Corporate Governance

Starbucks and Social Responsibility: The Right Direction

By J. Robert Brown

We have written often on this Blog about the wrong headed business approach by Starbucks in combating its declining revenues.  In addition to a decline of business from the recession, Starbucks has had to confront growing competition, most noticeably from McDonalds.  The Seattle-based coffee company has largely fought back through small discounts and free syrups, treating its product as a commodity.  The continued bad news suggests that the approach has not worked.

We've noted on this Blog often enough that Starbucks needs to have a strategy that is not commodity based.  If a latte at Starbucks is just another latte, then it's hard to justify paying a higher price for the same coffee drink at McDonalds (which is weathering the recession nicely) or any other competitor.  The right strategy for Starbucks is to stress social responsibility, that drinking a latte at Starbucks is somehow making the world a little bit better.  Indeed, we've held up as a model Chipotle, the burrito maker based in Denver.  Chipotle is not cheap but it stresses free range meat and organic beans, along with local philanthropy.

We note some developments, however, that suggest Starbucks is getting the message.  On election day, Starbucks provided a free cup of coffee, a promotion that seemed highly successful.  More recently, Starbucks is promising a free cup of coffee to anyone who does five hours of volunteer work.  In addition, Starbucks now allows customers to register for a Red Card, with a contribution made to the Global Fund on every purchase.  In other words, it's not necessary to purchase certain drinks; every purchase results in a contribution.

It is clear that Starbucks is ramping up the social responsibility side of things. This is something that needs to be constant.  Perhaps, for example, there can be a free cup of coffee promotion every week.  As Starbucks gives customers a sense of accomplishment each time they consume products at one of the stores, they will have a reason to come back and sidestep a competitor.

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Full post as published by The Race to the Bottom on January 27, 2009 (boomark / email).