Understanding Business Purpose and Applying Stakeholder Theory

UNDERSTANDING BUSINESS PURPOSE

AND APPLYING STAKEHOLDER THEORY

Daisuke KATO

katod@tcd.ie

Trinity College, the University of Dublin

College Green

Dublin 2, Ireland

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Overview

Coffee is now a prevalent beverage in many parts of the world, and it is consumed in many ways. In the recent history of coffee, Starbucks has played a significant role to expand the market and to develop the coffee industry. This chapter will overview the structure of the coffee industry and the business of Starbucks.

There are mainly two stages for green beans in the process of becoming a cup of coffee. Firstly, the cultivation and drying of the beans occurs in the countries where they are produced. Both coffee production and exports have increased over 150% since 1990 (http://www.ico.org/). Most of production occurs in developing countries is the key to acquiring foreign currency. For example, Vietnam’s production of coffee skyrocketed 20 times more than it had in the previous 20 years (http://www.ico.org/), and it now contributes to three percent of the GDP for the country (Mistiaen, 2014). Next, the secondary process consists of purchasing, roasting, and brewing. Among these steps, purchasing is the most significant in terms of the influence on the market. Coffee beans are publicly traded in three markets globally. Moreover, as fig.1 (http://www.teacoffeecocoa.org/) shows there are some key players in the market consisting of the top five companies that dominate 40% share. They are belonged to food and beverage companies, and coffee and snack stores such as Starbucks and Segafredo have low share. After purchasing, beans are finally roasted, brewed, and served to consumers. [pic 1]

        While Starbucks has a lower share in coffee beans market, the company is positioned as one of the top players in the coffee and snack store industry with a share of 42.4% in the United States. Starbucks started the business in Seattle. After being acquired in 1983 by Howard Schultz, the current CEO and Chairman, the company rapidly boosted revenue and stores. Although the company had been considerably affected by the recession in 2008 and 2009, the annual revenue has increased by nearly 11% every year since 2010 (http://investor.starbucks.com/). This long-term development was supported by expansion in foreign countries. As of 2014, 33% of all stores are located outside the United States (http://investor.starbucks.com/). There are mainly three innovations in the business. Firstly Starbucks focused on Italian style espresso and invented many espresso based beverages. Additionally, the new style appealed to fashionable metropolitan people and changed the stereotype of snack stores, such as establishments that only provide donuts. Finally, it continues to work on environmental and ethical issues that afflict the coffee business, such as fair trade.

Business purpose

        While many innovative ideas have fueled the global success of Starbucks, a dilemma in the fundamental philosophy has arisen gradually as the business continues to expand and globalize. According to the mission statement of the company, there are mainly three fundamental ideas: third place culture, challenge spirit, and high performance (http://www.starbucks.com/about-us/company-information/mission-statement). This chapter will argue in particular the contradiction between third place culture and rapid growth and expansion based on past studies.

The idea of “third place” has been the most significant and distinctive for the company, but some of its actual stores seem rather out of focus from its original meaning. The word was originally defined as a social environment that are not home nor workplace, but a place to develop community life (Ganguly & Bhattacharya, 2013: 217-217). While several places such as the barber, pub, or diner can be third place, Starbucks developed snack stores combined with high-quality coffee beverages. Beyond the shareholder value, the company aims at being “a social institution” (Kanter, 2011) by creating the “frameworks that use societal value and human values as decision-making criteria” (Kanter, 2011). However, expansion of the business has undermined some factors of this idea. For example, there are a lot of stores in the same area in city centers that are always crowded and noisy. This strategy probably improves logistics efficiency and the brand value but weakens accessibility and comfort that are significant factors of third place. Also, a new style store enables customers to have a cup of coffee without waiting, but there is no couch for relaxing or a space for chatting. While the company emphasizes that it would maintain the unique experience of Starbucks, diversification of the store portfolio would not necessarily contribute to the development of the community (https://news.starbucks.com/news/NY-express-format-store?hootPostID=b06536d2b9cc9680cc43d3e67ce839b4). Furthermore, homogenization is an inevitable issue which decreases the core values. As the company grows, many snack shops are following this similar style, such as bitter lattes, modern décor, and relaxing music. As a result, it is possible that customers who want the third place experience keep away from Starbucks shown by the number of specialty coffee shops that have increased in recent years. The definition of specialty coffee shops is “businesses deriving 55% or more of total revenue from the sales of coffee” (http://scaa.org/?page=resources&d=facts-and-figures). According to Specialty Coffee Association, there were nearly 30,000 specialty coffee shops in the United States in 2013, which is 10 times more than the number in 20 years ago. Additionally, the ratio of chain shops and independent ones is 45% and 55% respectively. One possible answer to these figures is that core customers of Starbucks were captured by the new movement that customers who want a unique experience and unique taste.