Starbucked

by Taylor Clark

  Company executives know Starbucks can do little to dislodge those independents who are perceptive enough to offer something different. “The purveyors who understood how to differentiate themselves from the chain stayed and did really well,” said Rubinfeld, with little enthusiasm. “The ones who never had a good product to begin with went away.” Some of the shrewdest independents have even stolen one of the chain’s signature moves, to great effect. “These guys at Starbucks are seriously good at locating coffee bars,” wrote one of them, David Schomer of Seattle’s Espresso Vivace, in a primer on how to compete with Starbucks. “Just open your coffee bar next to one.” As Schomer knows, in a side-by-side comparison, customers will often choose quality and uniqueness over efficiency and uniformity.

  Naomi Klein, creator of the antichain “No Logo” movement, has lambasted Starbucks over its habit of clustering stores and opening next to mom and pops, but in the coffee-house business, a cluster of cafés can do better as a group than each café would alone. Just as a thicket of restaurants or gas stations will amplify business for everyone by forming a nexus people instinctively gravitate toward when they think food or gas, a Starbucks and an independent can work in tandem to draw more coffee drinkers. It’s like a reverse Wal-Mart effect. independents also benefit from Starbucks’s mainstream appeal. Said Milletto, “They give people a safe place to have their first specialty-coffee experience, and once they have that, they find it easier to venture out.” Stories from around the country bear this out. For example, the Omaha World-Herald reported that after Starbucks blitzed Omaha with six stores in 2002, business at locally owned cafés was up as much as 25 percent, with many new mom and pops opening up. And Martin Diedrich, who had watched Starbucks open “within a stone’s throw” of each of his coffee bars, likewise reported increased sales. “I didn’t suffer whatsoever,” he said, his near heart attack notwithstanding. “Ultimately I prospered, in no small part because of it.”

  The coffee community isn’t unanimous on the verdict that Starbucks boosts independents, however. Corby Kummer, the Joy of Coffee author, says that mom and pops are getting harder and harder to find when he travels around the country, a claim not supported by industry statistics. Many can’t get beyond the fact that the company clearly intends to leach sales from locally owned coffee-houses. Several coffee shops have indeed gone under thanks to Starbucks, but most agree that these occasional casualties were generally subpar and deserved to be pruned away. “Starbucks has managed to establish a minimum standard of service and quality,” said Timothy Castle, a specialty-coffee consultant and writer. “They make it very difficult for people to survive in this business who are not doing a good job. You have to be better than them to survive, which is hard to do.”

  Some even go so far as to credit the company for making the whole business viable in the first place. Without the work Starbucks did to popular-ize espresso and to educate customers in the vagaries of coffee connoisseurship, who can say if the coffee-house industry would have ever grown this prosperous? “Everyone I know in the business who’s doing well — none of us would be where we are if it wasn’t for Starbucks,” said Joe Monaghan, the Seattle coffee industry veteran. “My roof and my kids’ shoes and my daughter’s college education — that’s all thanks to Starbucks and Howard.”

  This is fundamentally the company’s position on the matter. “It’s kind of ridiculous to say Starbucks put people out of business,” Howard Behar, the former right hand to Schultz, told me. “If anything, we created an industry. We legitimized something that was kind of bohemian.” Schultz put this argument much more stridently to a Seattle Weekly reporter in 1994, when the issue of Starbucks targeting independents was first gaining momentum. “It’s ironic to me,” he said. “I came back [from Italy] with the drink caffe latte in 1982. That word was not in existence in this town before we opened up our first coffee bar in April of 1984 in downtown Seattle. We created this business. We created a tremendous opportunity not only for ourselves, but for others. We’re not asking anything for it. It’s great. . . . Why there’s animosity toward us is a question you have to ask others.” When I asked Schultz if he still held to these words, he reaffirmed them without hesitation. “We created an industry that did not exist,” he said. “We created a beverage experience, both in terms of the makeup and the ingredients of a drink that only existed in Italy. We created a language that didn’t exist. We changed the culture and enhanced people’s lives through a simple cup of coffee, and we’ve done it around the world. Absolutely.”

  Whether or not you buy Schultz’s claim, the truth is this: all parties involved — Starbucks included — are fortunate to have found themselves selling such an incredibly lucrative product, for which the world’s appetite only continues to increase. Few trades exist in which consumers allow retailers to charge a huge price for something that costs next to nothing to produce, and gourmet coffee is certainly one of them. It’s hard to go wrong with it. “You can’t do better than a cup of coffee for profit,” said Dan Cox, a former SCAA president. “It’s insanity. A cup of coffee costs sixteen cents. Once you add in labor and overhead, you’re still charging a four hundred percent markup — not bad! Where else can you do that?”

  The enormity of the coffee market makes it impossible for even a behemoth like Starbucks to monopolize the industry. Americans alone drink three hundred million cups of coffee every day, which makes the seven million customers Starbucks serves daily around the world seem almost tiny by comparison. And the size of the pie keeps growing. Mintel, the market research firm, expects national specialty-coffee sales to more than double between 2006 and 2011, hitting a lofty $18.8 billion. The air is so thick with cash that things seem to work out for everybody.

  Everybody, that is, but the people who grow the coffee.

  6

  A Fair Trade?

  In theory, the International Coffee Organization should be one of the most influential agencies on the planet. As the leading advocate for the world’s twenty-five million coffee farmers, its global sway ought to be right up there with OPEC, another regulator of a vital liquid fuel. After all, oil and coffee are the two most-traded commodities in existence, and if either were to suddenly vanish, the gears of the world would grind to an immediate halt. Without coffee, half of Western civilization would be crippled by blinding headaches; morning commuters would wander around in a daze, mumbling to themselves and clutching empty travel mugs; the long-haul trucking industry would simply cease to exist. In short, coffee growers prevent the world from descending into animal-pelt-wearing, fire-god-worshipping anarchy.

  So given the devastating power at the ICO’s fingertips, it might come as a surprise to learn that the organization’s offices are a shoestring affair, crammed into a row of unremarkable gray buildings down a quiet alley in London’s West End. Here, just thirty-five people work to improve the welfare of those twenty-five-million-plus coffee growers. In addition to a comprehensive coffee library (complete with page-turners like Coffee: Commercial and Technico-legal Aspects and Coffee and Upper Gastronomical and Sensory Functions), the headquarters houses a small United Nations–style assembly hall, where emissaries from bean-producing nations hash out the terms of the global coffee trade with representatives of multinationals like Nestlé. The negotiations are rather one sided: the conglomerates hold the power, and the growers have none. It’s an imbalance that goes back centuries — but things have never been as uneven as they are right now.

  When I visited the ICO one damp autumn morning, sawdust floated in the entryway and the halls echoed with the racket of drills and hammers. The place was a jungle of plastic sheeting. This was just the standard disorder from building renovations, yet it would have been difficult not to see the chaos as somewhat symbolic of the constant turmoil that plagues the world coffee market. Essentially, today’s bean growers play the lottery with every harvest. In any given year, prices can be as erratic as an EKG during a heart attack, jolting dramatically up and down with no warning.
The farmers’ fortunes depend, literally, on the weather. And as if to underscore the unpredictability theme, Néstor Osorio — the man who has to deal with the effects of this volatility — breezed in for our meeting a half hour late.

  The past few years have been difficult ones for Osorio. His arrival as executive director of the ICO, in March 2002, coincided almost exactly with the lowest inflation-adjusted coffee prices in history: 41.5 cents per pound, far below the growers’ cost of production. (For the sake of comparison, prices had ranged as high as $3.18 per pound four years earlier.) A dignified, neatly dressed man with an aristocratic air, Osorio doesn’t attempt to paint a happy face on the situation. He knows the hardships of the grower’s life firsthand, from the months he spent on his grandfather’s coffee farm as a child back in his native Colombia. If the current predicament for coffee producers doesn’t make him panic, it’s because his quarter century of experience with the economics of coffee has taught him that stability is the exception, not the rule.

  “The history of coffee is a history of crisis,” Osorio told me, interrupting himself briefly to request that his assistant bring in two cups of the beverage. (“Here, it’s compulsory,” he said with a smile. “You have to drink coffee. Not tea.”) In major coffee-producing countries, he explained, the price of a pound of coffee means far more than we could imagine; it’s the difference between a farmer sending his children to school or out to work in the fields, between subsistence and deprivation. “The social structure of coffee is in essence a structure of small farms in South America, Central America, and Africa,” he said. “In these countries, the entire economy depends on very few crops, like coffee, bananas, and sugar. In places like Uganda and Ethiopia and El Salvador, coffee continues to make up over fifty percent of their total export revenues. This is why the political situation is so volatile in these countries.” A sharp drop in the price of coffee can sink nations like El Salvador into extreme poverty or even violence.

  The coffee historian Antony Wild claims this most recent coffee crisis has led to “the largest enforced global layoff of workers in history,” with the World Bank estimating that six hundred thousand coffee workers are now out of work in Central America alone. In response to the terrible market conditions, farmers have undertaken desperate measures. In 2002, growers in Acapulco, Mexico, amassed an 8.4-million-pound hill of coffee beans — enough to brew more than two hundred million cups of the stuff — and crushed it into fertilizer. The following spring, London’s Financial Times reported that the skies over vast areas of Guatemala were black with smoke from farmers torching their own coffee plantations. From Colombia to Ethiopia, farmers razed their coffee trees and replaced them with coca plants, opium poppies, and qat — a euphoria-inducing stimulant popular in eastern Africa. When the cost of raising and harvesting a pound of beans far exceeds the market price, the coffee trees just aren’t worth keeping in the ground. If it can’t put food on the table, the crop becomes kindling instead of a beverage.

  The great irony of it all is that this disastrous slump for growers has occurred in an era when coffee has enjoyed its highest profile in history. As desperate Central American farmers were destroying their own crops, Starbucks was bringing ever-greater numbers of people into its flock of hazelnut latte addicts and reaping huge profits in the process. The divergence in fortunes between growers and roasters over the past twenty years has been nothing less than staggering. In the late 1980s, as global coffee sales hovered at around $30 billion, farmers earned a steady $10 billion or so of the pie. The market has more than doubled since then — soaring to well over $70 billion on the strength of the designer-coffee boom — yet according to Osorio, growers have received an average of just $6.2 billion a year since the turn of the millennium. Farmers are actually making less now than they were in the eighties, when the market was significantly smaller.

  With this yawning chasm between the fortunes of the two groups staring us in the face, the conclusion we tend to draw is that Starbucks, the most prominent coffee baron of all, must be the villain here. Indeed, many agree with this sentiment. Social justice advocates have frequently accused the company of selling “sweatshop coffee,” and the loudest among them are those pushing consumers to only drink coffee that has been certified Fair Trade. The idea behind this movement is simple: for any beans that bear the Fair Trade seal, consumers know the growers who produced them abided by a set of ethical and environmental standards, receiving a good price in return — at least $1.26 per pound. Despite the sluggishness of mainstream coffee companies in embracing the concept, Fair Trade coffee sales in the United States have skyrocketed; since the Oakland-based company TransFair USA began certifying Fair Trade coffee in 1999, sales shot up from two million pounds the first year to forty-four million pounds in 2005.

  Fair Trade coffee owes its meteoric success to one fact: we feel especially guilty about the social and environmental costs of the coffee we drink. As many coffee lovers realize, four-dollar lattes and chocolaty Ethiopian beans are undeniable luxury items — and what could be more inhumane than having farmers in the developing world suffer to produce our little indulgences? This sense of guilt about the consequences of our daily cup has fueled the rise of a bewildering array of conscience-soothing labels, few of which consumers actually understand. What, exactly, is the difference between “shade-grown” and “bird-friendly” coffee? Do I have to decide if I feel more of an affinity for shade or for birds? If coffee is “eco-friendly,” is it good for both parties? Or do birds not like the shade? The guilt-plagued consumer grows confused, wondering if there’s any way to enjoy a cup of coffee without making the world a worse place.

  It doesn’t need to be that complicated; the solution to the coffee crisis sits right before us. For all of its good intentions, the Fair Trade movement can’t lead the world’s coffee growers out of their current predicament. Strange as it sounds, only gourmet coffee-houses like Starbucks can improve the lot of impoverished farmers in a lasting way — not because of Starbucks’s mixed and often halfhearted efforts to help coffee producers, but because of the specialty-coffee industry’s unique ability to reshape and uplift the coffee world. If you want to advance the welfare of farmers and their families, you’ll have to indulge your taste for high-quality beans as often as possible. But before we can see why this is the case, we need to understand how coffee growers got into this mess in the first place.

  Coming to America

  When most of us stop to ponder where coffee comes from, the image that pops into our heads first is probably that of Juan Valdez, the mustachioed Colombian spokesfarmer, standing alongside his mule sidekick, Conchita. Actually, Valdez isn’t so much a spokesman (his dialogue is generally limited to “Buenos días”) as he is a mysterious supernatural force. Created in 1959 by a Madison Avenue advertising firm as a repre-sen-ta-tion of the prototypical contented coffee grower, Valdez’s purpose in life is to materialize out of thin air in various locations (bedrooms, trains, grocery stores), hand puzzled consumers a can of pure Colombian coffee, then disappear as a voiceover reminds everyone that Juan’s is “the richest coffee in the world.” The coffee must have been good, because no one ever seemed even slightly apprehensive about drinking something given to them by a grinning, poncho-wearing guy who had been hiding out in their cupboard with a farm animal.

  The Juan Valdez ad campaign was a masterstroke on the part of its sponsor, the National Confederation of Coffee Growers of Colombia. By etching the “richest coffee in the world” tagline into consumers’ brains through constant repetition, the ads earned Colombian farmers premium prices on the coffee market. In a way, this was just making the best of a tough situation. Osorio told me that coffee has been the country’s “nucleus” for generations, with Colombia historically second only to coffee goliath Brazil in total production. The nucleus meta-phor is apt. The crop isn’t just the country’s social core; it’s bound to the land with the same kind of inescapable force that unites protons and neutrons. For better or wors
e, Colombia is stuck with coffee.

  This is true of dozens of Latin American nations, but not one of them chose this fate. Remarkably, the Americas couldn’t claim a single coffee plant three hundred years ago; remember, Coffea arabica originally hailed from the highlands of Ethiopia. Today, on the other hand, coffee trees cover almost half of the permanent cropland in northern Latin America. And amazingly enough, all of this is the work of a single obstinate Frenchman, whose single-minded mission to bring coffee across the Atlantic changed the destiny of an entire continent.

  This Frenchman’s name was Gabriel Mathieu de Clieu, and when his quest began, in the autumn of 1720, he was an ambitious young naval officer on leave in Paris from his post on the Ca-rib-be-an island of Martinique. De Clieu was acutely aware of the fact that the early eighteenth century was a terrible time to be a coffee drinker; beans were both scarce and costly. At the time, the Dutch trading empire controlled the continent’s two major coffee sources — plantations on the Indonesian island of Java and trade routes with the Yemeni port of Mocha — and as with any monopoly, they made the most of it. * Continental coffee aficionados had little recourse in the matter. They couldn’t grow the beans themselves, as coffee trees withered in European soil without meticulous supervision. Dutch hegemony appeared inescapable.