Oxfam’s “My Starbucks Story”

The Boston based anti-poverty organization, Oxfam America, recently sent a letter to investment analysts, with a carbon copy to Starbucks’s Investor Relations department, to inform them about “a pressing dispute between Starbucks and the Government of Ethiopia” and urging them to raise the issue with company management.

The following is extracted from the letter; it provides a quick synopsis of the public dispute over Ethiopia’s trademark initiative and its impact on the Starbucks brand. I think the material fits the My Starbucks Story theme, so I took the liberty of naming it accordingly.

What is your Starbucks story? Email it to me at poorfarmer@gmail.com.
-----------------------------

"My Starbucks Story" of Oxfam America

This conflict [between Starbucks and Ethiopia over coffee trademarks] could well constitute a brand risk for Starbucks, affect employee morale, and jeopardize its relationship with key suppliers—all of which may affect long-term shareholder value.

For nearly two years, Starbucks and the Government of Ethiopia have been involved in a controversy over the country’s efforts to assert its right to ownership of the names of three of the country’s finest coffees. With support from Arnold & Porter LLP, Ethiopia and its coffee industry launched its '‘Trademark and Licensing Program” in 2004 with the goal of securing legal ownership of the country’s coffee trademarks. The country aims to build and protect the coffee “brands” and strengthen the negotiating position of Ethiopians vis-à-vis international buyers. This program could enable 15 million Ethiopian coffee farmers to capture a larger share of the retail price of the coffees sold internationally under the country’s brand names. To date, Ethiopia has gained legal recognition of the trademarks to one or more of these names in Europe, Japan, and the US.

Last year, in an attempt to settle this ongoing dispute, the Government of Ethiopia presented Starbucks with a licensing agreement that recognizes the country’s ownership of its fine coffee names Sidamo, Harar, and Yirgacheffe. In return, the agreement offers Starbucks a license to use the names royalty-free—an assurance that 100% of the attendant benefits will accrue to the Ethiopian coffee sector, not the government. In Ethiopia, this effort is supported by a diverse stakeholder committee that includes the Ethiopian Intellectual Property Office, farmer marketing cooperatives, and members of the Ethiopian Coffee Exporters Association. Yet to date, Starbucks has flatly refused to sign the agreement—a fact both surprising and disappointing given the company’s claim to be the purveyor of “Coffee that Cares.” Moreover, Ethiopia believes that Starbucks orchestrated the National Coffee Association’s letters of protest to its trademark applications for Sidamo and Harrar at the US Patent and Trademark Office.

Since this dispute became public, Starbucks’ response has been erratic. Initially, the company engaged in a campaign to discredit the trademarking initiative and to portray it as inferior to an alternative geographical certification plan. The company even posted a video on YouTube.com suggesting the proposed licensing agreement asks companies to engage in “something that is against the law.” After the video was viewed nearly 30,000 times, a statement attributed to Starbucks was posted this week on YouTube stating that: “When we posted that video we felt the information was correct & since we've learned a lot & realized the information about the legality of the trademark was not accurate.”

Starbucks recently announced it would not oppose Ethiopia’s efforts to obtain trademarks for its specialty coffees. Nonetheless, the Government has made it clear to Oxfam that it “will pursue its trademarking and licensing initiative and hopes to enter into partnership with Starbucks and other companies through negotiated licensing agreements that recognize the trademark ownership of Ethiopia's coffee names.” In support of Ethiopia’s efforts, Oxfam America has joined a broad coalition calling on Starbucks to sign the agreement. We suspect that this issue will continue to garner public attention at the international level.

Beyond the compelling moral reasons for Starbucks to comply with Ethiopia’s request, we believe that the company’s obstinacy could impede its ability to meet its aggressive growth objectives. Specifically, we believe that investors should have three concerns:

Brand Risk and Customer Loyalty

Having positioned itself as a company committed to social responsibility, Starbucks’ stance against Ethiopia belies the brand proposition it offers its customers. In Brand Hypocrisy at Starbucks, Douglas Holt, L’Oreal Professor of Marketing at Oxford University, argues: “Starbucks customers will be shocked by the disconnect between their current perceptions of Starbucks’ ethics and the company's actions against Ethiopia. It is not an exaggeration to compare this case to Nike's purposeful ignorance to deal with the sweatshops producing their shoes. Just as consumers were disgusted by [the inequality in Nike’s supply chain], they will be equally disturbed by the fact that Starbucks is happy to sell coffee for $26/lb while refusing to allow the coffee's producers a shot at climbing out of desperate poverty.” Holt’s prediction seems to be holding true. To date, over 90,000 consumers have written the company in protest, and the presidents of State University of New York (SUNY) and West Virginia Wesleyan College, schools serving Starbucks products, recently wrote the company CEO to raise the issue.

Employee Morale

Starbucks also faces the risk that its stance will affect staff morale. Company founder and chairman Howard Schultz recently sent a signal that he is worried. In a February 8th open memo to employees, now posted on the Seattle Times website, Schultz empathizes: “like many of you, I feel it personally when misperceptions about our company or our intent are circulated….But we don’t have to let it get us down.” In recent weeks, the Starbucks barista union endorsed Ethiopia’s efforts and is disseminating information about the company’s stance to fellow staff. With ongoing press coverage and consumer response, employee concern about the company will only grow.

Relationship with Key Suppliers

Finally, as Starbucks pursues its aggressive growth strategy, the company will need a supply of high quality coffees to fuel that growth. Starbucks’ obstinacy, however, risks alienating other governments and the African coffee sector, with which relationships will be vital to Starbucks’ success in the coming years. Support in Africa for Ethiopia’s initiative was evidenced earlier this month at the East African Fine Coffee Association conference where a spokesperson for the Common Market for Eastern and Southern Africa officially endorsed Ethiopia’s initiative. Starbucks’ continued resistance might well position it as a less-than-desirable business partner as it pursues needed sourcing in the region.

Professor Holt gets right to the bottom line

“Starbucks' anti-development stance...[could impose] a far greater hit on profits than any increase in commodity prices the company might encounter were they to support Ethiopia's cause.”