Andy's Analysis

 

Credit: Andy Hyunwook Kim is a student at UC Berkeley. 

Peet’s Coffee History #1

Alfred Peet founded Peet’s Coffee & Tea in 1966 in Berkeley, CA. The Dutchman had a background working in the coffee industry before immigrating to San Francisco following World War II. Quickly after Peet founded his company, the coffee shop became a big hit for its quality products and sustainable business practices.

From the very beginning, social consciousness and environmentally friendly practices have been a part of Peet’s DNA. The relationships Peet’s chose to form from day one (and which continue to this day) reflect this DNA. A representative example of such a relationship is the relationship Peet’s shares with the Falla family, which is a growing collective of coffee farmers in Guatemala. Peet’s cites that the relationship continues to endure for forty plus years because of the Falla’s superior coffee bean quality and the care these farmers have shown for the environment. Because the Falla family has been well aligned with Peet’s high standards and mindfulness for sustainable practices Peet’s has continued to increasingly buy from these farmers and has also given back by donating to the schools and healthcare facilities in this community to support infrastructure that can keep this farming community thriving for the long term.

The forty years of working with the Falla family has been a large part of the inspiration behind one of Peet’s more recent green initiatives called “People and Planet,” which offers nine specialty coffees made from a blend from the Falla’s farms and underscores Peet’s longstanding history of working closely with and forming intimate ties with socially responsible and high quality producing coffee farmers.

Through People and Planet, Peet’s is looking to promote three practices that have helped define the brand: Direct Trade, Farmer Assistance, and Certification. Direct Trade highlights Peet’s belief that coffee quality is strongly correlated with the well-being of the coffee farmers. Subsequently, Peet’s directly engages with coffee farmers, listens to what their needs are, and invests in a variety of projects in each of the farming communities it does business with in order to support their well-being. Through the Farmer Assistance program, Peet’s aids smallholders with training in farming and business development. Through this program, farmers can increase their yield and its quality, thus bringing in more cash flow for farmers to provide their families with higher quality of lives. In regards to certification, most of the People and Planet coffees carry environmental certification and underscores Peet’s continuing effort to ethically source coffee.

Overall, Peet’s has established itself as a environmentally responsible leader in the coffee industry through green initiatives that are centered around developing sustainable communities in order to help ensure a long term steady supply of high quality coffee beans.

 

Peet’s Coffee History #2

A large proportion of the world’s coffee is produced by impoverished small coffee farmers in developing countries. Often lacking a formal education and a line of credit, these farmers often are exploited by middle men in the coffee supply chain, who offer these farmers precious cash, but often buy the coffee beans at discounts below fair market value. Fair trade organizations and practices have helped alleviate this exploitation by removing some of the middle men and helping to connect coffee importers to the coffee farmers. From here, importers can develop more sustainable and long term relationships where coffee importers will pay premiums for high quality coffee beans, and with some of the middle men removed from the equation, the coffee farmers are able to receive a greater proportion of the profits in addition to the premium importers are paying, which the farmers can reinvest into their business leading to larger and higher quality crop yields.

While fair trade practices are critical to the sustainability of the coffee supply chain, they address only issue with the supply chain. Once the coffee beans reach importers, the beans still need to be processed before consumption. The processing phase requires roasting, which can burn through significant amounts of resources and energy.

Recognizing this issue, Peet’s Coffee, which itself prepares 60k-90k pounds of coffee per week, constructed a roasting facility with the capability to roast large volumes while minimizing its carbon emissions. In addition to designing the building to receive LEED Gold certification, which brings the standard LEED benefits (like efficient energy lighting, low-VOC building materials, and recycling of construction debris), Peet’s incorporated additional specialized features tailored to the types of operations Peet’s requires to maximize environmentally sustainability. More specifically, Peet’s constructed two of its four roasters to capture and recycle heat traditionally lost from the roasting cycle. This design will reduce Peet’s natural gas consumption by 40%. Furthermore, Peet’s has incorporated shower and locker facilities in the roasting factory in order to encourage employees to bike rather than drive to work.

Overall, Peet’s incurred an additional 2-3% costs to outfit its factory with its unique features than if it had chosen not to. Like other LEED certified facilities, Peet’s will be able to quickly recover these initial higher costs (and save more in the future) due to substantial long-term reductions in utility costs. Peet’s has reminded us once again that sustainable and environmentally friendly practices may not only be the responsible choice but also the financially advantageous choice as well.

 

1st Wave: Verve – Direct Trade & Cupping

When consumers shop at farmers market, they have the opportunity to not only directly connect with the farmers who grew what they will be buying, but consumers can also see first- hand that their dollars are going back to the farmer and the farm, helping farmers sustain their livelihood.

Unfortunately, this direct connection that supports sustainability between producer and consumer is hard to find between coffee farmers and coffee consumers. The coffee supply chain is complex involving numerous intermediaries like processors, brokers, and retailers. The result of this long winding supply chain is that coffee farmers are left with little profits to maintain their livelihood with middlemen taking their respective cuts. The sustainability of the farmer’s practices is further challenged when considering that most coffee farmers are impoverished and come from developing countries. Moreover, coffee harvesting is a highly seasonal business, as the harvest lasts only a few weeks, but the profits from such short harvests are what many farmers rely on to provide for them for the entire year. In addition to the fluctuations stemming from a highly seasonal business, unstable global commodity markets further endangers the stability of cash inflows for coffee farmers

To aid in closing the disconnect between coffee farmers and producers, coffee roaster Verve, which is based in Santa Cruz, CA, practices direct trade with coffee farmers. Although this does not completely cut out every intermediary, Verve helps with the stability of cash inflow for coffee farmers by agreeing to pay a fixed price (reducing stability from volatile commodity markets) and paying a premium for high quality coffee beans. Furthermore, Verve engages in a practice called “cupping,” where it regularly samples its coffee and educates the coffee farmers on quality standards and consumers’ taste preferences. This practice ultimately empowers farmers with better supplier negotiating power, as they will provide higher quality products that consumers will want, and because farmers will have the education to know this, they can better bargain for a fair price for their products.

 

2nd Wave: Blue Bottle – Compostable Paper Cups, Lids & Bags

Blue Bottle, an Oakland, CA based coffee maker, has had a partnership since 2011 with Excellent Packaging & Supply, a distributor of biodegradable packaging products, to offer fully compostable paper cups, lids, and bags. These cups and bags are offered at all of Blue Bottle’s locations and have generated favorable customer feedback, as customers strongly support Blue Bottle’s move to make both its in-store and to-go waste steam more green.

Blue Bottle is the first multi-location coffee maker that has standardized its offerings to completely compostable coffee cups and lids. The environmental effect of such a move is that Blue Bottle has transformed 70% of its waste into compost. Among the remaining 30% of Blue Bottle’s waste, 20% is recycled and only 10% goes to landfills. Blue Bottle has successfully leveraged a high technology methodology to deliver a low waste impact on the world.

The technology behind these paper cups involves a laminating process that glues together a heat-resistant crystallized polylactide, which is a bio-derived plastic from corn starch, to compostable paper. This innovative process produces a heat-resistant coffee cup that is both aesthetically pleasing and feels good in the hand, providing an environmentally friendly and functional cup to serve Blue Bottle in. The lids that Blue Bottle uses also uses a similar process involving heat-resistant crystallized polylactide. The paper bags that Blue Bottle offers are produced from completely compostable recycled paper, which helps Blue Bottle to minimize its carbon footprint and support its environmentally sustainable operations.

Overall, through its environmentally friendly cups, lids, and paper bags, Blue Bottle has added appeal and value to its brand and demonstrated its continuing commitment to sustainable practices.

 

3rd Wave: Consumers Want Lifestyle Brands & Eco-Friendly Coffee

According to a study involving 30,000+ consumers across 60+ countries conducted by Nielsen - a global performance management company that provides research on consumer’s spending behaviors - sustainability is no longer viewed simply as a “value-add” element by consumers across develop countries but instead it is seen as an imperative. This insight is backed up by sales figures, as in 2015 brands that had a devotion to sustainability grew at 4% worldwide, while those without commitment to sustainability grew at less than 1%.

A critical insight from the Nielsen study is that consumers are willing to pay premiums for brands that have shown commitment to sustainability. More specifically, 66% of Nielsen’s study participants expressed they would be willing to pay higher prices for sustainable goods, and this 66% figure is an 11% increase over the previous year’s figures. Furthermore, it’s not just wealthy consumers are willing to agree to pay premiums. Nielsen’s study found that consumers earning $20k or less were 5% more willing than those with incomes above $50k to pay premiums for products that came from brands who were committed to environmentally sustainable practices. This insight suggests to consumer brands like coffee operators that consumers have shown a willingness to pay more for companies if it supports the companies with sustainable practices.

Another critical insight from the Nielsen study is that many modern-day consumers have expressed that the environmental is a critical factor in their decision-making process. More specifically, 45% of Nielsen respondents communicated that a company’s devotion to the environment has the power to influence their product purchase. This finding suggests that coffee companies can increase their topline sales numbers by having practices that promote the health of the environment.

Ultimately, moving forward consumer brands that have not committed to environmentally friendly and sustainable practices are at risk of disruption. Green practices have proven to be a significant element to contemporary firm’s proactive reputation management, and without sustainable practices, companies may find themselves struggling to attract customers as well as recruit talent to their firms, as many workers seek to be employed by companies with missions and practices that are sustainable.

 

Starbucks and Sustainable Practices

Over the past decade, Starbucks has invested millions of dollars and launched various green initiatives to support the sustainability of its supply chain and operations. Among the most notable of its initiatives is C.A.F.E. (Coffee and Farmer Equity) Practices. The core of the C.A.F.E. Practices is a set of environmentally, socially, and economically friendly guidelines for coffee buying. The C.A.F.E. Practices analyzes 249 indicators to assess the environmental performance of coffee farms. Some examples of these 249 indicators include: measure water access and treatment; measure success at utilizing smart-weather farming practices; measure minimum wage requirements. These guidelines were developed based off of more than three years of research and involves contributions from multiple sources and people including the Conservation International (a non-profit environmental organization), sustainability experts, and coffee farmers.

In order to support the C.A.F.E. Practices, Starbucks later opened research and development centers. These centers house agronomists and quality specialists so that these experts can be out in the field to directly support coffee farmers. These experts worked hand in hand with farmers to promote sustainable actions by providing farmers with knowledge and training in key practices such as optimal soil management and / or field crop production.

Another way Starbucks has supported farmers and boosted the sustainability of its supply chain is helping to make more credit available for farmers at reasonable costs and terms. By partnering with lenders to extend farm loans, Starbucks is providing more liquidity for farmers, so farmers have more financial stability in financing their operations.

In addition to helping farmers receive more financial resources to run their day to day work, Starbucks is also helping make its supply chain stronger by improving the farmers’ infrastructure. Over the past decade, Starbucks has helped increase farmers’ access to clean water, renewable energy, and cleaning facilities. These types of improved access and infrastructure upgrades can support the long-term sustainability of farming by laying down the foundation for more efficient and effective operations.

A follow up on these green initiatives have indicated that Starbucks has helped to improve soil fertility, more school-age children on farms have been able to attend school, and a greater proportion of Starbuck’s coffee has been ethically sourced.

 

Annotated Bibliography

Mazzoni, Mary. “Peet’s Wants Customers to Know that Coffee Can Change Lives.” TriplePundit

Peet’s is launching an initiative called “People and Planet” that celebrates its staunch principles of social consciousness and environmentally friendly practices. “People and Planet” was largely inspired by the Falla family, which is one of the farming communities that Peet’s has had a relationship with since its founding days, and the Falla family is the farming collective that is the source of the specialty coffees featured in “People and Planet.” Peet’s believes that its coffee quality is strongly correlated with the health of its farming partners and thus engages in practices such as Direct Trade and Farmer Assistance that helps coffee farmers sustain their livelihood through higher wages, better training, and improved infrastructure investments.

This article was written by TriplePundit, which is a global media platform writing about the cross section of people, planet, and profit. TriplePundit’s purpose is to evaluate businesses not just on their bottom line but also include their impact on people and the planet. This was a reliable article for my research because the article relied on verifiable facts regarding Peet’s and its new campaign to drive the argument that Peet’s is an environmentally conscientious business.

This article is useful to my research because it highlights recent initiatives that Peet’s is pursuing to help with the sustainability of its supply chain. An initiative like “People and Planet” gives credibility to Peet’s in that it is not just marketing fluff when Peet’s says it is an environmentally conscientious business but substantiates that claim with real campaigns and actions.

Ramsey, Collin. “Sustainability Matters: Peet’s Coffee. Adec Innovations

Peet’s recognizes that multiple points of the coffee supply chain can be improved to increase the sustainability of coffee operations. In addition to pursuing fair trade practices with coffee farmers to help farmers receive higher wages to sustain their livelihood, Peet’s is also working to improve the coffee bean roasting process in order to reduce the carbon footprint of the roasting process. In order to accomplish this, Peet’s built a roasting facility that received LEED certification, Peet’s also designed the facility to have specially tailored features that help it to recycle heat that is traditionally lost in the roasting process as well as implemented on-site showers to encourage employees to bike to work rather than drive.

This article was written by Adec Innovations, which is led by a management team comprised of experts in environmental, sustainability, and data management. This is a reliable article because it is written by experts in this specific area, and furthermore the article relies on quantitative metrics (i.e., roasting facility’s 40% reduction in natural gas consumption) to back up its claims around Peet’s sustainability.

This article is useful to my research because it shows how Peet’s is addressing an area of the coffee supply chain that a lot of companies have not addressed yet. While more and more companies are engaging in fair trade practices with coffee farmers, Peet’s went an extra mile and got creative with the design of its roasting facilities to make its coffee supply chain even more sustainable.

Mazurek, Brie. “A Complex Cup.” CUESA

An issue threatening the sustainability of the coffee supply chain is the high number of intermediaries involved that cut into the profits of coffee farmers, making coffee farming into an unlucrative profession. Verve tries to support coffee farmers that produce high quality coffee beans by working more closely with the farmers and paying premiums for their higher quality coffee.

This article was written by a non-profit organization dedicated to educating consumers about sustainable agriculture.

This article is useful for my research because it shows smaller coffee operators are also working to be sustainable. While smaller coffee companies do not have the same level of financial resources as larger coffee companies, thus potentially making it challenging to pay premiums for quality coffee beans, Verve is showing that it is still committed to quality coffee and thus will pay more to help coffee farmers produce high quality coffee beans.

Cox, Tim. “Blue Bottle Coffee Goes Green with Compostable Paper Cups.” Cision PRWeb

Excellent Packaging & Supply’s Tim Cox reports that Blue Bottle has partnered with Excellent Packaging & Supply to be the first multi-coffee shop operator to offer a standardized offering of completely compostable paper cups, lids, and coffee bean bags. By adopting this choice, Blue Bottle now can send 70% of its waste to compost, 20% to recycling, and only 10% to waste.

Tim Cox is qualified to write about this topic as he is a member of Excellent Packaging & Supply, which is the company offering the technology that enables Blue Bottle to offer its paper cups, lids, and bags.

This article is useful to my research because it shows how technology can improve the sustainability of coffee shop operators. Through emerging technologies, coffee companies can disrupt traditional business models and design innovative ways to rethink the coffee supply chain in order to minimize the negative environmental impact from the coffee supply chain.

McCaskill, Andrew. “Consumer-Goods Brands that Demonstrate Commitment to Sustainability to Outperform Those That Don’t.” Nielsen

Global measurement and data analytics firm, Nielsen reports that consumer brands that have displayed commitment to socially and environmentally sustainable operations outperform those that do not. Nielsen surveyed 30,000 people across 60 countries and found contemporary consumers express in greater numbers than historically that sustainability is not a simple “value-add” but an imperative for businesses. When consumers view a company as trustable and is environmentally conscientious, they are more likely to make a purchase with that company and also be willing to a pay premium.

The information in this article is reliable because it comes from a prominent company with expertise built over 90 years in providing data and analytics using scientific rigor.

This article is useful for my research because it provides statistical data to offer insights on what consumer preferences are for the modern-day consumer. This data can give us some forward- looking insight into what businesses will look to do in order to align their business model with consumer preferences. Encouragingly, businesses will likely shift to more sustainable operations to better meet the latest criteria that consumers are evaluating businesses on.

Clinton Foundation. “Coffee and Farmer Equity (CAFÉ) Practices.” Clinton Global Initiative

Starbucks has launched numerous initiatives and invested millions of dollars to increase the sustainability of its operations. Among the most notable of Starbucks’ initiatives is the C.A.F.E. program, which is a set of environmental, social, and economic guidelines to run coffee operations and includes 249 metrics and indicators by which Starbucks evaluates the effectiveness of those guidelines. In addition to C.A.F.E., Starbucks has also extended credit (loans), training, and investment projects to coffee farmers to support the sustainability of their farming.

This article was written by the Clinton Foundation, which is a non-profit organization started by former president Bill Clinton with the purpose of creating economic opportunities, boosting public health, and increasing civil engagement/service. The Clinton Foundation forms strategic partnerships with diverse organizations ranging from government entities to businesses to accomplish this goal. Starbucks and its various green initiatives fits into the area of expertise of the Clinton Foundation, as these initiatives are centered around creating better economic opportunities and raising public health for impoverished coffee farmers.

This information adds to my research because it shows how one of the biggest players in the coffee industry is also getting involved with sustainable coffee operations. It was critical to show how a dominant industry player like Starbucks is implementing green initiatives to tell a broader story of the shift in coffee industry to become more environmentally sustainable.