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Starbucks Treasurer: Social Responsibility is Risk Management

  • By Andrew Deichler
  • Published: 3/31/2016

wolff1AFP recently spoke with Drew Wolff, treasurer for Starbucks, on his upcoming session at the CTC Corporate Treasurers Forum, May 22-24 at the Sofitel San Francisco Bay. Wolff will host a session on why natural-resource risk management is becoming more important to investors and customers.   

AFP: As we’re seeing across the board now, more companies are being pressured by customers and investors to be more socially responsible. Starbucks has clearly been a leader in this space. Can you provide some numbers on the progress you’ve made? How has treasury specifically been involved?

Drew Wolff:
Several years ago, we started a farmer loan program in conjunction with NGO partners. In the coffee industry, the spread of coffee rust due to global warming is a huge issue. It is destroying entire mature coffee farms.  And replanting is a problem, because the trees don’t produce anything for three years.  There is credit provision in the coffee space but it is trade financing; short-term loans. Not many people are willing to do the type of long-term loans needed to replant a coffee farm, and if they are, they are typically at a very high rate of interest.  So for a relatively small amount of money for a large corporation, we’re having a transformative, long-term impact by supplying the capital for replanting. It was originally $20 million, and we recently announced a pledge to increase it to $50 million. Treasury, being the banker in the company and the subject matter expert on loans, is a key internal participant to that program. Like a bank, we have a lending committee, and as treasurer, I’m a member and also assist with formulating our strategy.

AFP: Millennials purchase items differently from the way customers in earlier generations did so. They’re not just looking at the product itself; they’re looking at how the product is made, the company selling it to them, etc. In your case, 99 percent of your coffee is sustainably grown and you’ve made a commitment to your employees in terms of pay and benefits. Has this improved sales with your customers?

Wolff:
We have very strong same store sales, and we believe they are directly related to how the consumer’s connect to our store partners and how they feel about our brand. As a result, our sustainable coffee purchasing is directly related to driving those sales. We have been working on it for many years and can now say that 99 percent of our coffee purchases are ethically sourced. This is measured by a comprehensive set of standards that cover wages, social conditions, education, and environmental standards and are independently verified by Conservation International. For the 1 percent that isn’t traceable, we have a good reason behind that.  For example, we’re buying coffee in the Congo by working with the Eastern Congo Initiative. We don’t currently have all the end-to-end reporting set up but our purchasing is helping to restart their coffee industry and is the right thing to do.

Our comp sales were up 8 percent last quarter the last two quarters, and the first thing we talk about in any kind of investor presentation is the Starbucks employee. We call them partners, and we think they are the key reason people come to Starbucks. Customer engagement with the baristas really makes the difference. As a result, we have always been proactive in investing in wage increases—frequently before other retailers. But it’s not just about hourly wages; there are many other benefits to working at Starbucks including stock compensation down to the store level which we call ‘Bean Stock’. As treasurer, I have to buy a certain amount of shares just to keep our share base constant as Bean Stock is being exercised just to keep up with dilution. And it’s quite a bit of money every year to do that. And obviously, healthcare benefits have been a founding principle since the early days of the company—you only have to work 20 hours a week and you get full healthcare.

It’s a really hard thing to prove—that our investments in our partners drives our performance and comps, but we measure as best we can and know that it is true. We conduct surveys of customers, asking them what drives them to go to Starbucks, and two-thirds of the positive stuff is related directly to the employee they’re interacting with. So we think that’s a reason why we’re having such great results right now.

AFP: More than 50 multinationals have committed to using 100 percent renewable energy. Now, with the historic 195-nation deal on climate change, do you expect to see those numbers skyrocket since we have actual government action being put in place? Do see even more and more companies embracing sustainability?

Wolff:
Yes, I do. Of course, cheap oil prices make the economic case for sustainability weaker. But it does feel like we’ve gotten past the tipping point. I think given the long-term nature of the infrastructure being built, it will continue. People care now.

You’re starting to see more companies getting on board, especially in Europe. The European consumer really cares, and they want to know what you’re doing. It’s less so in the U.S., but it’s definitely much more on people’s radar screens than it was two years ago. The biggest change will happen when investors—large pension funds, etc.—really start to look at sustainability scorecards and company ratings and refuse to invest in certain businesses. When the market starts to speak with investment dollars—that will really make the difference.

Don't miss Drew Wolff's session, Corporate Social Responsibility and Sustainability, at the CTC Corporate Treasurers Forum. Register here.

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