Can Wikinomics Create a Fifth Street Corner?
This week I will profile the Seattle based coffeehouse giant Starbucks. In case you missed my last report card on De Beers; you can find it here. You can now find all my previous entries, and posts relating to them on the new Regular Features tab on the top left side of the page. Like all my previous entries, I will be evaluating Starbucks on the Wikinomics principles of being open, peering, sharing, and acting globally.
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Company Background: The original Starbucks was opened in Pike Place Market in Seattle, Washington, in 1971 by three partners. They sold coffee beans and high end coffee equipment, but didn’t sell any actual coffee. Entrepreneur Howard Schultz (current President and CEO) joined the company in 1983, and after trip to Milan, Italy, suggested that they sell coffee and espresso drinks in addition to beans. The original owners disagreed with this new direction, and sold the company to Schultz in 1987. By the time the company went public in 1992, it had grown to over 165 locations across North America. In 1996, Starbucks opened its first international location when it opened in Tokyo, and opened in London in 1998. Today, Starbucks has over 16,000 stores in 44 countries including over 11,000 in the U.S. alone. However, the company recently announced that it was closing down 600 underperforming company-owned stores in the U.S., effectively ending the era of prolific growth and expansion.
Being Open: Starbucks ranked 7th on the Fortune 100 list of Best Companies to Work For 2008. Although friends of mine may tell you differently, Starbucks treats its employees very well. They offer health, dental, eye-care benefits to all employees who work an average of 20 hours per week over a three month period in addition to a 30% discount on drinks and merchandise. While Starbucks treats its employees well, it has been the target of much public controversy. While Starbucks claims that all their beans are purchased through fair trade, groups such as organicconsumers.org say that only 6% of Starbucks coffee is certified free trade. While they say the amount Starbucks ultimately pays for its beans is fairly comparable to free trade prices, Starbucks does its transactions through middlemen rather than with the farmers directly. Starbucks claims to sell “rare, exotic, cherished” beans from a remote plantation in Ethiopia that Starbucks advertising says is grown in ways good for the environment – and for local people too. However, this eco and poverty friendly sales pitch falls flat when the farmers are paid $1 a day and the plantation is located in a threatened mountain rainforest. Instead of committing to an accountable and respected third-party certifying system, Starbucks has created in internal “corporate responsibility” model that is expensive for coffee farmers, non-transparent and strictly voluntary.
Grade: B-
Peering: My colleague David Cameron wrote about My Starbucks Idea on the blog a few months ago. The idea is quite similar to Dell’s Ideastorm, most recently blogged about by Justin Papermaster here. The basic idea is that Starbucks customers submit ideas, and then discuss and vote on them. Starbucks then tries to implement the best ideas, and you can now follow their implementation progress on Twitter. This is a great idea that both generates great feedback and does a great job at engaging customers.
Grade A
Sharing: Starbucks does its best to try and control its intellectual property. Starbucks owns most of its stores, and only franchises or enters into joint ventures in certain circumstances. From the Starbucks website, “A qualified high volume/high traffic retail or foodservice operation can own and operate a Starbucks licensed store.” However, Starbucks will only license its name and operations in places like airports, college campuses, or hospitals where they would otherwise have no access. While it violates some Wikinomics principles, it is hard to criticize Starbucks for going this path. Even without franchising, and sharing its intellectual property, Starbucks has completely saturated the U.S. market. However, Starbucks is smartly entering foreign markets through joint ventures, partnerships, and licensing agreements.
Grade: B+
Acting Globally: Starbucks is profitably expanding internationally. With increasing news about store closures in the United States, Starbucks’ international expansion is more important than ever. So far, it has been very successful in penetrating markets traditionally opposed to American coffee, or coffee in general. While Starbucks is having a hard time convincing the older generations in France to abandon cafes, younger generations are joining American tourists in embracing frappuccinos and caramel flavored coffee. Starbucks is also expanding aggressively in tea-drinking nation of China. Starbucks is trying to overcome this by empowering China’s emerging middle class to show off their new lifestyle, and purchasing Western luxuries like Starbucks coffee. While Starbucks’ international expansion has gone well thus far, it still faces public protest for what it represents in a similar way to McDonald’s. Starbucks has been boycotted by antiwar protesters in Lebanon and criticized by New Zealand advocates seeking higher coffee prices for farmers. Faced with the possibility of terrorist attacks, they pulled out of Israel. However, these are minor bumps that are expected with international success.
Grade: A-
Overall Verdict: Despite its recent ailings due to a suffering American economy, Starbucks is an international success story. In the 20+ years since being sold to Howard Schultz, the company has had unprecedented growth. It is harnessing the power of Wikinomics through its use of peering with My Starbucks Idea, and is taking steps to becoming a bigger advocate of free trade and organic coffee.
Overall Grade: A-
I am not a coffee drinker or a frequent Starbucks customer, but I applaud what they have done as a company. I was wondering what fans of Starbucks had to say. Have you submitted anything on My Starbucks Idea? Do you think they should be more of a leader in the free trade movement? Do you drink Starbucks coffee when you go on vacation in Europe?
Any and all comments are welcome!