SINGAPORE (Oct 14): Walk into a Starbucks here and you will likely encounter tables strewn with used paper cups, plastic cups and straws, sticky with the residue of milky coffees and Frappuccinos. If the outlet was particularly busy, the trash bin would be overflowing with paper napkins and more cups and straws. The detritus is testament to the popularity of the chain, as well as the growing impact of development and consumption on the environment.
Yet, as the biggest coffee company in Singapore, with 147 stores, Starbucks is also at the forefront of efforts to make the local coffee business more environmentally friendly. And Patrick Kwok, the chain’s general manager in Singapore, has set himself the goal of motivating other coffee companies to get on board.
Indeed, as rising awareness of businesses’ impact on climate change affects consumer choices, businesses are driven to remake and represent their operations as sustainable. But how many are walking the talk?
As a global brand, Seattle-headquartered Starbucks is clear about how important it is to have operations that meet sustainability standards. In a letter to shareholders in 2018, company CEO Kevin Johnson pledged to eliminate single-use plastic straws from more than 28,000 company-operated and licensed stores by 2020, among other initiatives such as the inclusion of recyclables into business operations and adoption of ethical-sourcing practices. Starbucks in Singapore is wholly-licensed by Maxim’s Catering, which is 50%-owned by Dairy Farm International Holdings, which in turn is 78%-owned by Jardine Matheson Holdings.
Already, according to a report by the World Wide Fund for Nature, about 270 F&B outlets in Singapore have stopped providing plastic straws from July this year. Other F&B outlets are either planning to do away with straws altogether, or only giving them to customers who ask for it.
Straws are still readily available at Starbucks outlets here. However, the trademark green straws are now made of cornstarch and are fully compostable. As Kwok tells The Edge Singapore, the company prioritises the “Starbucks experience”, of which straws are an important part. And while much has been said about Starbucks introducing sippy-cup-like lids for their cold drinks, these were not meant to be a permanent feature as they were rolled out for promotional and selected drinks.
“Customers can hardly tell the difference between our current straws and the previous ones made of plastic, but this is really what we want. We’re finding ways to work around maintaining the experience while being more environmentally friendly at the same time,” he adds.
Indeed, a number of other changes have already been made in stores, and Starbucks prides itself on making subtle ones that generally go unnoticed by customers. For instance, plastic stirrers have been replaced with birch ones, while paper bags are made with at least 95% post-consumer fibre. Napkins are made with 100% recycled content and a minimum of 40% post-consumer fibre, while the much talked-about to-go plastic cups are made with recycled polyethylene terephthalate. In addition, plastic cutlery that was previously left at counters for customers to “grab and go” at their convenience has now been substituted with biodegradable cornware that is tucked away behind counters.
Expensive but necessary industry-wide trend
Kwok, who assumed his current role in Singapore in 2017 after four years as the chain’s head of operations for Hong Kong and Macau, highlights how these reusables are significantly more costly than the single-use items that were previously used in the stores.
“Especially since we are changing the whole range, it’s definitely more expensive for the company,” he says.
But when the quotations from suppliers come in, Kwok says he signs the forms without much consideration about the price.
“Coffee is a commodity that’s heavily dependent on the environment, so the responsibility to help conserve the environment falls on the company. It’s a sense of purpose that can’t be measured in terms of cost,” he adds.
Smaller coffee shops share the same view. Common Man Coffee Roasters, a specialty coffee wholesaler and cafe in Singapore, estimates that alternative consumables cost about 20% more. But the higher price has made the company more aware of the waste it generates, say brand and wholesale managers Sarah Rouse and Matthew McLauchlan.
“We’re more thoughtful about the plant-based compostable straws we give out now, compared with the plastic ones we used back then. The cost makes us question the need before we give each one out, as opposed to handing them out freely,” says Rouse.
“Any slight financial increase has been counteracted by positive sentiment, which ultimately levels out the price,” adds McLauchlan.
Having made all the obvious switches to reduce the cafe’s single-use disposables, Rouse and McLauchlan are determined to take things a step further. The company is seeking to eliminate the use of one and two-litre milk bottles from their inventory altogether, and is currently in advanced talks with the suppliers of reusable 10-litre bags that will effectively replace the hundreds of milk bottles and cartons that go to waste every week.
“It’s a big but lofty goal,” says McLauchlan. “But as an industry, we can do a lot more on sustainability for things that happen behind the counter — things that customers don’t see or hold.”
Meanwhile, co-founder of Nylon Coffee Roasters, Lee Jia Min, says the company remains focused on reducing its plastic and paper cup usage by 45% to 50% by end-2020, despite the slower-than-expected progress faced by the group to change customer habits.
“We’re striving towards sustainability in baby steps, and our green initiatives began when we first opened about seven years ago. Today, our operating profit margin hovers around a healthy 15% to 20% and that enables us to continue running this business in a sustainable way,” says Lee.
Ethical sourcing still a priority
Still, given that the business is all about the coffee, the companies are focused on ensuring the coffee they use is “fair trade”. The term refers to coffee that has been verified, or certified, as ethically sourced, and first came about in the 1980s to help Mexican coffee farmers get a minimum price for their commodity amid fluctuating prices. About 80% of coffee is produced by smallholders.
Since then, as the coffee industry boomed, “fair trade” standards bodies have emerged to offer certification, or verification, that the coffee that shops sell are ethically sourced. Of course, there are criticisms, which are not uncommon in the commodities industry. For one, the bodies offering certification are for profit, and there is also no universal standard.
On Sept 9, Starbucks Singapore announced that 99% of its coffee is ethically sourced, making it the largest coffee retailer to achieve this milestone. As Kwok explains, this means that farmers are paid fair wages and coffee beans are cultivated using environmentally friendly methods. He also highlights how from just one farmer support centre in 2005, it now has seven across Asia, Africa and North America. These support centres grant the farmers free access to the latest findings of agronomists, including on new varieties of disease-resistant trees and advanced soil management techniques.
“The last 1% represents our ongoing pursuit of improvement — we want to continue scaling our sustainable coffee model to coffee farming communities in new regions,” says Kwok.
In the case of Common Man Coffee Roasters, McLauchlan notes that dealing directly with farmers is costlier than purchasing commercial coffee, not to mention more difficult. Yet the company has no intention of shifting away from that practice anytime soon, especially as the coffee industry has been going through a crisis of sorts for the past two years, where large amounts of coffee have been sold at low prices.
“Although considerably more expensive, dealing directly with coffee farmers ensures their sustainability. As it stands, their sustainability is at stake as coffee beans are currently being sold either at breakeven prices or below,” shares McLauchlan.
“It’s not just about us getting coffee beans from them in a merely transactional manner. We actively seek to help them on a personal front. Even if we end up not purchasing beans from them, we still share the know-how with them on increasing production,” says Kwok.
McLauchlan says Common Man Coffee Roasters has a strict policy on transparency, and encourages other roasters and traders to actively publish prices. In fact, the company has mandated that all traders be transparent with it during deals.
“We are also looking to change a number of relationships with our partners, to ensure that coffee is priced reasonably for the primary producer,” he says.
“The industry as a whole has, of late, gone out of its way to ensure a climate of transparency in terms of how much we pay, and what portion of this reaches the farmers at the beginning of the coffee chain.”
On the whole, it is still good business for Starbucks. The global group recorded earnings of US$1.37 billion ($1.89 billion) for 3QFY2019 ended June, a 61% increase from US$852 million for the same quarter the preceding year. Revenue for the quarter was up 8% to US$6.8 billion, from US$6.3 billion in 3QFY2018, which chief financial officer Patrick Grismer attributed to the growth of its global retail business, including net new store growth of 7% over the past 12 months. Earnings per share for the quarter surged 84% to US$1.12, and the company returned US$581 million to shareholders through a combination of share repurchases and dividends.
“Even at our global scale, Starbucks’ long-term growth potential remains compelling, underpinned by the strength of one of the world’s most beloved consumer brands, our focus on innovation and our disciplined execution,” said Grismer at the company’s 3Q earnings call in July, citing the sustained positive business momentum that the company delivered for the fourth consecutive quarter.
“We are now expecting revenue growth of about 7% this FY at the top end of our 5%-to-7% guidance range for FY2019, even with 1% of foreign exchange headwinds,” he added.
