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ABOUT THIS REPORTThe information in this Reportis for fiscal year 2001 (October 2,2000, through September 30, 2001)and covers Starbucks companyoperated retail and distributionoperations in North America andsourcing activities in coffee-origincountries. Other than somecompany-wide financialinformation, Starbucks specialtyoperations and international retailmarkets are not included in thisReport. Starbucks North Americanoperations include Canada and theU.S., excluding Hawaii.Howard SchultzAt Starbucks, the choices we make and actions we take area reflection of our core values. To become what Starbucks istoday—the leading retailer, roaster and brand of specialty coffee—took the vision to create a values-driven coffee company inspiredby passion, dedicated to quality and guided by exceptionallystrong principles.Starbucks aspires to be recognized as much for our commitmentto social responsibility as we are for the quality of our coffee.We’ve focused our efforts on improving social and economicconditions for coffee farmers; minimizing our environmentalimpact; making a positive contribution in the communities wherewe do business; and providing a great work environment for ourpartners (employees).Throughout our 30-year history, we have been committed to socialresponsibility. Today, with the strength of our brand in themarketplace, Starbucks has an opportunity to lead by example.Our responsibility starts with being accountable to Starbucksstakeholders—our partners, customers, shareholders, suppliers,community members and others—and communicating openlyabout our business practices and performance. We are, therefore,publishing our first annual Corporate Social Responsibility Reportto communicate the way we do business.Our goal throughout this Report is to provide information to ourstakeholders about our policies and practices, and to provide,when possible, measures of our performance. By publishing thisReport, Starbucks joins a small but growing number of companiesthat are assessing their corporate citizenship, taking measuresto provide transparency on performance and being accountableto stakeholders. We realize that every day we must conduct ourbusiness in ways that earn your admiration and trust. We hopethis Report helps us to do just that.Alan Abramowitz PhotographyWarm regards,Orin SmithHoward Schultzchairman andchief global strategistOrin C. Smithpresident andchief executive officer
Table of ContentsRESPONSIBLE BUSINESS PRACTICESStarbucks Mission Statement3The Business Case for Social Responsibility3Sustainability is Essential to Our Success4Sourcing in Origin CountriesTo establish Starbucks as the premierpurveyor of the finest coffee in the worldwhile maintaining our uncompromisingprinciples as we grow.5Social Investments in Origin Countries6Commitment to Origins8Minimizing Our Environmental Impact11Working with Our Suppliers13Listening to Our StakeholdersINVESTING IN OUR COMMUNITIES17Part of the Neighborhood18Community Investments21The Starbucks FoundationINVESTING IN OUR PARTNERS23Creating a Strong Workplace EnvironmentThe following six guiding principles willhelp us measure the appropriateness ofour decisions: Provide a great work environmentand treat each other with respectand dignity. Embrace diversity as an essentialcomponent in the way we do business. Apply the highest standards ofexcellence to the purchasing, roastingand fresh delivery of our coffee. Develop enthusiastically satisfiedcustomers all of the time. Contribute positively to ourcommunities and our environment. Recognize that profitability isessential to our future success.
CSR Fiscal 2001 Report3ResponsibleBusiness PracticesTHE BUSINESS CASE FOR SOCIAL RESPONSIBILITYCOMPANY PROFILEStarbucks defines corporate social responsibility as conducting our business in waysthat produce social, environmental and economic benefits to the communities inwhich we operate. In the end, it means being responsible to our stakeholders.Fiscal 2001—October 2, 2000 toSeptember 30, 2001:Given that there are positive returns for being a socially responsible company,Starbucks believes it makes sense to view our actions in terms of investments. Byinvesting in sustainable business practices and the origin countries that provide ourcoffees, we encourage a continued high-quality supply. In the communities where wedo business, we invest in local organizations to improve the quality of life. And byinvesting in our partners, through competitive wage and benefit structures, andopportunity for stock ownership, we have an edge in attracting and retainingqualified, productive employees—and that helps reduce our hiring, training andother turnover costs.In the end, there is no conflict between doing good and doing well.At Starbucks, webelieve the two go together.(Information below represents totalcompany unless noted)Total net revenues: 2.6 billionNet earnings: 181 millionEarnings per share: 0.46Total income taxes: 108 millionStock price (high/low): 25/ 14Number of company-operatedlocations: 2,971 (North America)Number of partners (employees):54,000 (North America)Location of Starbucks corporateheadquarters: SeattleResponsible Business PracticesThere is growing recognition of the need for corporate accountability. Consumersare demanding more than “product” from their favorite brands. Employees arechoosing to work for companies with strong values. Shareholders are more inclinedto invest in businesses with outstanding corporate reputations. Quite simply, beingsocially responsible is not only the right thing to do; it can distinguish a companyfrom its industry peers.SUSTAINABILITY IS ESSENTIAL TO OUR SUCCESSCoffee is second only to water as the world’s most popular drink, with more than400 billion cups consumed every year. Coffee is a giant industry employing 20million people globally, and ranks as the second most traded commodity on theplanet after petroleum.Traditionally, Starbucks has purchased our coffees at premiums over the world’scommodity market prices (or the “New York C,” which is the worldwide referenceused by coffee traders for commodity-grade coffee).The premiums we pay vary bythe type of coffee, as well as the overall quality of that particular coffee, relative tothe quality of “New York C” commodity-grade.During the past year, a worldwide surplus of coffee has dramatically reducedwholesale prices. At the end of fiscal 2001, prices paid for coffee on the “New YorkC” had dipped to 0.48/lb—a level not seen in nearly 30 years.Opposite page (top)—Starbucks CoffeeCompany worldwide headquarters, knownwithin the company as the StarbucksSupport Center, located in Seattle.Opposite page (bottom)—El TriunfoBiosphere Reserve, Chiapas, Mexico,where Starbucks Shade Grown Mexicocoffee is produced.
This price drop affects all growers, particularly those with small family farms thatproduce nearly three-fourths of the world’s coffee supply. Starbucks purchases ourcoffee from many of these small, multigeneration farms, paying premium prices thatenable farmers to provide for their families and maintain their family farms. AsStarbucks business expands, so does our need for the coffee they grow.Mary Williams, Starbucks senior vicepresident of coffee, meets with HectorCortez in the Atitlan region ofGuatemala while on one of her manycoffee buying trips.SOURCINGPercentage of Total Coffee PurchasedOutright Long-term Directprices* contracts* purchases*80%70%60%50%40%30%20%10%0%Fiscal 2001Fiscal 2002* Not mutually exclusiveWhile Starbucks purchases about one percent of the global coffee supply, ourpurchases are for only the highest quality arabica coffee beans grown in the world.Because of Starbucks exceptionally high standards for quality coffee, one of our mostcritical needs is to secure a long-term supply of unroasted “green” coffee from thefarmers we know and trust.The sustainability of their farms is intrinsically linked toour success.Starbucks recognizes the importance of helping to ensure that coffee farmers have asustainable livelihood. To address this challenge, we have moved away from “NewYork C”-based formula pricing, focusing on several strategies including: Securing more contracts based on outright, negotiated prices.Negotiating more long-term contracts.Increasing the amount of coffee purchased directly from farms and cooperatives.Assisting coffee farmers in gaining access to affordable credit.Introducing new coffee sourcing guidelines that reward farmers for usingsustainable growing practices. Offering financial support for health and educational projects that directly benefitfarmers and their communities. Expanding our sustainable coffee category, “Commitment to Origins,” includingShade Grown Mexico and Fair Trade Certified coffees.SOURCING IN ORIGIN COUNTRIESStarbucks helps farmers improve their standard of living while ensuring a sustainablesupply of high-quality coffee by purchasing at outright prices, signing long-termcontracts and buying directly from farms and cooperatives (co-ops). For the coffeeStarbucks purchased in fiscal 2001 and the contracts that Starbucks has negotiatedfor coffee purchases in fiscal 2002, Starbucks pays an average price of 1.20 perpound, excluding freight, for green coffee purchased in these ways.Outright PricesCoffee prices can be negotiated either at outright prices or in relationship to theprevailing wholesale price. Starbucks preference today is to source coffee at outrightprices.This provides stability and predictability for both buyers and sellers. In fiscal2001, 12 percent of Starbucks coffee supply was purchased at outright prices. Forthe orders we placed in fiscal 2001 that will be delivered in fiscal 2002, 74 percentof our green coffee will be purchased at outright prices.Long-Term ContractsLong-term contracts with suppliers benefit both producers and Starbucks. Farmersare guaranteed attractive prices over multiple crop years, and Starbucks is able tosecure future coffee supplies at predictable costs. During fiscal 2001, nearly threepercent of Starbucks total supply of coffee was delivered through long-termcontracts. For fiscal 2002 delivery, Starbucks has been able to increase the amountof coffee purchased under long-term contracts, negotiated at outright prices, to31 percent.
CSR Fiscal 2001 Report5Direct PurchasingSmall to midsize farms and co-ops provide most of the coffee beans for Starbuckscoffees.We have visited many of these farms and built relationships with the growers.In fiscal 2001, nine percent of our total coffee supply was purchased directly fromfarms and co-ops, which ensured that more of the purchase price went to thefarmers. Of the orders we’ve placed for fiscal 2002 delivery, 59 percent will besupplied directly from farms and co-ops and negotiated at outright prices.Access to CreditCash flow is a critical issue for small farms. Farmers have little access to credit atcompetitive rates and are often forced to sell their crops prior to harvest. In fiscal2001, Starbucks made 150,000 available through Ecologic Enterprise Ventures andthe Conservation International (CI) Foundation to help sustain Mexican coffeefarmers with pre- and post-harvest loans. This was augmented with 250,000 inpost-harvest capital from CI’s Conservation Enterprise Fund.In fiscal 2001, Starbucks helped toprovide loans to 516 small familyfarmers in Chiapas, Mexico.Thisfinancing enabled these farmers to sellmore than 350,000 pounds of coffee atfavorable prices.In fiscal 2002, Starbucks will help make 500,000 available to farmers throughEcologic Enterprise Ventures and the CI Foundation. An additional 1 million willbe directed through Calvert Community Investments to provide credit at favorablerates to coffee farmers for their use in quality improvements and capital investments.Coffee Sourcing GuidelinesAt the end of fiscal 2001, Starbucks introduced new coffee sourcing guidelines developedin partnership with The Center for Environmental Leadership in Business, a newdivision of Conservation International.This represents a first for the coffee industry.The guidelines involve a flexible point system coupled with financial incentives,rewarding coffee suppliers who meet strict environmental, social, economic andquality standards. Ultimately, coffee suppliers can earn preferred status with ourcoffee buyers. Because significant changes in origin countries require flexibility andpatience, the guidelines are being introduced as a pilot program for the 2002 and2003 crop years.Responsible Business PracticesSOCIAL INVESTMENTS IN ORIGIN COUNTRIESOne of the guiding principles in Starbucks mission statement is that the companywill “contribute positively to our communities and our environment.” We’recommitted to addressing social and environmental issues that affect the people andplaces that produce our coffees.Through partnerships with organizations that share our concerns, we’re able to makea difference in coffee-origin countries. We make long-term investments, suchas building schools, health clinics, and coffee processing facilities to improve thewell-being of families in coffee farming communities.CAREOur alliance with CARE, a nonprofit international relief and developmentorganization, began in 1991. CARE connects us to parts of the world where our helpcan directly impact communities and provide needed relief in coffee- and tea-origincountries. In fiscal 2001, Starbucks contributed 120,000 to CARE. Over the years,Starbucks has contributed or helped raise more than 1.8 million for CAREprograms, and touched the lives of approximately 2.7 million people in Africa, LatinAmerica, and Southeast Asia. Starbucks continues to be one of CARE’s largest NorthAmerican corporate contributors.In fiscal 2001, Starbucks provided 43,500 toward building a health clinicand school in Guatemala and a healthclinic in East Timor. Here a localGuatemalan doctor examines her patient.
COMMITMENT TO ORIGINSOne method to help ensure the social, economic and environmental s
York C”-based formula pricing, focusing on several strategies including: Securing more contracts based on outright, negotiated prices. Negotiating more long-term contracts. Increasing the amount of coffee purchased directly from farms and cooperatives. Assisting coffee farmers in gaining access to affordable credit. Introducing new coffee sourcing guidelines that reward .
