Joint Ventures and Partnerships
As Starbucks’ geographical market expansion proceeded at a phenomenal rate, many companies across the country approached Schultz with partnership proposals. While partnerships with some organizations would likely strengthen the Starbucks brand by broadening its exposure and leading to new product innovations, Schultz was wary of any business opportunity that involved compromising his executive team’s control of the brand. Therefore, Schultz decided from the beginning that Starbucks would only enter into partnerships with companies who maintained the same commitments to quality and people that Starbucks had as the foundation of its business.
Joint venture partners had to respect the integrity of the Starbucks brand, expose the brand to a broader range of consumers, and maintain a commitment to preserving the authenticity of Starbucks products. Ultimately, these partnerships had to present a clear benefit for the brand. Moreover, partnerships had to allow Starbucks to play a hands-on role in all aspects of the joint venture, especially with the product development aspect since Schultz was concerned that potential partner companies would seek to leverage the Starbucks name, but develop a product that clashed with Starbucks’ commitment to highest quality and authenticity.
Host Marriott Partnership
In 1991, Starbucks engaged a partnership opportunity with Host Marriott in 1991 that allowed for Starbucks coffee to be brewed and served at concession stands in airports across the country. The opportunity provided a chance to expose the Starbucks brand to a large group of potential consumers–airline travelers. While in theory exposing more consumers to the brand through licensing agreements with vendors seemed to be the next logical step for Starbucks, Schultz was concerned about how the quality of the coffee would be affected if it were not to be brewed by Starbucks. Schultz’s concerns were realized and consumers did not encounter the same quality of customer service at airport concessions stands as in Starbucks coffeehouses. The frenzied environment of most airports accounted for most of the customer service problems. Customers were not willing to learn about Starbucks coffee as they dashed off to catch a flight. Moreover, Host Marriott’s staff was not as educated about coffee as the baristas in Starbucks stores and did not set the highest standards possible for how Starbucks coffee should be brewed.
Fortunately, Host Marriott and Starbucks were able to collaborate effectively to solve some of the most pressing customer service problems so that Starbucks’ brand image would not be harmed in the partnership. Host Marriott funded a program that gave new concessions employees the same level of training as new hires at Starbucks. Moreover, Host Marriott agreed to devise ways to improve operations at concessions stands by adding more staff and cash registers during peak travel times to ensure that customers received their Starbucks coffee in the same efficient manner as in the company’s coffeehouse locations. These improvements–which were only possible as a result of the positive relations and similar philosophies maintained between both companies–ensured that customers did not wait in long lines, that the coffee was brewed with the highest flavor standards, and that customers would be educated about the brand by knowledgeable employees.
United Airlines Partnership
The Starbucks partnership with United Airlines, started in 1996, presented similar benefits and potential problems as with the Host Marriott joint venture. With United’s adoption of Starbucks as the official coffee served on all of its 2,200 daily flights, the brand stood to gain a tremendous advantage in generating awareness. United clearly benefited from the partnership as well. Serving high quality Starbucks coffee to passengers was yet another way that the airline could differentiate itself as a carrier dedicated to providing passengers with the best service possible. However, Starbucks once again encountered a situation where the coffee’s quality would be risked because Starbucks was allowing an outside source to brew its coffee. Like Host Marriott, United was quick to remedy coffee quality problems by working with Starbucks to install more effective filtering devices in aircraft brewing equipment, and to better educate flight crews on how to protect the quality of the coffee. The partnership with United did reap some benefits for Starbucks–14 percent of Starbucks’ loyal customers had their first cup of the brand’s coffee on a United Airlines flight, prompting them to try Starbucks coffees in stores.
Other Retail and Service Partnerships
Based on the success of these early deals, partnerships were later set up between Starbucks and companies such as Nordstrom, ITT/Sheraton, Westin, Holland America Cruiselines, Barnes & Noble, and Albertson’s (retail food-drug chain) as a further attempt to increase brand awareness and encourage consumers to regard Starbucks as a world-class brand.
Pepsi and Dryer’s Joint Ventures
Although Starbucks always viewed coffee as its central focus, Schultz recognized that the development of new products was essential to the company’s quest for continual reinvention. As long as the newly developed products did not destroy the integrity of Starbucks coffee, then Schultz and his executive team viewed them as viable means to promote the Starbucks brand to people who may have never tried coffee in Starbucks stores.
A partnership with Pepsi, started in 1997, led to the creation of Frappuccino, a popular bottled cold coffee beverage using extracts from Starbucks’ famous Arabica beans. Frappuccino put the Starbucks brand into supermarkets for the first time, an environment Schultz had never dared to bring his coffee products before for fear that the quality of the coffees could not be protected. Although Starbucks was one of the least advertised major brands in the United States, an advertising campaign was launched to support Frappuccino that was intended to reinforce and enhance Starbucks core values of humility, humor, a “homey” feeling and rich, sensory experiences.
The Dryer’s joint venture with Starbucks led to the creation of six popular Starbucks coffee ice cream flavors that were marketed under the Starbucks name, but produced and distributed by Dryer’s. Sales of Starbucks ice cream surpassed even the most skeptical industry analyst’s predictions, beating sales of Häagen-Dazs within the first month of its introduction into supermarkets and increasing category sales 54 percent in the year that it was launched, all while becoming the market leader.
Kraft and Supermarket Sales
In 1998, Starbucks initiated a large-scale supermarket sales effort and introduced Starbucks packaged whole coffee beans to 3,500 stores across 12 western states. This move strengthened the agreement with Kraft who then marketed and distributed the Starbucks coffee brand to more than 25,000 grocery, warehouse club, and mass merchandise stores across the United States
By partnering with Kraft, the second largest packaged-foods company in North America, Starbucks was able to benefit from Kraft’s extensive distribution network as well as the company’s 4,000-member sales team. Kraft marketed Starbucks coffees in 12-ounce bags as a super-premium brand. By marketing Starbucks coffee as “super-premium,” Kraft aimed at preventing the Starbucks line from biting into sales of its Maxwell House brand, which has traditionally been marketed as a middle-priced brand. The Kraft partnership also left the door open for Starbucks to explore the possibility of marketing food products with the help of Kraft’s distribution and marketing expertise.
Other Partnerships
During these same years, Starbucks formed many partnerships that did not involve major national corporations. In 1998, Starbucks inked a deal with famous NBA star Magic Johnson and his company, Johnson Development Corporation, to bring Starbucks to inner city America. The new enterprise was called Urban Coffee Opportunities. Under the agreement, Johnson’s company developed the store locations and Starbucks operated them, and the two companies split the profits evenly. The stores contained visual cues, in the form of wall murals, signaling Johnson’s involvement in the enterprise. Within a year, Starbucks and Johnson had opened three locations on the West Coast, and expanded to other major cities such as New York. By 2005, there were 25 stores in the greater Los Angeles area and a total of 75 stores located in 12 states and the District of Columbia. Johnson Development Corporation planned to open 20 more locations by 2006.
Starbucks also developed some partnerships with environmental agencies. In 1996, Starbucks teamed with the Alliance for Environmental Innovation to develop a less wasteful carryout coffee cup. While a single-cup solution was not achieved, the partnership did formulate a design that reduced waste–the single cup wrapped by a cardboard sleeve. As a result of another partnership, formed between Starbucks and Conservation International in 1999, Starbucks offered Shade Grown Mexican coffee in its stores. This type of coffee was grown exclusively on farms in the El Triunfo Biosphere Reserve in Chiapas, Mexico using environmentally sound agricultural methods that helped protect tropical forests in the surrounding area.
In April of 2000, Starbucks endured pressure from a national protest organized by human-rights group Global Exchange called “Roast Starbucks!” to offer Fair Trade certified coffee. Although most growers sold coffee for $0.50 a pound, Fair Trade certification required coffee to be sold at $1.26 a pound through small farm cooperatives in the hopes that the farm workers would see some of the extra profit. Starbucks agreed to work with the TransFair USA nonprofit organization to obtain and sell Fair Trade coffee in its stores and on its website. “Roast Starbucks!” campaigners had expected the protest to last as much as a month, and were caught completely by surprise when Starbucks agreed within a week to offer the certified coffee.
In addition to environmental work, Starbucks formed several partnerships that contributed to its Starbucks Foundation charity efforts. Starbucks entered into a licensing agreement with Garry Trudeau in 1998 to offer Doonesbury-themed products in its stores and online, with all net proceeds going to literacy programs across the country. Within a year, the partnership had raised over $300,000. The Starbucks Foundation used these funds to support programs that were dedicated to enriching the lives of youth in underserved communities. Examples included Jumpstart, an organization that provided one-on-one tutoring to at-risk preschoolers, and America SCORES, a program that combined soccer and creative writing to inspire teamwork in a safe, after-school setting.
Complementary Products
Starbucks also developed other coffee-related products. One of their first offerings was the Starbucks Barista Aroma thermal coffeemaker, which was positioned as a “durable, convenient and consistent” way to brew coffee. The company continually developed new products, eventually adding coffee presses, a variety of grinders, and a $449. Starbucks Barista Stainless Steel Espresso Machine. These items were sold on the company website, as well as in most retail stores.