentation Roadmap
Background Non-Market Non-Market
Strategy #1 Strategy #2
Sensitivity 3 Business
Mini-Case
Analysis Lessons

4. Background "Medium is the new grande” –
McDonald’s tagline, 2009
Background
Starbucks’ Annual
Revenues, 2005-2009
Source: Starbucks 2009 Annual Report

5. Non-Market Strategy #1
Partner with Conservation International to create a
C.A.F.E. Practices label
Non-Market
Strategy #1

6. Non-Market Strategy #1
Partner with Conservation International to create a
C.A.F.E. Practices label
Non-Market
Strategy #1
 Starbucks goal: to purchase 100% In 2009, Starbucks bought
C.A.F.E. certified coffee by 2015 367 million pounds of coffee:
299 Million Pounds (81%)
 Increases the visibility of Starbucks’ C.A.F.E. certified
C.A.F.E. practices to the consumer
 Differentiates C.A.F.E. practices from
other certifications on the market
 Sets Starbucks apart from quick-
service restaurant sector competitors
 The label justifies premium prices for
coffee

7. Why Conservation International?
History of cooperation: Similar vision and mission:
 Partnership with Starbucks since  Ethical Sourcing
1998  Environmental Sustainability
Non-Market
 C.I. helped create C.A.F.E. (conservation and biodiversity) Strategy #1
Practices in 2003  Economic and social welfare of
producers
"Our partnership engages one of the
great corporations, their customers
and coffee farmers in this battle
against climate change. By stepping
up this partnership we have aligned
our existing work and success to
address the most pressing
issue of our time.“
– Peter Seligmann, CEO of CI

8. Certification Comparison
Rainforest Alliance Certification Starbucks C.A.F.E. Practices
1%
20% Small Farms Non-Market
Small Farms Strategy #1
Large 99% Large
80% Plantations Plantations
2008 Minimum Price Paid (US dollars per pound)
2 1.35 1.49
0
0
Rainforest
Fair Trade
Source: Rainforest Alliance,
Starbucks, and TransFair
Alliance Starbucks

9. Marketing C.A.F.E. Label
Non-Market
Strategy #1

10. C.A.F.E. Label and Competitors
Competitors’ Starbucks’
Reactions: Reaction:
Non-Market
Strategy #1
• Highlight differences between
1. Promote their labels
own labels • Emphasize superiority of C.A.F.E.
• Brand and sell our label
2. Buy/switch
• Sell the know-how for C.A.F.E.
to our label Practices
3. Discredit our
• 3rd party certification (SCS)
label through
• Created C.AF.E. with CI
“Nike Effect”

11. Non-Market Strategy #2
Work with NGOs and the U.S. government to amend the 2007
International Coffee Agreement to include a minimum price for
specialty and premium coffee imports
“Through Fair Trade, farmers and their families
are earning a better income for their hard work- Non-Market
Strategy #2
allowing them to hold on to their land, keep
their kids in school, and invest in the quality of
their harvest-so they can continue to grow
excellent quality coffee for your morning
brew.” – TransFair website

12. International Coffee Agreement 2007
Non-Market
Strategy #2
Source: http://www.ico.org/documents/ica2007e.pdf

13. World Coffee Prices
Non-Market
Strategy #2

14. Fair Trade and World Trade
Non-Market
Strategy #2
Source: “Fair Trade: Turning Social Responsibility into
Competitive Advantage,” SCAA Conference April 2000

15. Starbucks and the ‘C’ Market
Non-Market
Strategy #2
Source: Starbucks

16. Why NGOs?
Non-Market
Strategy #2
“Oxfam is working to influence agreements on trade
and investment rules so that they take into account the
asymmetries in development that exist between rich
and poor countries.”
Source: http://www.oxfamamerica.org/campaigns/trade

17. Selling it the U.S. Government:
“Falling coffee prices are forcing farmers
to grow coca - the leaf from which
cocaine is produced. The price of coffee
remains at a 30-year low, despite the
efforts of the major coffee-producing
nations to reduce exports.” – BBC, 8/15/01
Non-Market
Strategy #2
Living National
Drugs Environment
Standards Security
Source: BBC, Aug 15, 2001, http://news.bbc.co.uk/2/hi/business/1493104.stm

18. Legal Framework
GATT, Art. XX
U.N. Economic and Non-Market
Strategy #2
Social Council
Resolution 30
(March 28, 1947)
Andean Trade
Promotion and Drug
Eradication Act
(ADTPDEA) 2002

19. Legal Framework
World Trade Organization, Article XX:
Non-Market
Strategy #2

20. Legal Framework
Andean Trade Promotion and Drug U.S. Act to foster economic
Eradication Act (ATPDEA), as amended Aug. development in Andean countries
6, 2002: and provide alternatives to cocaine
production:
 Public Law 107-210, Title XXXI, Sec.
3102(2):
Non-Market
 “The Andean Trade Preference Act has Strategy #2
been a key element in the United States
counternarcotics strategy in the Andean
region, promoting export diversification
and broad-based economic development
that provides sustainable economic
alternatives to drug-crop production,
strengthening the legitimate economies
of Andean countries and creating viable
alternatives to illicit trade in coca.”
Source: gpoaccess.gov

21. Competitors’ Options
• Costs increase
1. Comply with
minimum price • Market share
standard decreases
Non-Market
Strategy #2
• Purchase poor
2. Exit specialty quality “exchange
coffee market grade” coffee
• Public image decline

22. Reaction to Competitors
Non-Market
Strategy #2

23. Mini-Case:
1. Clorox Green Works
created and marketed
internal standard
2. Partnered with NGOs
to create a national Mini-Case
standard for “natural”
cleaning products

24. Mini-Case:
 "The NPA standard is science-based and was developed by
a team of experts from the association as well as natural
products manufacturers and retailers. The advisory panel
drew from a variety of sources, including relevant
international standards, third-party organizations,
existing research, and years of experience in the
field. Advisors to the association are the leading natural
home care suppliers, manufacturers and retailers, Mini-Case
including Green Works natural cleaners®, Seventh
Generation®, J.R. Watkins®, Cognis®, Trilogy Fragrances®,
Aubrey Organics®, Eco-Me®, PCC Natural Markets® and
Sun & Earth®."

Source: Natural Products Association website

25. Mini-Case:
Success and Market Share:
Mini-Case
Source: Green Works Annual Report 2009

26. Sensitivity Analysis
Will How much How will
Americans of an other
support a impact will countries
minimum a label react?
price? have?
Sensitivity
Analysis

27. Business Lessons
Showcase your
own strengths!
Don’t
Adapt to a
compromise
changing
your
market!
standards!
Business
Lessons