Corporate Governance

Starbucks and Social Responsibility: Loyalty Cards Just Aren't Working

By J. Robert Brown

Starbucks is floundering.  The latest reports indicate that the approach instituted over the last six months to stave off declining earnings through closed stores, new products and loyalty programs, is not working.  Earnings are down and at least one large shareholder has sold, a vote of no confidence in the company.  All of this is no surprise.  We suggested as much on this Blog.  In many ways, the approach has been self defeating and inconsistent.  To the extent Starbucks is a commodity, the closing of 600 stores will only make that commodity harder to find (something that will be an even bigger problem when McDonalds has baristas in all of its franchises). 

Starbucks ought to be competing for customers not with loyalty cards but through social responsibility.  Social responsibility here is a profit maximization strategy.  It would encourage customers to continue to frequent the chain not because it necessarily makes the best latte but because it is the socially responsible thing to do.  We have raised Chipotle as a model.  At least one blog reports that only 6% of the company's stock is fair trade.  Another possible model?  Ten Thousand Villages and their emphasis on selling products designed to improve the livelihood of disadvantaged people in developing countries.  These are both places that make money but allow their customers to feel like the expenditures have a purpose beyond mass consumption.     

What might Starbucks do?  Perhaps some of the shelf space currently occupied by mostly ugly seasonal mugs and other often useless bobbles could be taken up by Free Trade products.  Emphasis on fair trade coffee is another place to put energy.  With the emphasis on music, what about musicians in developing countries?  There is no obvious answer here.  But it is an avenue that needs attention, at least as much as the new "gold card" promotion (being tried here in Denver).

Full post as published by The Race to the Bottom on August 22, 2008 (boomark / email).