Starbucks Corporation Corporate SoCial reSponSibility / FiSCal 2006 annUal report

Maybe you have a Starbucks you callyour own. And because it is yours,
you expect a lot from it.
Customers want to feel good about the place they
go and the coffee they drink. Our employees,
whom we call partners, want to feel proud whentalking to friends and family about where theywork. Farmers want to know that they candepend on us for a livelihood that’s sustainable.
We have come to appreciate that throughout theworld many people feel a sense of connection tous. Being their Starbucks is an honor. And also a
responsibility.
For us corporate social responsibility is not just a
program or a donation or a press release. It’s theway we do business every day.
This report is one of the ways we openly andhumbly share our commitment to do business
responsibly. To continue to earn the privilege ofbeing your Starbucks.

STARBUCKS MIS SIO N STATEMENT AND
GUIDIN G PRIN CIPLE S
To establish Starbucks as the premier purveyor of the finest
coffee in the world while maintaining our uncompromisingprinciples as we grow.
The following six Guiding Principles will help us measure theappropriateness of our decisions:• Provide a great work environment and treat eachother with respect and dignity.
• Embrace diversity as an essential component in theway we do business.
• Apply the highest standards of excellence to thepurchasing, roasting and fresh delivery of our coffee.
• Develop enthusiastically satisfied customers all of
the time.
• Contribute positively to our communities and ourenvironment.
• Recognize that profitability is essential to our
future success.

S TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T YDear Stakeholders,
We are often asked how Starbucks went from a single coffee shop in 1971 to one of the mostrecognizable and respected global brands today. Delivering great coffee, exceptional service andan uplifting and personal customer experience have all contributed to Starbucks success. Equallyimportant has been our commitment to conducting business in a socially and environmentally
responsible manner, a commitment that stems from Starbucks Mission Statement andGuiding Principles.
Our store partners (employees) are connecting and creating relationships with our customers
every day. We believe it matters greatly that they feel Starbucks is a great place to work, and acompany that cares not only about their well-being but also about the world we live in. Good
communication is key to all of this and helps to inspire our partners about the company theywork for, the important role they play at Starbucks and the customers they serve. With more than
145,000 partners worldwide, our ability to communicate effectively and passionately about what
Starbucks is doing to be a good company – in both a personal yet focused manner – is absolutely
essential and a top priority for us.
We believe the relationships we have with external stakeholders can be strengthened by focusingmuch of our communications on Starbucks commitment and passion to improve the world andthe ways in which we are demonstrating this. For instance, we want our customers, shareholders,
communities and others to understand how we are working together with farmers and suppliers to
help create a more sustainable approach to high-quality coffee production. We also want to sharewhat Starbucks is doing to contribute positively to local communities; minimize our environmental
footprint; be responsive to our customers’ health and wellness needs; and how Starbucks is serving
as a leader in both our industry and within our global society through our participation inorganizations such as the United Nations Global Compact.
We were very mindful of taking a focused approach when we prepared this year’s Corporate
Social Responsibility Annual Report. Rather than attempt to address every issue in the abridged
print version of our fiscal 2006 report, we conducted a materiality assessment to determine what
topics are of most significance to our stakeholders and to Starbucks, a process explained on thefollowing page.
As you read through this full report we hope the information helps you assess for yourself how well
Starbucks is doing with regard to our corporate social responsibilities. As always, we encourage you
to share your honest feedback. To do so, we have created an online survey which is described on theback page of this report.
On behalf of everyone at Starbucks, thank you for taking your time to learn more about how
Starbucks is doing business in a different kind of way.
Sincerely,

Howard Schultz
chairmanJim Donald
president and chief executive officer

S TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T YFocusing on Materiality
This is Starbucks sixth annual Corporate Social Responsibility(CSR) Report. This year, we took a different approach by
publishing both a printed abridged version and this full report
online.

• Media coverage and blog discussions of issues.
• Stakeholder feedback specific to Starbucks 2005 CSR
Report.
• Global Reporting Initiative (GRI) recommended topics
and data for inclusion.

We began our fiscal 2006 reporting process by conducting
a materiality assessment to ensure that we are aligned withthe materiality principle of the Global Reporting Initiative(GRI) regarding content. Specifically, the topics and indicators
covered in our CSR Report should reflect Starbucks significant
economic, environmental and social impacts, or substantively
influence the assessments and decisions of our stakeholders. We
consulted a variety of sources – both internal and external – aspart of our materiality assessment. These sources included:

After reviewing these sources, we compiled a list of issues andprioritized each one based on the following criteria:• Company objectives, strategies, policies, programs andrisk factors.
• Partner (employee) surveys and other input gathered
through various feedback mechanisms.
• Customer contact feedback.
• Shareholder resolutions and anecdotal feedback.

Based on our assessment, we determined that the material
issues of greatest importance to Starbucks and our
stakeholders, which the company has a reasonable levelof control over, fall into five topic areas highlighted in the
top right box below. We chose to focus our abridged print
report on these subjects only. This full report includes manyof the topics on the following matrix.

• Input gathered through stakeholder dialogues.
• Informal input from coffee suppliers.

Contents in the web report

Contents in the printed report

VerY iMportant

Coffee purchasing practices• Prices paid to coffee farmers and suppliers• Respect for workers’ human rights• Long-term availability of high-quality coffee
Growth and expansion• Impacts on local communities
environmental impacts• Climate change• Energy consumption• Paper cups
health and wellness• Products• Nutrition information
workplace practices• Culture and benefits• Satisfaction and engagement

Coffee purchasing practices• Organic and conservation

iMportantsiGnifiCanCe to externaL stakehoLders

Coffee purchasing practices• Fair Trade Certified™ coffee• The importance of the issue to – and potential impact
on – Starbucks.
• The importance of the issue to – and potential impact
on – external stakeholders.
• The amount of reasonable control Starbucks has over aparticular issue.

environmental practices• Water usage• Waste and recycling• Sustainable packaging• Transportation/
distribution impacts

diversity• Workplace• Supplier• Communities

Customer Concerns• rBGH dairy• Marketing to youth• Caffeine
Governance• Executive compensation• Majority voting forboard members• Transparency
stakeholder engagement

Local Community engagement• Charitable giving• Partnerships• Partner (employee)volunteerism

sustainable sourcing• Supplier Code of Conduct• Human rights/
working conditions• Tea• Paper• Ethos™ water
responsible Marketing• Starbucks™ Liqueurs

iMportantCoffee purchasing practices• Verification and transparency• Access to credit• Social investments
environmental impacts• Store design and operations
workplace practices• Training and development• Right to organize• Health and wellness• Health and safety
Managing Corporate social responsibility• Vision and priority setting• Ethics and governance
Cocoa sourcing practices
public policy
Global philanthropic programs

VerY iMportantsiGnifiCanCe or potentiaL iMpaCt on starbuCks

S TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T YAbout This Report
Scope
This report includes information on Starbucks U.S. andCanada company-operated retail and global supply chain
operations – the areas that represent the majority ofStarbucks social, environmental and economic impacts.
Starbucks system for collecting and reporting reliable social,environmental and economic performance data does notencompass all of our operations. Where available, anecdotal
information is included for international and licensed store
operations. Information on total coffee purchases is for both
Starbucks Coffee Company and Seattle Coffee Company.
Reporting Year
Starbucks fiscal year 2006 (October 3, 2005–
October 1, 2006), unless otherwise noted.
Currency
All references to currency are in U.S. dollars, unlessotherwise noted.
Starbucks 2006 CSR Report and Previous Reports
www.starbucks.com/csrannualreport
Information Integrity
Starbucks management is responsible for the preparation andintegrity of the information in this report. Through a system
of internal controls, including a comprehensive verification
process involving internal subject matter experts, we believe
this report fairly represents our CSR activities and results forthe fiscal year ended October 1, 2006. External verification isprovided by Moss Adams LLP. See page 76.
Global Reporting Initiative
Starbucks reporting continues to be influenced by the Global
Reporting Initiative’s (GRI) 2002 Sustainability Reporting
Guidelines in determining relevant content and performance
metrics to include. See the Table of Contents on the next
page for a listing of GRI indictors included in this report,
and page 13 for a description of how we applied the GRI
principles. Information about GRI is online atwww.globalreporting.org.

S TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T YCONTENTS
PAGEGLOBAL REPORTING
INITIATIVE (GRI) INDICATORSSTARBUCKS AND CORPORATE SOCIAL RESPONSIBILITY
Starbucks Mission Statement & Guiding Principles
Letter to Stakeholders
Focusing on Materiality
About This Report
Key Performance Indicators Summary and Highlights for Fiscal 2006
Starbucks Company Profile
Integrating Corporate Social Responsibility
External Recognition
United Nations Global Compact

1
2
3
4
7
9
10
14
15

3.7
1.2
2.11-2.13, 2.20, 2.21
EC4, EC10, EN17, LA7, LA11
2.1-2.3, 2.8, 2.16, EC1
2.9, 3.1-3.3, 3.6, 3.8, 3.10-3.12, LA11
SO4
3.14

PRODUCTS
Our World of Products
Sustaining Coffee Quality
Creating a Sustainable Approach
C.A.F.E. Practices
The Link Between Quality and Price
Respect for Workers’ Human Rights
C.A.F.E. Practices – Hitting Our Targets
C.A.F.E. Practices – Findings and Next Steps
C.A.F.E. Practices – The Verification Process
Economic Transparency
Starbucks and Fair Trade
Purchasing Certified Organic and Conservation Coffees
Access to Credit
Investments in Coffee Communities
Sustainable Trade: Purchasing Our Non-Coffee Products
Procurement Practices for Sustainable Agriculture
Responsible Cocoa Sourcing Program
Tazo­® Tea – Sustainability Practices
Dairy and Bakery Products
Starbucks Social Responsibility Standards – Manufactured Goods
Ethos™ Water
Quality Assurance and Product Recalls

16
16
18
19
19
19
20
21
23
23
23
25
26
27
29
30
30
31
32
33
34
35

3.7, 3.16, EC13, EN27, HR2, HR3, HR6EC13HR2EC4, EN33

EC4, EC13, PR6
EC4, EN27EC13EC133.7, 3.16, HR3
3.7, 3.11, 3.16, HR2, HR3, HR6
3.11
3.7, 3.16, HR2, HR3, HR6
PR1(continued on next page)

S TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T YCONTENTS continued
PAGE

GLOBAL REPORTING
INITIATIVE (GRI) INDICATORSSOCIETY
Starbucks Growth and Community Impacts
Continuing Marketplace Evolution
Operating in the Global Community
Being Respectful of Community Concerns
Being Locally Relevant
Supporting Local Communities and Economic Development
Starbucks Community Investments
Investing in Communities Around the WorldThe Starbucks Foundation
Starbucks Commitment to Health and Wellness
Being Responsive to Our Customers
Public Policy and Government Affairs

36
37
37
37
39
39
40
44
46
49
51
53

SO1
EC13
EC10
EC10
EC10
PR2
PR8, PR9SO3ENVIRONMENTOur Commitment to Environmental Stewardship
Addressing Climate Change
Greening the Cup
Understanding and Improving our Environmental Footprint

54
54
56
57

3.7
EN8, EN17
EN14
EN2, EN3, EN5, EN18

63
63
66
69
70
70
71

EC5, LA2
SO2, HR10LA12WORKPLACE
Providing a Great Work Environment
Listening to Our Partners
Providing Benefits to Our Partners
Recognizing Our Partners
Partner Training and Career Development
Workplace Policies and Respecting Partners’ Rights
Health and Safety

LA9, LA17
LA3, LA10, HR4, HR5
LA7

DIVERSITY
Fostering Diversity and Inclusion
Diversity and Inclusion in the Workplace
Supplier Diversity
Urban Coffee Opportunities

72
72
74
75

LA11
HR2

Independent Assurance Report
Feedback and Further Information

76
77

2.21, 2.22
3.11, 3.12

S TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T YSTARBUCKS CORP O R AT E S O C I A L R E S P O N S I B I L I T Y

To
as
for

Key Performance Indicators Summary and Highlights for Fiscal 2006
INDICATOR

2005

2006

2007 TARGET

WHAT WE SAID IN

Pounds of green (unroasted) coffee
purchased from C.A.F.E. Practices approved
suppliers

77 million pounds(goal: 75 million
pounds)

155 million pounds(goal: 150 million
pounds)

225 million pounds• Explore openin
begin introduc

Percentage of total green (unroasted)coffee purchases

25%

53%

Pounds of green (unroasted) coffee
purchased from Fair Trade Certified™
cooperatives

11 million pounds(goal: 10 million
pounds)18 million pounds(goal: 12 million
pounds)Percentage of total green (unroasted)coffee purchases

4%

6%

Total cash and in-kind contributions$30.3 million$36.1 million

Percentage of pre-tax earnings

3.8%

4.0%

Number of hours volunteered by partners
and customers in the U.S. and Canada

299,000

Electricity

Kilowatt-hours per square foot of retailspace per month

Water

Paper

COFFEE
Coffee and Farmer
Equity (C.A.F.E.)
Practices

Fair Trade Certified™
coffee• Work with the A
quality training
practices to co
Fair Trade Certified™ green (unroasted) coffee
purchases to support forecasted sales.

• Promote our Fa
demand and s• Continue to wo
additional Fair

SOCIETY
Charitable
contributions

Do not currently set targets for futurecharitable contributions.

• Focus commun
education.

383,000(goal: 375,000)

421,000• Increase partn

6.40

6.57

Target has not been established.

• Purchase renew
used in our U.S

Gallons per square foot of retail space
per month24

26

Target has not been established.

• Integrate speci
standards to henergy and wa

Percentage of post-consumer fiber (notincluding hot cups)

49.5%(goal: 48%)

66.4%
(goal: 50%)

66.9%

• Roll out new ho(PCF) in U.S. c

Percentage of unbleached fiber (notincluding hot cups)

85.9%(goal: 90%)

86.3%
(goal: 86.5%)

87.1%

Partner satisfaction

Percentage of satisfied orvery satisfied partners

87%

86%

We continually strive to strengthen our
workplace practices in ways that makeStarbucks a great place to work.

• Conduct a Part
Last one took p

Partner engagement

Percentage of engaged partners

73%

69%

Health and safety

Injury rate per 200,000 hours worked –retail

7.051

5.46(goal: 6.5)

5

• Complete the roperated store

U.S. executives (vice presidents and above)

34%

33%

While Starbucks values diversity andinclusion, we do not currently set targets forrepresentation by race and gender.

• Roll out our div
leadership tea

U.S. workforce

65%

66%

U.S. executives (vice presidents and above)

14%

15%

U.S. workforce

30%

30%

Amount spent with certified minorityand women-owned businesses in U.S.

$166 million(goal: $140 million)$213 million(goal: $206 million)$250 million• Expose Starbuc
opportunities f

Volunteerism(Make Your Mark)ENVIRONMENT*WORKPLACE

DIVERSITY
Women

People of color
Suppliers• Increase our leNational Minor
Business Enter*We have not measured our greenhouse gas emissions since 2003 and therefore this indicator has been removed from this table. For information about our Climate Change Mitigation Strategy, see page 56.
1
Fiscal 2005 information has been retroactively adjusted to reflect new claims that were filed after the fiscal year ended.

S TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T YTo measure how well we are doing at upholding our commitment to social responsibility and to our Guiding Principles, Starbucks has identified the following key performance indicators
as relevant metrics for our business. Each year, we will report our performance relative to these metrics and any new metrics we may add. We strive to include forward-looking targets
for our performance indicators. However, in some cases the information is not available or the company is unable to provide it for other reasons.

SELFRATING

MORE
INFO

WHAT WE SAID IN 2005

WHAT WE DID IN 2006

• Explore opening a Farmer Support Center (FSC) in Asia-Pacific andbegin introducing C.A.F.E. Practices to our local suppliers.

• Began exploring opportunities to open an FSC in Asia Pacific. Organizedsuppliers training sessions in both Indonesia and Papua New Guinea reachingout to small- and large-scale suppliers from various countries in Asia Pacific.

Page 19• Work with the African Wildlife Foundation (AWF) to provide coffee
quality training and encourage adoption of sustainable coffee
practices to cooperatives in Kenya.

• Continued to work with the AWF to provide quality training and expertise andencourage sustainable coffee practices. Starbucks also conducted training in
Kenya for coffee farmers, cooperatives and exporters from the majority of thecountries we buy coffee from in East Africa.

Page 22• Promote our Fair Trade Certified™ coffee blends to increase customer
demand and sales of these products.

• Supported Fair Trade Month in October 2005, featuring Starbucks newest
Fair Trade Certified™ blend, Café Estima Blend™, as the “Coffee of the Week”
in U.S. and Canada stores. Increased distribution of packaged Fair Trade
Certified™ coffees globally. Began selling Kirkland Signature Fair Trade
Certified™ coffee in Costco stores in the U.S. and Canada.

Page 23• Continue to work with regional Fair Trade organizations to introduce
additional Fair Trade Certified™ coffee products globally.

• Globally, coordinated efforts with Fairtrade Labelling Organizations
International and 10 of the 20 Fair Trade National Initiatives to expand Fair
Trade Certified™ product offerings in 24 markets.

• Focus community investments to address global water issues andeducation.

• Initiated water projects in Indonesia and in Ethiopia, both supported through
The Starbucks Foundation’s Ethos Water Fund. Completed first of five-year, $5
million commitment to Starbucks China Education Project.

Page 40• Increase partner volunteerism.

• Encouraged partners to leverage their volunteerism through Starbucks Make
Your Mark program.

Page 42d.

• Purchase renewable energy certificates to offset 20% of the energy
used in our U.S. and Canada company-operated stores.

• Quadrupled our renewable energy purchase to equal 20% of the energy usedin our U.S. and Canada company-operated stores.

Page 55d.

• Integrate specific environmental practices into our retail operational
standards to help focus on improving store level accountability forenergy and water conservation, recycling and waste reduction.

• Updated a store manager performance tool to emphasize the importance ofmanaging environmental aspects of store operations and what bottom line
impact – positive or negative – their actions can have.

Page 57• Roll out new hot beverage cups containing 10% post-consumer fiber(PCF) in U.S. company-operated and licensed stores.

• Converted all hot beverage cups in Starbucks U.S. and Canada stores to the
10% PCF content version.

Page 56• Conduct a Partner View Survey approximately every 18-24 months.
Last one took place in October 2004.

• Expanded the reach of latest Partner View Survey, conducted March 2006,
to include partners in company-operated stores globally. Achieved 84%
response rate, our best yet.

Page 64• Complete the rollout of anti-slip mats to our North America companyoperated stores.

• Finished replacing mats in more than 3,400 existing stores and all new storesin North America.

Page 59• Roll out our diversity and inclusion scorecard to our ceo and seniorleadership team.

• Finalized diversity and inclusion scorecard and delivered it to Starbucks ceo
and his direct reports. It includes data on workforce diversity; individual
leadership performance related to diversity and inclusion; supplier diversity
and customer demographics.

Page 72• Expose Starbucks buyers and procurement directors to more
opportunities for doing business with diverse suppliers.

• Engaged with National Association of Minority Contractors; participated in
National Minority Business Council annual opportunity fair and other events;
attended Women’s Business Enterprise National Council annual conference;
took part in supplier diversity training for Institute for Supply Management–
Certified Purchasing Manager credits; and served as board chair for local
Northwest chapter of National Minority Supplier Development Council.

Page 74

roasted) coffee
ed sales.

futurethen ourat makek.

ty andset targets fornder.

• Increase our level of participation in organizations such as the
National Minority Supplier Development Council and Women’s
Business Enterprise National Council.

tegy, see page 56.

KEY:

ACHIEVED

MAKING PROGRESSDID NOT ACHIEVES TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T YSTARBUCKS COMPANY PROFILE
Starbucks Corporation is the leading retailer, roaster andbrand of specialty coffee in the world, with more than 12,000
company-operated and licensed locations in North America,
Latin America, Europe, the Middle East and Asia Pacific.
Through various licensing arrangements and foodservice
accounts, Starbucks coffee and other products are sold indesignated locations within airports, grocery stores, otherprominent retailers, hotels and universities. Starbucks
international licensed retail stores are operated throughlicensing arrangements and joint ventures, primarily withestablished retailers or restaurant operators.

Our brand portfolio offers a wide variety of consumer
products including Tazo® teas, Hear Music® CDs, bottled
Ethos™ water and Starbucks™ Liqueurs. The Seattle’s Best
Coffee and Torrefazione Italia coffee brands enable Starbucks
to appeal to a broader consumer base by offering a varietyof coffee flavor profiles. Starbucks also sells coffee-brewing
equipment and other merchandise.
Starbucks Corporation is incorporated in Washington State,in the United States. The company’s common stock is tradedon The NASDAQ® Global Select Market (“NASDAQ”),
under the symbol “SBUX.” As of January 12, 2007, there
were approximately 603,000 registered and beneficial
shareholders of record.

Company DataFISCAL YEAR

2004*

2005

2006

Total net revenues$5.3 billion$6.4 billion$7.8 billion

U.S. company-operated retail stores$3.8 billion$4.5 billion$5.5 billion

U.S. specialty (licensing, foodservice and other)**$465 million$558 million$683 million

International company-operated stores$657 million$852 million$1.1 billion

International specialty (licensing, foodservice and other)**$137 million$170 million$215 million

Total Global Consumer Products Group revenues** (licensing)$235 million$249 million$305 million

Net earnings$389 million$494 million$564 million

Earnings per common share – diluted

$0.47

$0.61

$0.71

Shareholders’ equity$2.5 billion$2.1 billion$2.2 billion

Total income taxes$232 million$302 million$325 million

Cash paid for income tax expense$173 million$228 million$274 million

U.S. federal and state$163 million$219 million$258 million

International$10 million$9 million$16 million

Effective tax rate

37.3%

37.9%

35.8%

Number of countries where Starbucks stores are located

34

37

37

Total retail stores

8,569

10,241

12,440U.S. company-operated stores

4,338***

4,918***

5,728

International company-operated stores

978***

1,144***

1,374

U.S. licensed stores

1,839

2,435

3,168

International licensed stores

1,414***

1,744***

2,170

Number of partners (employees)

97,000115,000

145,800* Fiscal 2004 included 53 weeks. For further information about our financial performance, please see our 2006 Annual Report to Shareholders, available online atwww.starbucks.com/aboutus/investor.asp.
** Beginning in the fiscal fourth quarter of 2006, the Company increased its reporting segments from two to three to include a Global Consumer Products Group (“CPG”)
segment in addition to the U.S. and International segments. This additional operating segment reflects the culmination of internal management realignments in fiscal
2006, and the successful development and launch of certain branded products in the U.S. and internationally, commencing in fiscal 2005 and continuing throughout
fiscal 2006. Additionally, with the 100 percent acquisition of the company’s operations in Hawaii in fiscal 2006 and the shift in internal management of this market to
the U.S., these operations have been moved from the International segment to the U.S.
*** International store information has been adjusted for the fiscal 2006 acquisitions of Hawaii and Puerto Rico and fiscal 2005 acquisitions of Germany, Southern China
and Chile licensed operations by reclassifying historical information from Licensed stores to company-operated stores. U.S. store information was also adjusted to alignwith the Hawaii operations segment change by reclassifying historical information from International company-operated stores to the U.S.

S TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T YIntegrating Corporate Social
Responsibility (CSR)
At Starbucks, our commitment to good
governance, ethical conduct and social
responsibility is core to our way of doing
business, and strongly aligned with our drive
to create and increase shareholder value. We arealso committed to maintaining our relationships
with stakeholders and gaining their input andfeedback on issues of mutual importance.
The Business Case
Starbucks defines CSR as conducting business in ways that
produce social, environmental and economic benefits forthe communities in which we operate and for the company’s
stakeholders, including shareholders. A few of the tangible
benefits are:• Attracting and retaining our partners – We believe
Starbucks commitment to CSR leads to higher thantypical levels of satisfaction and engagement among
our partners.
• Customer loyalty – Studies have revealed that customers
prefer to do business with a company they believe to besocially responsible, when their other key buying criteria
are met. We believe customer loyalty has been a driving
force behind Starbucks phenomenal growth and longterm success.
• Reducing operating costs – Many environmental
measures, such as energy-efficient equipment or lighting,involve initial investments, but deliver long-term
environmental and cost-saving benefits.
• Strengthening our supply chain – To have a sustainablebusiness, we need a reliable and responsible supplier basethat can keep pace with our growth. Starbucks invests inmeasures to ensure our suppliers have the opportunity to
do so.
• License to operate – Having a strong reputation as asocially responsible company makes it more likely we will
be welcomed into a local community.
Corporate Governance
Starbucks board of directors holds management accountable
to operate and manage the company according to strong
ethical and governance principles. The board currently has 11
members, eight of whom meet the independence requirementsof NASDAQ.® All three committees of the board arecomprised of independent directors and have specific charters:
Audit and Compliance; Compensation and Management
Development; and Nominating and Corporate Governance.

There are well-defined criteria for the selection of new board
members, foremost being a clear demonstration of their own
personal integrity and ethics. Board diversity is sought interms of members’ personal and professional backgrounds,
gender, race, ethnicity or other differentiating characteristics,
enabling a wider range of opinions and perspectives to beconsidered. Of the 11 members of Starbucks board, one is
Latino, two are African American (one of which is female),and one other female also serves on the board.
In fiscal 2006, one independent member of the board
resigned, stating that increased demands on his time arisingfrom his new position as president and chief executive officer
of a large media company would make it difficult for him tocontinue to serve on the Starbucks board. The vacancy createdby his resignation has not yet been filled.
For stability and continuity, among other reasons,Starbucks has historically had a classified board. However,Starbucks has questioned whether a classified board reduces
accountability of directors because of the limits it places onshareholders’ ability to evaluate and elect the board annually.
The board requested that the Nominating and Corporate
Governance Committee once again consider the merits of adeclassified board in fiscal 2005. Based on the Nominating
and Corporate Governance Committee’s recommendation,
the board approved an amendment to our Articles ofIncorporation, which provides for the annual election of
all directors, and then recommended to our shareholders
that they approve this change. Starbucks shareholders
approved the change at the company’s 2006 Annual
Shareholders’ Meeting.
Committee charters, our governance principles, ourdirector nominations policy (including criteria for board
membership) and profiles on each board member are available
at Starbucks.com. In addition, specific information regarding
declassification of the board can be found in Starbucks fiscal
2005 proxy statement, also available at Starbucks.com.
Business Ethics
Upholding our strong ethical corporate culture is paramountto Starbucks success. Starbucks Business Ethics andCompliance (BEC) program provides guidelines in theStandards of Business Conduct to help partners make ethicalbusiness decisions, facilitates legal compliance and ethics
training, and provides mechanisms for partners to voice
concerns. Partners are urged to report any related concerns
through the Business Conduct Helpline. (More information isavailable on page 65.) Starbucks also maintains an Auditline
for third parties, such as vendors, investors, and customers, toreport possible accounting and/or auditing irregularities. The
Auditline is available to Starbucks partners as well. In North
America the program is well established, having been in place

S TA R B U C K S A N D C O R P O R AT E S O C I A L R E S P O N S I B I L I T Y

10since 1999. In 2004, program components were launchedinternationally and continue to be rolled out in companyowned markets following a market opening or acquisition.
Managing CSR
The way in which CSR is managed at Starbucks continues
to evolve to ensure that emerging issues are identified,prioritized and addressed in a more systematic and integrated
manner throughout the company. While there is a sense ofshared accountability for CSR at Starbucks, the company
relies on a dedicated CSR group, reporting to the senior vicepresident of CSR, for the day-to-day management of specific
CSR-related initiatives. This group also provides the impetus
Corporate Social
Responsibility Governance

Board of Directors

president andchief executive officer

Corporate Social Responsibility
Executive Committee

for and broad oversight of other CSR programs that aremanaged and implemented at the business unit, division or
department level.
Beyond the dedicated CSR group, Starbucks has establishedthree cross-functional teams with specific responsibilities
related to the company’s CSR and governance. They are theEmerging Issues Council, the CSR Executive Committee
and the Policy Governance Council, all described below inmore detail.
Our CSR organizational chart is also presented below.
Currently the board does not have a committee dedicatedto CSR.

The Starbucks Foundation
A separate 501(c)(3) charitable organization

Corporate Giving

Civic and Community Affairs

Business Practices(Supply Chain)senior vice president
Corporate Social Responsibility

Environmental Affairs

International CSR

Public Policy andGovernment Affairs

Stakeholder andPartner Engagement

Transparency andReportingEmerging Issues Council

Emerging Issues Council (EIC)CSR Executive Committee

Established in 2004, the EIC is a cross-functional team of 18
Starbucks executives responsible for proactively identifying,prioritizing and mapping key external trends and issues
that may impact Starbucks and/or specific business units
on a local, regional or global level. As issues are identified,the EIC may engage external stakeholders to gain input. It
may also involve appropriate business units to explore an
issue further, define feasible options and present follow-up
recommendations at a later date.

In fiscal 2006, we fulfilled our commitment to create a CSR
Executive Committee, an effort we believe will strengthen
the company’s overall governance of CSR. The Committee
is charged with setting CSR-related strategy and policies;
monitoring progress against CSR objectives; reviewing andapproving major CSR social investment activity; overseeing
global, regional and local CSR organizational structure andaccountabilities; and ensuring CSR integration throughout
the company. The CSR Executive Committee is comprisedof Starbucks president and ceo, who heads the Committee,
and several of his direct reports, all of whom are senior level
officers of the company.

For instance, in 2004 the EIC began to assess potential risks
and issues related to cocoa production, and later determinedthat the company needed to develop a sustainable approachto cocoa purchasing. This determination was presented as aformal recommendation to the CSR Executive Committee
for approval.
In 2006, the EIC continued to focus on issues related to thehealth and wellness of Starbucks products and completed its
preliminary review of Starbucks human rights policy. The
EIC will submit its recommendations regarding a humanrights policy to the CSR Executive Committee in fiscal 2007.

In 2006, as part of our ethical sourcing commitment,
the Committee made the decision to approve the EIC’s
recommendation and implement Starbucks Socially
Responsible Cocoa Sourcing pilot, which allows for a
premium to be paid for processed cocoa when it is produced
and sourced in a socially responsible manner. (See page 30.)

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11Policy Governance Council
Over the years, Starbucks has adopted certain governancetools, such as policies, standards, guidelines and proceduresto help guide our business conduct in accordance with thelaw and Starbucks Mission Statement and Guiding Principles.
Until recently, Starbucks did not have a formal structure orprocess for oversight and management of these governancetools, a reality that left the company’s reputation, brandand culture at risk in the event these tools were not properly
managed or enforced.
Starbucks formed a Policy Governance Council in fiscal
2006 to oversee and approve our governance tools at the
global enterprise level, and to ensure they are well defined,
consistent with each other, current, stored for easy retrieval,and effectively communicated to partners. The Council
is comprised of company leaders who represent multiple
business units and functions, and is supported by Starbucks
newly created Policy Office and staff.

• To help us improve our transparency, we engaged various
stakeholders in June 2006 and invited them to provide
feedback on Starbucks Fiscal 2005 CSR Report. Their
input helped influence the changes we made to this current
CSR Report, including our decision to print only an
abridged version focused on our most material issues andpublish the full report online.
• In September 2006, Starbucks held a stakeholder
feedback session to gain initial input on the developmentof our sustainable purchasing guidelines for Starbucks
cocoa, which will be piloted in fiscal 2007. Participants
who attended the session represented our suppliers,
governmental agencies, nongovernmental organizations(NGOs), and chocolate manufacturers. It is likely they will
be consulted again on this issue as we move forward.

Stakeholder Engagement
Starbucks stakeholders include partners (employees),customers, suppliers, shareholders, governments, community
members, environmental groups, activists and many others.
By proactively engaging our stakeholders, including those
who may be directly impacted by our business decisions, weare able to better understand their concerns and gain their
input on topics of mutual importance.
We hosted several stakeholder meetings in fiscal 2006,
including the following:• A nutrition roundtable was held in October 2005 to
explore health and wellness issues in the food industry.
Our objectives were to better understand stakeholder
expectations of the company’s responsibilities regarding
specific nutrition issues, to learn how our current efforts
are being perceived and to establish a platform for ongoing
dialogue on the topic. An important outcome of thisengagement was Starbucks decision to form a health andwellness advisory panel in fiscal 2007.
• Starbucks engaged stakeholders to discuss water-related
issues in November 2005. The discussion focused on
Starbucks role as both a user of water resources throughout
our supply chain and operations, and as a supporter ofefforts to improve access to clean water around the world.
Stakeholders recommended that Starbucks conduct a
resource use assessment to clarify the company’s water
footprint as a first step toward developing an overall
corporate water strategy. Participants urged us to use our
retail footprint and brand to raise awareness of the watercrisis facing people in developing countries, in addition tofunding clean water projects in communities.

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12Transparency and Reporting
Our stakeholders want to know what Starbucks is doing to
be a socially and environmentally responsible company. Since
2001, Starbucks has published a CSR Report as part of ourbroader communications efforts to provide transparency on
our CSR activities and performance. In preparing our fiscal
2006 and previous reports, we have been influenced by the
Global Reporting Initiative (GRI) 2002 Guidelines, a set ofinternationally recognized sustainability reporting standards.
A GRI Index is available on pages 5 and 6.
Starbucks also reviewed the recently released GRI G3
Guidelines in developing this report, which includes
specific guidance for reporting against the GRI principles
for defining content and quality. The principles, along witha brief description of how Starbucks addressed them, arelisted below:
Materiality: To determine what topics and indicators
to include in our report that reflect the company’s mostsignificant impacts and issues of greatest importance tostakeholders, Starbucks conducted a materiality assessment,
described on page 3.
Stakeholder Inclusiveness: We define who our stakeholders
are, describe the measures we took to engage and solicit
their feedback, and throughout this report explain how weare addressing their concerns. More specific informationon our stakeholder engagement efforts is described on theprevious page.
Sustainability Context: Discussing our CSR-related
measures and performance in the broader sustainability
context is essential. At the beginning of most sections, we
introduce the specific topics to be covered and explain how
they support our approach to sustainability.
Completeness: To provide readers with appropriate context
for what is and is not covered in this report, we define thescope, boundaries and topics contained in this report on
page 4. Since first publishing a CSR report in 2001, we haveworked to make our report more comprehensive each year
and will continue to do so in the future.

Comparability: In developing the report each year, we
use our previous reports as starting points. We provide
follow-up information regarding any intended plans wepreviously stated and include multi-year performance datawhen possible. Self assessments about our performance arealso included. This enables our stakeholders to compare our
performance over time.
Accuracy: The content and data included in this report havebeen internally reviewed by numerous subject matter experts
and senior leaders at Starbucks, and been subject to a system
of internal controls. As described below, external verification
was conducted by Moss Adams LLP, an independentaccounting and consulting firm. See pages 76 and 77 formore information.
Timeliness: At the end of our fiscal year, which ends on the
Sunday closest to September 30, our goal is to complete andrelease Starbucks CSR Report by the date of our Annual
Shareholders’ Meeting. The date of the meeting varies year toyear, but usually takes place within six months after the fiscal
year closes.
Clarity: Each year we have worked to improve the design
and readability of our report in a format that is concise,understandable and user-friendly. We have also reduced
the amount of content covered in our printed report andpresented more information online.
Reliability: External verification of the data and statements
made in Starbucks CSR Annual Reports began in 2002,
when the company retained Seattle-based Moss Adams LLP,
the 12th largest accounting and consulting firm in the U.S.
The selection of Moss Adams met Starbucks criteria for ahigh-quality firm that had not worked with the company
previously, and a firm that could develop a customized
approach for verifying CSR-related data and content. (Seepages 76 and 77.)

Balance: Throughout this report, Starbucks has included
multi-year performance data and provided self assessmentsof our performance. We have also included case studies
and external stakeholder comments as a way of providing
more insight and objectivity about some of the challenges
Starbucks faces.

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13External Recognition
Socially Responsible Investments (SRI)
There are a variety of socially responsible mutual funds
available to investors who choose to invest in companies
that meet specific criteria in areas covering various social,environmental and economic dimensions. Starbucks waslisted on several SRI indices (mentioned below) and included
in some socially responsible mutual funds in fiscal 2006.
• Calvert Social Index™
• Citizens Index®
• Domini 400 SocialSM Index (DS400)• Dow Jones Sustainability North America Index (DJSI
North America)• Dow Jones Sustainability United States Index (DJSI
United States)• Dow Jones Sustainability World Index (DJSI World)• Ethibel Sustainability Index, Excellence Constituent• FTSE4Good Global Index• FTSE4Good U.S. Index• FTSE4Good US 100 Tradable Index• KLD Broad Market SocialSM Index (BMSI)• KLD Large Cap SocialSM Index (LCSI)• KLD Select SocialSM Index (SSI)CSR Awards
We are proud of the following CSR-related recognition that
Starbucks received in fiscal 2006. While these honors are
greatly valued and appreciated, we do not view them as end
results but rather as important acknowledgements of ourongoing commitment to CSR and our efforts to date.

Single-year awards
The U.S. Environmental Protection Agency’s Green PowerPartnership list of Top 25 Green Power Partners ranked
Starbucks sixth for our significant purchase of Green Power.
Starbucks was recognized as one of 15 employers toreceive the “Secretary of Defense Employer Support
Freedom Award” given by the National Committee for
Employer Support of the Guard and Reserve, a Defense
Department agency.
Starbucks was recognized by DiversityInc in its “Top 50
Companies for Diversity” and “Top 10 Companies
for Latinos.”
Starbucks Calgary received the “Employer of Persons with
Disabilities Award of Distinction” at the Alberta BusinessAwards of Distinction Banquet.
Starbucks UK was recognized as one of “UK Top 50 Best
Places to Work” (ranked 34th), awarded by the Great Places
to Work Institute, in partnership with the Financial Times.
Starbucks was ranked 9th by college students as a “MostDesirable Company to Join,” a listing compiled by Cheers
magazine in Taiwan.
Starbucks was ranked 25th on Newsweek Japan’s “2006World Corporation Ranking 500” list based on sales,
corporate social responsibility and return on equity.
Starbucks was recognized as “Model Company for
Sustainable Economic Development” by the Luohu
Government in Shenzhen, China.
Starbucks UK was awarded a “Big Tick” by Business in theCommunity in recognition of excellence in corporate social
responsibility, for the Partners in Education program.

Multiple-year awards
Starbucks was ranked 17th on the list of “100 Best Corporate
Citizens” by Business Ethics magazine in 2006. Starbucks has
made this list every year since 2000.
Starbucks has made Fortune’s list of “The 100 Best
Companies to Work For” eight times. Starbucks ranked 29th
on the list in 2006.

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14United Nations Global Compact
In June 2004, Starbucks joined the UN Global Compact,
a voluntary international network of corporations, UN
agencies, trade unions and nongovernmental organizations
that support 10 universal principles. These principles are
based on the Universal Declaration of Human Rights; theInternational Labour Organisation’s Declaration of theFundamental Principles and Rights at Work; and the Rio
Declaration on Environment and Development. We consider
these principles to be a natural extension of Starbucks
Guiding Principles, which define the company’s commitment
to social and environmental responsibility.
Through our participation in the Global Compact, weare continually learning how the company can strengthen
existing or develop new internal practices and policies. For
instance, Starbucks advanced efforts to create an overarching
human rights policy during fiscal 2006, and in 2007 will seek
approval of this policy. This is an important step as we further
our expansion to areas of the world where human rights
protections are not consistently upheld.
The table to the right features the Global Compact’s 10
principles and references to sections in this report that speak
to how our priorities are aligned with each principle. We plan
to report our progress annually.

UN Global Compact “Communications on Progress” Report
PRINCIPLESPAGEHUMAN RIGHTS
1. Business should support and respect theprotection of internationally proclaimed humanrights.

19, 20, 29, 30, 31, 33,
65, 70, 71

2. Business should ensure that they are not complicit
in human rights abuses.

19, 20, 29, 30, 65

LABOR STANDARDS
3. Business should uphold the freedom of
association and the effective recognition of theright to collective bargaining.

70

4. Business should support the elimination of all
forms of forced and compulsory labor.

19, 20, 29, 30, 33

5. Business should support the effective abolition ofchild labor.

19, 20, 29, 30, 33, 70

6. Business should support the elimination of
discrimination of employment and occupation.

65, 70, 73, 74

ENVIRONMENT
7. Business should support a precautionary
approach to environmental challenges.

19, 54-59

8. Business should undertake initiatives to promote
greater environmental responsibility.

19, 30, 31, 54-62

9. Business should encourage the development anddiffusion of environmentally friendly technologies.

55-57

CORRUPTION
10. Business should work against corruption in all its
forms, including extortion and bribery.

10, 65

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15

OUR WORLD OF PRODUCTS

Sustaining Coffee Quality

For 35 years, Starbucks has purchased, roasted
and sold high-quality coffee beans through retail
outlets and commercial wholesale accounts.
While coffee continues to be Starbucks coreproduct, the company markets, sells and/or
licenses a broader range of products, including
Tazo® tea, Hear Music® CDs, Ethos™ water,
Starbucks™ Liqueurs, various food and dairy
items and an array of brewing equipment andmerchandise.

Whenever a customer walks into a Starbucks, we consider it
an opportunity to share our passion and knowledge of coffee,
serve the highest-quality beverage, and deliver an experience
so rewarding that this customer becomes our customer – andour store becomes their Starbucks. We strive to create theultimate Starbucks Experience for all of our customers, all of
the time.

With every product Starbucks brands, markets and sells,
or uses in our operations, we uphold our commitment toquality and strive to source our products in a socially andenvironmentally responsible manner. This is what we refer toas sustainable trade.
In this section, we explain how we are evolving our approachto sustainable trade by focusing on quality and the socialand environmental conditions under which our products areproduced. The following major topics are discussed:• Sustaining Coffee Quality• Sustainable Trade – Purchasing Our Non-Coffee Products– Agriculture Products

At its core, the Starbucks Experience is about great coffee –the quality that our customers have come to expect from
Starbucks and for which they are willing to pay a premium.
We know to continually earn our customers’ loyalty, thequality of our coffee can never be compromised.
The farmers, millers, exporters and importers who grow,process and/or supply coffee to Starbucks share the same
uncompromising commitment to quality we value. Because ofthis, they enable Starbucks to deliver on our promise of highquality to our customers.
In this section we discuss the steps Starbucks is taking
to ensure the sustainable production and supply of highquality coffee. The underlying force behind all of this is ourrelationships with coffee farmers and suppliers. They are
critical to our business and, we believe, Starbucks is vitalto theirs.

– Cocoa, Tea, Dairy and BakerySpecific topics in this section include:– Manufactured Goods• Overview of the coffee industry– Ethos™ water• Creating a sustainable approach• Quality Assurance and Product Recall• C.A.F.E. Practices:– An overview of Starbucks coffee buying guidelines– Verification system– Results and achievements– Findings and next steps• Economic transparency• Linking premium prices to premium quality• Respect for workers’ human rights• Starbucks and Fair Trade• Purchasing certified organic and conservation coffees• Providing farmers access to credit– Assisting coffee farmers in Ethiopia• Investing in projects in coffee-growing communities– Black Apron Exclusives™ program– Tropical Storm Stan relief efforts

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16

The Coffee Industry – An Overview

Quick Coffee Facts:

It is believed that coffee was first consumed as a hot beveragein East Africa during the 11th century. Today, coffee is oneof the most popular beverages, with more than $80 billion
in retail sales worldwide.* Furthermore, the coffee industry
provides a livelihood for an estimated 25 million coffee
farmers* in more than 60 coffee-producing countries.*

Total worldwide coffee production (Oct. 2005–Sept. 2006):
15 billion pounds (7 billion kilograms)*

The coffee market has always been prone to ups and downs,
mostly related to the balance between supply and demand.
Back in 2001, coffee prices fell to a record low of $0.42 perpound ($0.91 per kilogram), and fluctuated near the bottom
for several years. These particular market conditions created a
climate of economic instability that had an impact on many
farmers and their communities. Today’s market conditions
are greatly improved, evident by recent prices of coffee tradedon the New York “C” market (the worldwide reference usedby coffee traders). In fiscal 2006, world coffee prices averaged$1.04 per pound ($2.29 per kilogram).

Number of countries where coffee is grown: About 60*

Total coffee purchased by Starbucks (Oct. 2005–Sept.
2006): 294 million pounds (133 million kilograms)
Number of coffee farmers worldwide: 25 million*
Number of countries where Starbucks bought coffee infiscal 2006: 24

There are two commercially viable species of coffee – robusta
and arabica. High-quality arabica coffee is grown on farms
that range from very small family-run parcels to large-scale
estates, located primarily between the Tropics of Cancer andCapricorn and situated at higher elevations. These elevations
provide optimal climatic conditions needed to grow the typeof coffee that is considered specialty grade.
The higher-quality and more expensive arabica beans are
sold as specialty coffee, which accounts for approximately
10 percent** of total worldwide coffee purchases, including
the coffee Starbucks buys. Starbucks purchases high-quality
arabica coffee beans, paying premium prices for premium
quality. These coffees are sold under the Starbucks, Seattle’s
Best Coffee and Torrefazione Italia brands.
* International Coffee Organization** Specialty Coffee Association of America

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17

Creating a Sustainable Approach
After years of traveling to coffee-growing regions around theworld, we have come to deeply appreciate the care that goes
into producing high-quality coffee. Our coffee buyers, quality
experts and agronomists spent considerable time in the field
during fiscal 2006, sometimes traveling great distances toreach a particular coffee farm.
These visits are always worthwhile, especially when we havebeen able to engage directly with farmers, observe theirbest practices, gain insight about their short- and long-term
challenges and identify ways that Starbucks can contributeto the longevity of their business. More important, they
have helped to raise our awareness about the need for a moresustainable approach to coffee production – one that touches
on every essential aspect of the supply chain – from farming
to processing to exporting.
When we began our journey to create a more sustainablemodel, there were several key assumptions we considered andwhich we still believe to be relevant today. We assume that:• A holistic strategy for sustainability must include criteria
for quality, social, environmental and economic aspects.
• Premium prices paid for coffee are linked topremium quality.
• Economic transparency is required and necessary toevaluate whether farmers receive equitable payment for
their crops.
• Our strong relationships and direct engagement withcoffee farmers and suppliers will keep us in touch with
their progress and issues.
• Coffee-growing communities will benefit from theeconomic stability of local farmers as well as from targetedcommunity investments.
• Access to credit and other resources will enable
farmers to make quality improvements and strengthen
their businesses.
• Certification labels, such as Fair Trade Certified™ andorganic, help to advance specific aspects of sustainable
coffee farming.

• Starbucks Farmer Support Center, an on-the-ground field
office located in Costa Rica, opened in fiscal 2004 toprovide technical resources and ongoing support to coffee
farmers throughout the world.
• Funding of coffee community projects was started infiscal 1998.
• Starbucks Black Apron Exclusives™ program launchedin fiscal 2004 to showcase and recognize the productionof rarified coffees of exceptional quality, and reward
the origin farming community with funding for a
local project.
• Loans that enable farmers to access credit began in
fiscal 2001.
• An alliance with Conservation International began in1998 to promote environmentally sound practices aimed atpreserving biodiversity in some coffee-growing regions in
Latin America.
• The purchasing of certified coffees, such as Fair Trade
Certified™ and organic coffees – both of which promote
aspects of a sustainable farming model – began in
fiscal 2000.
• A partnership with the African Wildlife Foundation toadvance sustainable farming practices in East Africa wasinitiated in fiscal 2005.

My Starbucks –I want you - my Starbucks friends – toappreciate the impact your company ishaving on higher prices being paid tocoffee farmers in Papua New Guinea.
The local mill is paying the best pricelocal farmers have ever been paid.
Everyone here knows Starbucks is buying
this coffee, but only if it’s good quality.
So now farmers are competing with their
quality so they can sell to Starbucks.

• By embracing sustainability, Starbucks can lead change
within the coffee industry.

It shows me how supply and demand iscontributing to a sustainable solution.

As our journey progressed over several years, we created andlaunched a number of programs and initiatives. Collectively,
they represent the key components of Starbucks sustainablemodel for coffee production, and have been the focus of ourongoing efforts. They are:Thank you, Starbucks.
Aarlie Hull(A coffee supplier to Starbucks)• Coffee and Farmer Equity (C.A.F.E.) Practices, a set ofcoffee-buying guidelines, was formally introduced infiscal 2004.

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18

C.A.F.E. Practices

What Did Starbucks Pay for Coffee?

The Conservation Principles for Coffee Production, a setof multistakeholder criteria launched in 2001, became theoriginal platform that Starbucks used to evolve and eventuallydevelop a more holistic set of coffee-buying guidelines thatis now known as Coffee and Farmer Equity (C.A.F.E.)
Practices. These guidelines were designed to ensure thesustainable supply of high-quality coffee; achieve economic
accountability; promote social responsibility within the coffee
supply chain; and protect the environment.

In fiscal 2006, Starbucks purchased 294 million pounds(133 million kilograms) of coffee and paid an average price of$1.42 per pound ($3.12 per kilogram).

C.A.F.E. Practices encompasses various sustainability
measures that are defined by 28 criteria, extending to boththe farming and processing of coffee. The criteria, which serveas the basis for a comprehensive scorecard, fall under four
focus areas: product quality; economic accountability; social
responsibility; and environmental leadership.
Thousands of participants – from our largest coffee suppliers
to many small-holder farms and cooperatives – have appliedand been approved as C.A.F.E. Practices suppliers since2004. When suppliers apply to C.A.F.E. Practices, theymust undergo a third-party evaluation to verify the degree towhich their practices are aligned with the criteria. (For more
information about the verification process, see page 23.)

The Link Between Quality and Price
We believe that with any product there is an inherent link
between quality and price. Through our close working
relationships with coffee farmers and suppliers, we havealways emphasized the importance of quality as the best, mostsustainable driver of higher prices paid. We understand thatcoffee farming, like any business, must be profitable to besustainable. Furthermore, we know that when coffee farmers
do not earn enough to cover their production costs and/or
provide a reasonable income, they may switch to other crops
or perhaps stop growing coffee altogether.
Starbucks commitment to pay premium prices for premium
quality coffee has not wavered over the years. It is anapproach that not only serves the short- and long-term
economic interests of coffee farmers and suppliers; it also
serves Starbucks interests by creating an incentive for farmers
to improve quality and increase production that in turncontributes to a more sustainable supply of high-quality coffee
which we depend on to support Starbucks continued growth.

Respect for Workers’ Human Rights
Starbucks believes every person deserves to be treated withrespect and dignity, and is entitled to a fair, safe and humane
work environment. This is a deeply held value at Starbucks
and one of our Guiding Principles. Our commitment to thisvalue applies as much to our own workforce as it does to theworkers employed by our suppliers.
Child labor is a topic widely reported in the media. The
coverage has raised awareness about the issue and led to somereforms. While the concern over child labor remains, it may
not always be well understood. For instance, in many coffeegrowing communities, it is a natural extension of family life
for children to work alongside their parents. Concerns overchild labor arise when it is considered forced, of a hazardous
nature, inappropriate or prevents a child from attending
school. There are international child labor standards thatprovide clear guidance on what is and is not acceptable.*
Starbucks is committed to upholding international childlabor standards in our own operations and throughout our
supply chain by making them a stipulation of our supplier
relationships. Like other companies, Starbucks has adopted
policies that require all of our suppliers – from large-scale tosmall enterprises – to comply with international or locallymandated labor standards, whichever is higher.
International labor standards also include principles related
to working conditions, such as the health and safety ofworkers; minimum wage requirements; security; and freedomof association, among others. As part of C.A.F.E. Practices,
Starbucks developed a comprehensive system to verify
our coffee suppliers’ compliance with international labor
standards, including child and forced labor practices as wellas other socially and environmentally responsible practices.
* International Labor Office, 2006

What Determines Price?
Quality is the most important factor in determining theprice we pay for coffee, but not the only factor. The cost of
production is also reflected in the price as well as prevailingmarket conditions which vary from country to country andeven from region to region.

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19

The Four Fundamentals of
C.A.F.E. Practices
Product
Quality

C.A.F.E. Practices – Hitting
Our Targets

SocialResponsibility

C.A.F.E.
Practices
Economic
Accountability

Environmental
Leadership

Prerequisites

Evaluated
Components

C.A.F.E. Practices Criteria – Areas of Focus
Product Quality (prerequisite): All coffee purchased from
C.A.F.E. Practices suppliers must meet Starbucks standardsof high quality.
Economic Accountability (prerequisite): C.A.F.E. Practices
suppliers are required to submit evidence of payments made at
all levels along our coffee supply chain, including receipts thatindicate how much was paid to farmers for their coffee.
Social Responsibility (evaluated components): C.A.F.E.
Practices suppliers – and other entities within their supply
network – must have certain practices in place that ensure
safe, fair and humane working conditions; the protectionof workers’ rights; and adequate living conditions. The
minimum/living wage requirements and child labor/forcedlabor/discrimination criteria are mandatory.
Environmental Leadership (evaluated components): In thegrowing and/or processing of coffee, environmental measures
must be in place to manage waste, protect water quality,
conserve water and energy use, preserve biodiversity andreduce agrochemical use.
The C.A.F.E. Practices scorecard of indicators is available atwww.scscertified.com/csrpurchasing/Starbucks.html.

Achieving our annual targets for the amount of coffee
purchased from C.A.F.E. Practices–approved suppliers
has not always been easy. We have worked to increase
participation in C.A.F.E. Practices by expanding to new
regions, motivating thousands of farmers and suppliers toapply, and guiding them through the application process.
Currently, suppliers from 10 different coffee-producing
countries have applied and been approved to participate in
C.A.F.E. Practices.
We took the following specific steps in fiscal 2006 to get tothis point:• Laid important groundwork for the expansion of C.A.F.E.
Practices in Africa and Asia Pacific.
• Trained 30 potential verifiers in Africa and Asia Pacific,
and held a “train the trainer” session in Costa Rica,attended by lead verifiers from 14 approved verification
organizations. The additional verifiers enabled more
suppliers to be evaluated and approved for C.A.F.E.
Practices. Trainings were conducted by Scientific
Certification Systems (SCS), an independent evaluationand certification firm.
• Spent more time in the field with C.A.F.E. Practices
participants, soliciting their feedback, offering support
about how they can improve coffee quality and scores,
and conducting training workshops via Farmer Support
Center agronomists.
• Continued to work with and solicit input from various
parties on ways Starbucks can improve elements of
C.A.F.E. Practices, including Conservation International,
a nonprofit environmental organization; African Wildlife
Foundation, an organization dedicated to conserving thewildlife and wild lands of Africa; and SCS.
Results and Achievements
Metrics used to measure the growth of C.A.F.E.
Practices include:• Total pounds of coffee purchased annually from C.A.F.E.
Practices–approved suppliers.
• Estimated number of hectares (acres) of sustainable land
linked to C.A.F.E. Practices purchases.
• Percentage of C.A.F.E. Practices coffee purchased fromapproved suppliers by status level.

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20

C.A.F.E. Practices Purchases
Starbucks established an aggressive goal to purchase 150
million pounds (68 million kilograms) of green (unroasted)coffee from C.A.F.E. Practices suppliers in fiscal 2006,
approximately double the volume purchased the previous
year. We exceeded that goal with purchases of 155 million
pounds (70 million kilograms), representing more than 50
percent of all coffee purchased in fiscal 2006 by Starbucks.
(See graph for purchases and future targets.) The 155 million
pounds of coffee purchased under the program were producedon farms that represent a total of approximately 200,000
hectares (494,000 acres) of sustainable land.
Coffee Purchased From C.A.F.E. Practices Suppliers
225
(102)
155**
(70)

77*
(35)
43
(20)
13
(6)

Fiscal year

75
(34)

2004***

C.A.F.E. Practices Goal

The amount of time, energy and resources needed to
implement and manage C.A.F.E. Practices across such acomplex, diverse and sprawling supply chain is considerable –and at times more than we anticipated. We did, however,expect the process to involve challenges. In fact, there werea number of obstacles we faced – and overcame – in the last
two years, such as making C.A.F.E. Practices as accessible tosmall-scale producers as it has been to larger coffee producers.

Continued Emphasis on Relationships, Communication
and Training

30
(14)

2003***

When we first introduced C.A.F.E. Practices, we were
inspired and motivated to help create a better future for coffee
farmers and their communities, based on a shared interest to
sustain the production of high-quality coffee. Our vision –and commitment – has not changed, only deepened.

We have encountered some dilemmas that we are continuallyworking to address. Given our optimistic mindset at
Starbucks, we choose to view these as opportunities
for improvement. We outline a few of these ongoing
opportunities below.

150
(68)
Millions ofpounds(kilograms)

C.A.F.E. Practices – Findings andNext Steps

2005

2006

2007

C.A.F.E. Practices Actual* Represents 25% of Starbucks total coﬀee purchases for ﬁscal 2005.
** Represents 53% of Starbucks total coﬀee purchases for ﬁscal 2006.
*** Coﬀee purchased under Starbucks Preferred Supplier Program guidelines.

As our demand for coffee grows and our already complex
supplier network expands, we understand the importanceof staying in touch with and training our suppliers so they
understand how to complete the application forms for
C.A.F.E. Practices, manage the required verification process,and adapt their practices to improve their scores. We mustalso seek efficiencies on our end that enable us to respond
more quickly to the needs of our suppliers.
Verifiers and Improved Systems Needed

Percent Purchased by Supplier Group
There are three status levels for C.A.F.E. Practices suppliers:
Strategic, Preferred and Verified. Of the 155 million poundsof coffee purchased from C.A.F.E. Practices suppliers in fiscal
2006, the percentage from each supplier group is as follows:• 19 percent purchased from Strategic Suppliers (those withscores of 80 percent and higher in each of the social andenvironmental areas)• 12 percent purchased from Preferred Suppliers (those withscores between 60 percent and 79 percent in each of thesocial and environmental areas)• 69 percent purchased from Verified Suppliers (those withscores of less than 60 percent in each of the social andenvironmental areas)

PRODUCTS

Our plan to buy more sustainable coffee in the future
can only be realized if our network of approved suppliers
participating in C.A.F.E. Practices grows. The process ofapproving more suppliers will involve conducting a great
number of inspections by third-party verifiers.
At the end of fiscal 2006, we had 143 trained and approved
verifiers in the field, which was 43 more than the previous
year. Going forward, we expect that more verifiers will
be needed to keep pace with the increasing number ofverifications that will be required.
We see the need for more trained verifiers as an opportunity,
and we are encouraged by the interest farmers have shown inbecoming approved C.A.F.E. Practices suppliers. And becauseof this, verifiers will need to be responsive to the increasing
demand of more inspections.

21

Our priorities are to increase the number of trained
verifiers and make the verification process more efficient anduser-friendly. Some adjustments were made in fiscal 2006,
and others are in the works.
The process improvements we are making are necessary toensure that Starbucks coffee buying guidelines are supported
by a highly efficient and credible verification system with thecapacity to serve the growing number of suppliers wanting toparticipate in C.A.F.E. Practices.

unique conditions in Africa and Asia Pacific. Also, the needfor more locally based support through regional Farmer
Support Centers has been confirmed.

FUTURE GOAL
In fiscal 2007, we plan to hire additional agronomists
who will focus on helping coffee farmers worldwide
implement C.A.F.E. Practices.

FUTURE GOALS
Going forward, our efforts will focus on:• Introducing a revised version of the guidelines to allow
for streamlined, efficient and objective scoring.
• Updating our guidelines to account for regional
differences, including clarification of minimum
performance levels and compliance with local laborlaws and wages for permanent, temporary and seasonal
workers.
• Implementing a new IT system for online verifier
reporting and score calculation.

Extending C.A.F.E. Practices to Africa and Asia Pacific
In 2004, Starbucks opened a Farmer Support Center in Costa
Rica, which has allowed us to work more closely with farmers
and suppliers on their sustainability measures and coffee
quality. Shortly thereafter, suppliers in that region began
applying and gaining approval for C.A.F.E. Practices, and thenumber has kept growing ever since.
Increasing our focus on C.A.F.E. Practices in Africa andAsia Pacific has proven to be difficult, as expected. In Kenya,
Starbucks has been collaborating with the African Wildlife
Foundation (AWF) on various sustainability initiatives as afirst step toward advancing C.A.F.E. Practices in Africa.

My Starbucks –In a letter to Starbucks
president and ceo, Jim Donald,
Estuardo Porras wrote:
Since Tropical Storm Stan passed,
I have been spending 24 hours a day
assessing the damage on the El Faro
and Las Delicias coffee farms in
Guatemala. Now I am glad to informyou that C.A.F.E. Practices has
been by far our best investment.
Both farms are virtually intact inregards to any disease or soil erosion
issues. I strongly believe that theimplementation of C.A.F.E. Practices onboth farms has greatly contributed toour ability to withstand any potential
adversities caused by this storm.
Your friend,
Estuardo Porras, Owner
El Faro and Las Delicias farms,
GuatemalaIn both Africa and Asia Pacific, Starbucks has been working
to introduce C.A.F.E. Practices to coffee farmers, processors
and suppliers. Progress has been slowed by realities of local
coffee industries, lack of financial transparency, minimal
understanding of C.A.F.E. Practices among local suppliers,
and too few trained verifiers. Some headway was made infiscal 2006 to improve suppliers’ understanding of C.A.F.E.
Practices and train more verifiers, partly because of efforts
made by SCS, Starbucks coffee buyers, agronomists andbusiness partners to organize training sessions.
We realize there may be a need to consider regional guidance
for C.A.F.E. Practices to make the criteria more relevant to

PRODUCTS

22

C.A.F.E. Practices – The Verification
Process
When suppliers apply to C.A.F.E. Practices, they must
undergo an independent third-party evaluation to verify
the degree to which their practices are aligned with the 28
criteria. Upon completion of each evaluation, the verifier
submits a report along with a scorecard to the applicant
and to Starbucks for review. The scores given by the verifier
determine the supplier’s approval status in C.A.F.E. Practices.
Evaluations involve field inspections, face-to-face interviews
with workers, document reviews and desk audits. The
conditions of a supplier’s status dictate the terms ofreverification. Reverification is periodically required in order
to measure continuity and sustainability improvements.
Since launching C.A.F.E. Practices in 2004, Starbucks hasretained Scientific Certification Systems (SCS), a third-party
evaluation and certification firm, to help develop and oversee
the verification system and conduct ongoing verifier trainings.
By the end of fiscal 2006, SCS had trained 30 additional
individual verifiers on how to evaluate and score suppliers
against C.A.F.E. Practices’ comprehensive set of criteria.
Independent verifiers for C.A.F.E. Practices are affiliatedwith 25 different organizations conducting verifications in
19 countries.

Economic Transparency
To help assure that the farmer receives an equitable shareof the price paid by Starbucks, a requirement for economictransparency is included in our coffee contracts, including
all of our contracts with suppliers participating in C.A.F.E.
Practices. This provision stipulates that our suppliers must
provide credible evidence of payments, usually in the formof receipts indicating payments made at all levels along thecoffee supply chain, including prices paid to farmers. In
fiscal 2006, 98 percent of our coffee contracts included an
economic transparency clause requesting documentation of
payments made to various participants in the supply chain.
In 95 percent of these contracts, economic transparency was
required to the producer level.
Requiring coffee suppliers to provide evidence of payments
was almost inconceivable several years ago, especially given
the diffused and complex nature of the coffee supply chain
and the historical lack of record keeping. However, since
Starbucks instituted this requirement, a notable change has
started to take place in the specialty coffee industry, withmore serious attention now being focused on assuring that
farmers receive an equitable share of the purchase price. We
believe this ultimately benefits coffee farmers and other key
suppliers who add value along the supply chain.

PRODUCTS

While we are encouraged by the progress to date,institutionalizing this new requirement has come with certain
challenges. In particular, the coffee industry does not have astandardized mechanism in place that allows all parties acrossthe coffee supply chain to easily submit evidence of payment
in a consistent, uniform manner. At Starbucks, we receive
different forms of documentation – from a simple receipt
for the coffee cherries that the farmer delivered to the mill
to full purchase agreements that include more levels along
the coffee supply chain. These documents not only differ inquality, they reflect variations in currency, industry standards
and laws, units of measure and are prepared in manydifferent languages.
Despite these realities and the unique circumstances of eachproducing country, Starbucks will continue to work towardverifying the submitted evidence in order to assure that
farmers received an equitable portion of the purchase price.

Starbucks and Fair Trade
Starbucks and the Fair Trade movement share common
goals: to help ensure that farmers receive a fair price for theircoffee and have improved access to international markets.
C.A.F.E. Practices and the Fair Trade system both focus
on cultivating long-term, stable relationships with farmers;
providing supplemental funding for community projects;
and providing farmers with access to affordable credit. A
point of differentiation is that the Fair Trade coffee model
focuses on smallholder farmers belonging to cooperatives
and associations, while Starbucks purchases from coffee
cooperatives, farms and supply networks of all sizes and scale.
Starbucks first relationship with a Fair Trade certificationand licensing organization began in April 2000, when we
established an agreement with TransFair USA that allowed
Starbucks to purchase, roast and sell Fair Trade Certified™
coffee. We are still actively engaged with TransFair USA, as
well as with Fairtrade Labelling Organizations International(FLO) and nine of the 20 other national initiatives aroundthe world that oversee and coordinate Fair Trade licensing
and sales promotion in 24 of our international markets.
Each Fair Trade national initiative is unique and has its own
requirements, trademarks and protocols, a reality that hasconstrained our ability to offer Fair Trade Certified™ coffee
internationally. Starbucks is committed to working together
with FLO and the national initiatives on a streamlined
solution that will make it easier for multinational companies,
like Starbucks, to distribute and sell Fair Trade Certified™
products in other countries.

23

What is Fair Trade Certified ™ ?
The Fair Trade Certified™ labels are owned by the Fairtrade Labelling Organizations International and Fair Trade national initiatives
around the world. Starbucks pays licensing fees to the national initiatives in order to affix the Fair Trade Certified™ trademark on our
packaging. According to the national initiatives, a majority of the fees support various Fair Trade activities to help market the product,
and the remaining fees are used to fund the certification process, the development of standards and support for producers.
Fair Trade products appeal to socially minded consumers who place a high value on the Fair Trade certification seal. Fairtrade Labelling
Organizations International certifies to consumers through the seal that a minimum price* of $1.24 - $1.26 per pound ($1.39 - $1.41
per pound for organic) was paid to the farmer cooperative that produced the coffee. However, factors such as market recognition of Fair
Trade coffee quality, higher commodity prices, and supply and demand may work in combination to raise the Fair Trade price.
Fair Trade certification includes criteria to be met by coffee cooperatives, such as fair labor conditions, freedom of association andcertain environmental standards. To be certified as Fair Trade, the coffee is to be produced only by farmers who belong to farmerowned, democratically run coffee cooperatives and associations listed on the Fair Trade registry. An estimated four percent of global
coffee production is Fair Trade Certified.™
* These established prices are set by Fairtrade Labelling Organizations International for the purpose of covering the costs of sustainable production and living.
The pricing components include $1.19-$1.21 for the coffee (depending on the region), $0.05 for a social premium and an additional $0.15 premium fororganic. When “C” market prices rise above the Fair Trade minimum price, Fair Trade prices are adjusted accordingly to be at least $0.05 above the “C” price.

Our Purchases of Fair Trade Certified ™ Coffee
In fiscal 2006, Starbucks global purchases totaled morethan 18 million pounds (8 million kilograms) of Fair Trade
Certified™ coffee, representing approximately 14 percent of
global Fair Trade Certified™ coffee imports, and about 30
percent imported into the United States.
Starbucks remains the largest purchaser, roaster anddistributor of Fair Trade Certified™ coffee in North America.
Fair Trade Certified™ Coffee
18 million*(8 million)

5 million(2 million)

Fiscal year

2004

2005

2006

*Represents 6% of Starbucks total coﬀee purchases.

At the beginning of fiscal 2006, Starbucks set a 12 million
pound (5 million kilogram) purchasing target for Fair Trade
Certified™ coffee, which we exceeded by more than 6 million
pounds (3 million kilograms) because we extended our lineup and broadened distribution of our Fair Trade Certified™
product offerings. In addition to offering Café Estima Blend™
in Starbucks stores, strong sales were achieved through therollout of a new Fair Trade Certified™ coffee product under
the Kirkland Signature brand in Costco stores in the U.S.
and Canada.

PRODUCTS

Previously, we set arbitrary targets for the amount of Fair
Trade Certified™ coffee we planned to purchase annually, anapproach that is no longer practical. Instead, we will begin
linking our purchases of Fair Trade Certified™ coffee tosales forecasts.
Through our purchases of Fair Trade Certified™ coffee infiscal 2006, we:• Provided more than $900,000 in Fair Trade social
premiums through the price we paid for Fair Trade
Certified™ coffee. FLO certifies that these funds wereredistributed back to the Fair Trade cooperatives wepurchased from to support local community improvement
projects decided upon by the general assembly ofthe members.

11 million(5 million)

Pounds(kilograms)

Starbucks will continue to work with various Fair Trade
national initiatives to promote and market our Fair Trade
Certified™ coffee products in our stores around the world.
We believe these efforts will help to further increase customer
demand and sales of Starbucks Fair Trade Certified™ coffees.
Purchasing enough Fair Trade Certified™ coffee to meet thedemand will be essential.

• Paid approximately $8 million more to Fair Trade
Certified™ cooperatives than they would have received ifthey sold their coffee at “C” market prices. This is similar
to the premiums that Starbucks typically pays above thecommodity price for other high-quality coffees. According
to TransFair USA, the average price of Fair Trade
Certified™ coffee during fiscal 2006 was $1.48 per pound,including the social premiums. Approximately 80 percentof the price paid to the Fair Trade registered cooperatives
goes to coffee farmers, and the remaining 20 percent covers
co-op overhead, export costs and social investments.
• Paid a total of $1.6 million in licensing fees to various
Fair Trade organizations, with the majority paid toTransFair USA.

24

Going Forward
Starbucks is committed to purchasing Fair Trade Certified
coffee as a way of supporting the network of Fair Traderegistered coffee cooperatives. Specifically, Starbucks plans to:™

• Link global purchases of Fair Trade Certified™ coffee
to customer demand in fiscal 2007. Using fiscal 2006
demand as a barometer, we expect that Fair Trade
Certified™ coffees could represent approximately five
percent of our total coffee purchases in a given year.
• Work with the Fair Trade national initiatives to promote
and increase customer demand and sales of our Fair
Trade Certified™ coffees while also collaborating on a
streamlined approach to the global distribution of thisproduct.
• Offer Kirkland Signature Fair Trade Certified™ coffee to
Costco for stores located in the UK, Japan, Taiwan and
Korea beginning in fiscal 2007.
• Support and promote the sale of Café Estima Blend™
coffee in Starbucks company-operated stores, foodservice
channels and other points of distribution.
• Continue to work with Fair Trade organizations tocommunicate key findings and challenges, provide
transparency to the farmer level, augment the businesscapacity of participating Fair Trade cooperatives, andsupport a multipronged approach to ethical, sustainable
coffee purchasing.

Purchasing Certified Organic andConservation Coffees
Starbucks purchases certified organic and conservation(shade grown) coffees. These purchases support thecompany’s larger effort to preserve the natural environment
and/or promote economic stability. (See graphs at right for
amounts purchased.)
As consumer demand for certified organic coffee continues
to grow, Starbucks purchases of this coffee has also increased.
Some of the certified organic coffee Starbucks buys is
produced by farmers participating in the Fair Trade system,
in which case this coffee is included in our total purchasesof both Fair Trade Certified™ and certified organic. In
other instances, certified organic coffee is purchased fromfarmers participating in Conservation International’s (CI)
Conservation Coffee SM program, and therefore accounted aspurchases of conservation, organic and possibly even Fair
Trade Certified™ coffees.
In fiscal 2006, Starbucks offered two specifically labeled
types of certified organic coffee, and Seattle’s Best Coffee soldeight varieties.

Over the years Starbucks has purchased millions of poundsof conservation coffees grown by farmers participating in CI’s
Conservation Coffee SM program. This particular source of our
supply stems from the alliance Starbucks and CI formed in1998 to encourage farmers to use ecologically sound growing
practices that help protect biodiversity in environmentallysensitive areas and to stimulate the production and sale ofhigh-quality coffee grown under the canopy of bird-friendly
shade trees.
Today, much of the conservation coffee grown byparticipating farmers is also certified organic or “intransition” coffee, the term used when an agricultural productis grown under organic conditions but has yet to be certified.
Beginning in fiscal 2007, the coffee Starbucks purchases fromfarmers participating in the Conservation Coffee SM program
will no longer be tracked as conservation coffee. Instead wewill track only certified organic coffee purchases rather thanspecifying both organic and conservation purchases, which
in many cases is the same coffee. Fair Trade Certified™ coffee
that is also certified organic will continue to be tracked inboth ways.
Certified Organic Coffee
12 million*(5 million)
9 million(4 million)

Pounds(kilograms)

Fiscal year

6 million(3 million)

2004

2005

2006

*Represents 4% of Starbucks total coﬀee purchases.

Conservation (Shade Grown) Coffee
2 million(1 million)

2 million(1 million)

2 million*(1 million)

2004

2005

2006

Pounds(kilograms)

Fiscal year

*Represents 1% of Starbucks total coﬀee purchases.

Note: Coffees may be certified in more than one category.

PRODUCTS

25

Access to Credit
During the growing and harvest cycles, coffee farmers rely on
their modest reserves to pay their expenses. It isn’t until theircrops are finally shipped that payment is received, which may
take months. It’s common for farmers to experience a cash
shortage, which can lead them to sell their crops early to local
buyers, be charged high interest rates and receive lower prices.
This inevitably cuts into farmers’ profits and sets up a similar
scenario for the next year.
Starbucks works with several social investment organizations
to make loans available to coffee growers, which makes it
possible for farmers to postpone selling their crops until the
price is favorable and to invest in capital improvements. In
fiscal 2006, we increased our loan commitment to EcoLogic
Finance by $1 million, bringing the total commitment to$6 million. EcoLogic uses Starbucks capital to make loans
to both coffee and cocoa farmers. We also continued our $1
million loan commitment to Calvert Foundation and $2.5
million loan commitment to Verde Ventures, a loan program
managed by Conservation International. (See chart on next
page.)
Assisting Coffee Farmers in Ethiopia
When the Sidama Coffee Farmers Cooperative Union in
Ethiopia (SCFCU) was established in 2000, it set boldobjectives: to increase farmers’ share of the Free on Board*(FOB) price of coffee, stabilize the local coffee market,
export directly to foreign buyers, protect co-ops and family
farmers from illegal domestic market actors, take advantage
of economies of scale, and promote and reward production ofhigh-quality coffee.
SCFCU is a farmer-owned and managed cooperative union
comprised of 42 primary societies, representing nearly 87,000
local coffee growers practicing shade-managed and organic
farming techniques in the forests of southcentral Ethiopia. It
is also part of the Fair Trade Certified™ market system.

PRODUCTSIn October 2005, SCFCU received a $400,000 loan from
EcoLogic Finance. The loan is enabling the cooperative
to provide services to its members, including marketing
assistance in developing producer/buyer linkages; directexport of members’ specialty coffee; coordination of
warehousing services, processing and transport; promotionof high-quality coffee production; field-based training andeducation programs; and access to savings and credit services.
Starbucks provided the capital funds that EcoLogic used tofinance the loan.
As one of the cooperative’s principal foreign buyers, Starbucks
respects SCFCU for its organizational integrity, and values its
premium product. Indeed, the unique flavor characteristics
of local coffee beans grown by one primary society belonging
to SCFCU were so distinctive and of such exceptional qualitythat this coffee – “Shirkina Sun-Dried Sidamo” – was chosen
as one of Starbucks Black Apron Exclusives™** coffees infiscal 2006. As a result, the farming community where thiscoffee was produced was awarded a $15,000 prize from
Starbucks. These funds, combined with the funds theyreceive through Fair Trade social premiums, are being used
to construct an office space where community meetings andtrainings can be held.
Starbucks and the Ethiopian government have been engaged
in discussions regarding the protection and use of theintellectual property rights of Ethiopia’s geographic coffeenames. We are committed to working together in pursuit of asolution that benefits Ethiopian coffee farmers. For the mostcurrent information on this topic, please visit Starbucks.com.
* Free on Board is a trade term requiring the seller to deliver goods on board a
vessel designated by the buyer. The seller fulfills its obligations to deliver whengoods have passed over the ship’s rail. The word “ free” means the seller has an
obligation to deliver goods to a named place for transfer to a carrier.
** The Black Apron Exclusives ™ coffees are a select line of rare, exotic and cherishedcoffees. The Black Apron name refers to the color of apron worn by Starbucks
most knowledgeable buyers, roasters, tasters and Coffee Masters while in thetasting rooms and in Starbucks coffeehouses.

26

FARMER LOAN PROGRAMSName of
Organization

Amount ofStarbucks loans
to Fund

Total number
and value ofloans made byStarbucks infiscal 2006

Average loan size
(per borrower)
made from
Starbucks capitalin fiscal 2006

Purposes ofloans made from
Starbucks capital# of farmers
participating

Countries where
borrowers ofloans made byStarbucks capital
live

Calvert Foundation$1 million loaned infiscal 2004

6 loans valued at$2.25 million*$371,000

Prefinancing of Fair
Trade and organic
coffee contracts

24,000

Mexico, Nicaragua,
Peru

Verde Ventures,
managed byConservation
International$2.5 million loaned
in fiscal 2004

8 loans using
Starbucks capitalvalued at $2.12
million$265,000

Prefinancing of
C.A.F.E. Practices
or conservation
coffee farms;
working capital forthe above coffee
farmers

6,000 smallholder
farmers
participating inCI’s Conservation
Coffee Program
sites, andapplicants to
C.A.F.E. Practices

Mexico,El Salvador,
Guatemala,Indonesia, Peru

EcoLogic Finance$2.5 million loaned
in fiscal 2004

63 loans using
Starbucks capitalvalued at $11
million*$175,000

Prefinancing ofFair Trade, organicand specialty
coffee and cocoa
contracts; capital
investments forinfrastructure

44,000 farmers
from 58 various
coffee andcocoa farming
organizations

Bolivia, Honduras,
Colombia,
Indonesia, Costa
Rica, Mexico,
Nicaragua, East
Timor, Peru,
Ecuador, Rwanda,
El Salvador,
Tanzania, Ethiopia,
Uganda, Guatemala$2.5 million loaned
in fiscal 2005
$1 million loaned infiscal 2006

*Total exceeds amount of Starbucks loan because money is loaned, repaid and loaned again.

Investments in Coffee Communities
The majority of high-quality coffee is grown in remotecommunities of developing countries. These areas havehistorically faced a devastating range of social, environmental
and economic challenges. At times, they have also been left inruins by severe natural disasters.
Over the years, Starbucks has worked with coffee farmers,
cooperatives, mills, exporters and local communities on
various community improvements, which have included
building schools, health clinics and other projects thatstrengthen the local infrastructure and benefit nearby
residents. These investments are not only made through ourphilanthropic contributions, they are also funded in twoother ways:• Financial awards given to farming communities that
produce a specific coffee selected as part of Starbucks
Black Apron Exclusives™ program. For each Black Apron
Exclusives™ winner, Starbucks awards $15,000 to use for atargeted project. In fiscal 2006, four coffees were selected
as Black Apron Exclusives™ offerings, three from Africa
and one from Indonesia.
The combined total of Starbucks investments in coffeegrowing communities was $2.7 million in fiscal 2006,
which included $1 million towards Tropical Storm Stanrelief efforts. (See next page.) The funds were used to
pay for 103 projects located in 11 countries, benefiting
an estimated 545,000 local farmers, their families andcommunity residents.

• Through premiums that we add to our coffee contracts,
which provide additional funds for community projects.

PRODUCTS

27

Tropical Storm Stan Relief Efforts
In October 2005, Tropical Storm Stan struck parts of
Mexico, Guatemala and El Salvador, including areas where
coffee is grown. The storm caused flash floods, mudslides,
damage to crops, and it claimed the lives of thousands. We
responded to the immediate needs for humanitarian relief
and longer-term rebuilding efforts. Within the first week
following the storm, Starbucks coffee buyers and agronomists
visited some of the affected areas where we buy coffee to makea human connection with local farmers and gain a better
sense of long-term rebuilding needs. Starbucks was able torespond rapidly with $1 million toward relief and rebuilding
efforts in Mexico and Guatemala, which helped to fund 59
local projects and benefit an estimated 415,000 people.
To assist affected communities in El Salvador and Guatemala,Starbucks earmarked $23,000 of the emergency funds we
had contributed to CARE International earlier, and we also
provided an additional $250,000 via Mercy Corp for relief
efforts in areas of Guatemala that were especially hard-hit.

My Starbucks –The first two weeks following Tropical
Storm Stan were very difficult for
us. The Chanjul coffee farm wascompletely inaccessible after the storm’s
torrential rains had washed away theroad. Now it has been fixed, thanks to
Starbucks. Along with our neighbors,
we are once again able to transport
our coffee crops to the processing
facility. While the monetary support you
gave was of great help, we are more
uplifted by the solidarity we experienced
with Starbucks coffee buyers.

african Heartlands C offee Project
The first phase of the African Heartlands Coffee Project, acollaboration between Starbucks and the African Wildlife
Foundation (AWF), was launched in Kenya in January 2005.
The three-year project is focused on helping farmers improve
the quality and quantity of Kenya coffee, introducing
sustainable growing and processing best practices as well as
supporting wildlife and biodiversity conservation.
The three-year venture is being funded with a $600,000
commitment from Starbucks, which included a contributionof $187,000 to AWF in fiscal 2006. We believe the positive
developments taking place in the two Kenyan coffee
cooperatives participating in phase one of this project
clearly reflect the hard work and dedication of coffee
growers to embrace sustainable growing practices and higher
quality standards.
Additional support for AWF’s work in Kenya came from
Starbucks UK. In fiscal 2006, Starbucks UK contributed
approximately $90,000 to AWF to help to fund theconstruction of an earth dam, revitalize a reforestation
program and rehabilitate the Kihuyo Wildlife Fence. To
engage partners in this effort, Starbucks UK created an
Africa-themed photo contest, from which 10 UK Starbucks
partners were selected to travel to Kenya in October 2006
and meet with local coffee farmers who are benefiting fromthe project.

Marco Lucas
Farm General Manager
Chiapas, Mexico

PRODUCTS

28

Sustainable Trade: Purchasing Our
Non-Coffee Products
In 2003, we introduced Starbucks Supplier Code of Conduct,a values-based framework that guides our global purchasing
decisions and supplier relationships. The Code of Conduct
and supporting guidelines set forth our standards for humanrights, social conditions and environmental responsibility. The
Code applies to agriculture products (such as coffee, cocoa
and tea) and manufactured goods and services. Throughadherence to this Code, Starbucks and our suppliers seek
to demonstrate our commitment to the welfare, economic
improvement and sustainability of the people and places that
produce our products and services.

In the remaining pages of this section, we discuss ourapproach to sustainable trade and product quality. Specifictopics include:• Procurement Practices for Sustainable Agriculture– Responsible Cocoa Sourcing Program– Tazo Tea Sustainability Practices– Dairy and Bakery Products• Starbucks Social Responsibility Standards for
Manufactured Goods• Ethos™ water• Quality Assurance and Product Recall

Starbucks Approach to Sustainable Trade
Our products are grown, produced
and/or manufactured by a multitudeof suppliers around the world. As ourglobal supply chain operations expand
and become increasingly complex, we
recognize the importance of instituting
an overarching framework that ensuresethical trading practices, increases
transparency and continues to build
a sustainable network of suppliers.
Starbucks is working on many levels to
implement such an approach.
Starbucks Supplier Code of Conduct
articulates our core values and the
expectations we have of our suppliers.
The Code includes social responsibility
standards for both agricultural products
and for manufactured goods.

PRODUCTS

CODE OF CONDUCTSocial Responsibility Standards:
Agriculture Products

Social Responsibility Standards:
Manufactured Goods and Services

Coffee:C.A.F.E. Practices

Supplier Social
Responsibility Program

Other Agriculture Products:(Cocoa, Tea, Dairy
and Bakery)29

Procurement Practices for Sustainable
Agriculture
In addition to C.A.F.E. Practices, our coffee buying
guidelines, Starbucks is working to develop sustainablepurchasing guidelines for cocoa and may also develop
guidelines for other products such as tea, paper and dairy.

Responsible Cocoa Sourcing Program
Cocoa continues to be an important ingredient in many ofthe beverages and products we sell in our stores, including
coffee beverages, bakery items and chocolate bars. We seek toensure that the cocoa we buy has been produced and tradedin an ethical, transparent and sustainable manner, and we aretaking significant steps to ensure our supply chain is in linewith our company’s values.
Worldwide cocoa production for the 2005/2006 crop year
was 7.7 billion pounds (3.5 billion kilograms), of whichapproximately 70 percent was produced in West Africa. In
fiscal 2006, Starbucks purchased just over 15 million pounds(6.8 million kilograms) of processed cocoa from our suppliers,
sourced primarily from the Ivory Coast.
In fiscal 2006 we launched Starbucks Socially Responsible
Cocoa Sourcing (SSRC) Pilot Program in the Ivory Coast,with two established cocoa suppliers that included nine
farmer cooperatives and hundreds of farmers. An initial setof general guidelines for transparency, working conditions
and price premiums for cocoa farmers were developed for thispilot program.
During the first year of the pilot, Starbucks sourced 11
million pounds (5 million kilograms) of cocoa beans, inwhich we expect to have full price transparency throughout
the supply chain – from the cocoa farm to Starbucks. Thistransparency data will be audited and validated by anindependent third party to ensure farmers are receiving anequitable share of the sustainability premiums we pay.

Cocoa Practices Sourcing Guidelines
Building upon the initial Socially Responsible Cocoa
Sourcing Pilot, in September 2006 we completed a newdraft of our Cocoa Practices Sourcing Guidelines (Cocoa
Practices). Similar to C.A.F.E. Practices for coffee, Cocoa
Practices provide guidelines for the cultivation and processingof cocoa in a manner that is environmentally sustainable,socially responsible, and promotes equitable relationships with
farmers, workers and communities. We plan to launch Cocoa
Practices in fiscal 2007 as a two-year pilot program, and movetoward our longer-term plan to utilize the guidelines for all of
our cocoa purchases.
Access to Credit & Social Development Projects
In fiscal 2006, EcoLogic Finance provided $400,000 in loans
to three cocoa farming cooperatives. Starbucks provided thecapital funds used for the loans. To further support cocoa
growing communities in the future, Starbucks has authorized
EcoLogic Finance to provide up to $500,000 in affordable
loans to cocoa farmers, drawing off the $6 million in loan
capital Starbucks already provided. We also amended our loan
agreement with Conservation International’s Verde Ventures,
which will now allow up to 25 percent of the $2.5 million incapital we provided to be loaned to cocoa farmers.
Stakeholder Engagement
In September 2006 we hosted a stakeholder engagement
session with suppliers, government agencies, nongovernmental organizations (NGOs) and chocolate
manufacturers to review the initial draft of the guidelines
and obtain feedback. This feedback will be incorporated into
Cocoa Practices prior to the pilot launch in 2007, and we willcontinue to consult with stakeholders as we move forward.

FUTURE GOALS
Our goals for fiscal 2007 include:• Purchasing 22 million pounds (10 million kilograms)of cocoa beans from the Starbucks Socially
Responsible Cocoa Sourcing Program.
• Completing independent audits and sharing resultsof the fiscal 2006 pilot.
• Rolling out Cocoa Practices Guidelines for use in thenext crop year (2007-08)• Delivering quarterly updates to cocoa stakeholders.
• Providing financial support for social development
projects in cocoa growing communities in the
Ivory Coast.

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30

Tazo® Tea – Sustainability Practices

Global tea production in 2006 was 7.6 billion pounds (3.5billion kilograms). In fiscal 2006, Tazo purchased 5.7 million
pounds (2.6 million kilograms) of tea and botanicals from25 countries.

Today CHAI is a partnership between Tazo, Mercy Corps,
DEG, and the Assam Branch of the India Tea Associationand is aimed at improving the lives of community members
living in tea estates and neighboring communities. Working
with local Community Action Groups, CHAI works todemocratically identify and address common problems
through a community mobilization process to improve thequality of life through health, economic development andyouth initiatives.

In previous years we focused our sustainability reporting for
Tazo on purchases of organic ingredients. Tazo has moved
away from this singular focus on organic purchasing in orderto pursue a more comprehensive sustainability strategy for our
tea sourcing.

During fiscal 2006, the CHAI Project expanded a pilotthat originally began in 2005 in four cardamom-producing
communities in Guatemala, and now encompasses ninecommunities. As a result of expanding the project, an
additional 1,000 people have benefited.

As part of this strategy, Tazo joined the Ethical Tea
Partnership (ETP) to ensure the teas we purchase areproduced in a socially responsible way. ETP is a unique, longterm ethical sourcing initiative, set up to work in partnershipwith producers to independently monitor living and working
conditions in tea gardens. The organization also works to
improve the working conditions in the tea industry.

In fiscal 2006 we laid the groundwork to expand the CHAI
Project into the Assam region of India, an area where Tazopurchases tea. Next year, we plan to develop programs
focused on income generation and education programs that
help to improve economic opportunities for farmers andfamilies living on tea estates in the region.

Tazo Tea is one of several brands within Starbucks portfolio,
and is sold in Starbucks stores, grocery stores and otherretail outlets.

Additionally, in fiscal 2006 we began purchasing some tea
from smallholder tea growers in order to develop closer ties
with tea-growing communities and help support smallholder
farmers in and around the Himalayan foothills of Darjeeling,
India. We worked in partnership with the Darjeeling
Earth Group (DEG), a nonprofit organization focused on
environmental and social issues, to collaborate with tea
growers on better tea production and green leaf handlingtechniques.
Similar to Starbucks holistic approach to responsible coffee
sourcing, Tazo combines its commitment to purchaseresponsibly grown tea with a social development strategy.
At the center of Tazo’s social development strategy is our
Community Health and Advancement Initiative (CHAI),
which we launched in conjunction with Mercy Corps in
2002, and which remains our way of giving back to theregions that produce Tazo® tea ingredients. Funding for
CHAI comes from Tazo, its tea suppliers and Starbucks. Since
2003, nearly $1.4 million has been contributed to the CHAI
Project, including donations in fiscal 2006 of $301,000 from
Tazo and its suppliers, and $100,000 from Starbucks.

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FUTURE GOALS
Our goals for fiscal 2007 include:• Completing development of a long-term strategy for
Tazo’s sustainable tea sourcing initiative.
• Developing a three-year strategic plan for the CHAI
Project.
• Launching the CHAI Assam Project in four tea
estates, and expand CHAI Guatemala to two
additional villages.

31

Dairy and Bakery Products

Stakeholder Engagement

Dairy and bakery products comprise a significant part of ourstore operations. For all of our products, Starbucks upholds
our high standards for quality and ensures our products aresafe for consumption.

In April 2006, Starbucks hosted stakeholders for a two-day“Dairy Summit.” Our goals in hosting this session were to:

In response to some stakeholders’ concerns about our
dairy products and our own interest in developing a moresustainable approach to our dairy purchases, we recently
evaluated the feasibility and implications of converting all
core dairy products – fluid milk, half-and-half, whipping
cream, and eggnog – to rBGH-free and changing our default
milk standard for our beverages to 2% milk from whole milk.
(rBGH is a synthetic growth hormone given to dairy cows toincrease milk production.)• Discuss dairy industry innovations and supplier/industry
capabilities as well as the health and nutrition impacts
associated with dairy products.

In fiscal 2006, we surveyed our current dairy suppliers tounderstand their cost structure and ability to deliver sufficient
supplies of the highest quality certified organic and/or rBGHfree milk needed for Starbucks operations. We also met withstakeholders and dairy suppliers to discuss and learn more
about rBGH and options for new products. As a result of
these efforts, we are able to ensure that 37 percent of the core
dairy products in our U.S. company-operated stores wererBGH-free as of January 2007.

• Deepen Starbucks understanding of supply chain costs andperformance related to rBGH-free milk.

• Build stronger connections to our dairy suppliers.
Attendees of this summit included Starbucks partners,
representatives from Oregon Physicians for Social
Responsibility, and several of Starbucks dairy suppliers. In
addition, we met with the National Dairy Council in fiscal
2006 to discuss Starbucks existing sustainability programs,
including C.A.F.E. Practices, as a first step to introduce
and explore how sustainability applies to dairy, as well as
consumer health and wellness. We are in the process ofevaluating and/or rolling out new products as a result of this
dialogue, and intend to continue consulting with many ofthese stakeholders going forward.
For more information on Starbucks health and wellness
initiatives, please see the Health and Wellness section of thisreport beginning on page 49.

FUTURE GOALS
In fiscal 2007 we plan to:• Require all core dairy products used in ourhandcrafted beverages to be rBGH-free. Thisrequirement initially will take place in our U.S.
company-operated stores.
• Conduct a market test in our U.S. company-operated
stores and a small group of stores in Canada toassess the feasibility of making 2% milk the default
for our beverages.

Starbucks has also been investigating options for usingorganic ingredients in some of our bakery products. Our
efforts during fiscal 2006 included test marketing two 100
percent organic bakery items in more than 100 companyoperated Starbucks stores in North America stores, andexploring opportunities to incorporate the use of sustainable
wheat into our portfolio of bakery products.

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32

Starbucks Social Responsibility
Standards – Manufactured Goods
Starbucks purchases an increasing number of manufactured
products that are sold in our stores or used in our business
operations. With the aim to ensure these products areproduced without harm to workers or the environment,
in fiscal 2006 we created a new internal organization –Sustainable Procurement Practices (SPP) – focused onsocially responsible procurement practices, the Supplier Social
Responsibility Program and Supplier Diversity.
Initially launched in 2005, the Supplier Social Responsibility
Program aims to integrate responsible procurement
practices throughout Starbucks global supply chain for
manufactured goods by June 2010. This will help ensure
supply chain transparency, encourage a shared responsibility
between Starbucks buyers and suppliers, and support soundpurchasing decisions through a system of standards, tools andfactory assessments.
In fiscal 2006, we advanced our work in responsible sourcing
for manufactured goods by developing an enhanced set
of factory standards, creating tools for monitoring andcompliance, and initiating a pilot test of 10 factories in
China. Our Supplier Social Responsibility Standards(SSR) for factories include requirements for worker healthand safety, worker treatment and rights, worker hours andcompensation, transparency and environmental protection.
Rather than seek short-term remedies for issues that may
arise, Starbucks stresses the importance of continuous,
measurable improvement among our suppliers.

FUTURE GOALS
Our goals for fiscal 2007 include:• Selecting factory monitoring firms to conduct
independent assessments.
• Rolling out the Supplier Social Responsibility (SSR)
Standards.
• Assessing all new factories and systematicallyassessing existing factories.
• Conducting three factory training sessions for an
estimated 60 factories.
• Verifying and reporting on our factory base/supply
chain for manufactured products.

Key Supplier Social Responsibility
Program P olicies
1. Code of Conduct – overarching business standards
and practices
2. Standards for Manufactured Goods & Services –specific guidelines that incorporate applicable laws,
codes and regulations
3. Zero Tolerance Standards – non-negotiable standards
for being a Starbucks supplier

Additional progress made this year includes:• Development of new Zero Tolerance Standards todesignate critical non-negotiable behaviors for suppliersof manufactured goods, including lack of transparency,
denied access, child labor, forced labor, nonpayment ofwages and physical/sexual abuse.
• Development of and testing of processes and tools to
implement the SSR Standards. These include factoryassessment forms, an SSR Standards Manual and otherresources.
• Training of our internal buyers on the SSR guidelines,
standards and tools.

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33

Ethos™ Water

Ethos™ Water Voluntary Product Withdrawal

Starbucks acquired the Ethos Water brand in April 2005 andbegan selling Ethos™ bottled water in our U.S. companyoperated stores that same year. As part of this acquisition,
we began exploring the range of issues associated withbottled water.

Starbucks is deeply committed to the health and safety of
our customers and partners, and to delivering high-quality
products. If a concern arises regarding the safety or qualityof one of our products, Starbucks is committed to taking
appropriate measures and immediate action. One recent
example of Starbucks swift response related to an issue thatinvolved Ethos™ water.

In November 2005 Starbucks hosted a Water Stakeholders’Summit, moderated by Business for Social Responsibility(BSR), in order to learn more about stakeholder concerns
related to Starbucks use of water resources throughout
our business, sourcing and packaging for Ethos™ water,
The Starbucks Foundation’s investments in humanitarian
water projects resulting from the sale of Ethos™ water, andother water-related issues and topics. For information on
Starbucks and The Starbucks Foundation’s commitment toproviding clean water for children, please see pages 41 and 47,
respectively.
Encouraged by this stakeholder discussion, in 2006 we
focused our efforts on developing a set of responsible sourcing
protocols for Ethos™ water. Quickly recognizing that, todate, there is no one single standard for responsible sourcingof spring water, we consulted with a number of industry andenvironmental experts to further understand the issues, andto develop a strategy to guide our current and future water
sourcing plans.*
The result of this work is a responsible water sourcing protocol
designed to ensure that we purchase the highest quality
bottled water product, sourced in an environmentally andsocially responsible manner. The protocol includes provisions
for a variety of crucial sourcing concerns and specific legal
issues, such as the appropriate definitions of spring water;transportation impacts; sustainable yield assessment tobetter understand existing water uses (by animals, plants
and communities); bottling issues; and community impacts
and engagement.

In December 2005, it was discovered that one of the
suppliers that Starbucks was using at the time to bottle
Ethos™ water was out of regulatory compliance for levelsof bromate. Bromate is formed from bromide – naturally
occurring minerals found in some spring waters – during thepurification process.
Upon learning of this issue, Starbucks contacted the FDA andinitiated a voluntary product withdrawal for Ethos™ water
sold in 14 Western states. Supplies of Ethos™ water on the
East Coast of the U.S. were not affected because we utilize adifferent supplier for this region.
As a result of the recall, West Coast production of Ethos™
water was immediately halted, and the impacted inventory in
our stores, warehouses and other retail outlets was destroyed.
Starbucks temporarily supplied our Western U.S. stores with
Ethos™ water from our East Coast bottler while we located a
new source for the West Coast. Using our new water sourcing
protocol as a guide, we have qualified a new supplier that
we believe can consistently meet our quality standards andsustainable sourcing criteria.

Following initial development, we reviewed and refined theprotocol with our stakeholders and utilized it to audit ourexisting water sources. Moving forward, we intend to use thisprotocol as a tool to monitor our existing sites and to qualify
additional sources for Ethos™ water. Starbucks will also
continue to engage in dialogue with our stakeholders.
* Ethos ™ water is currently sourced from two natural spring sources – Baxter
Springs in the Sierra Nevada Range in Northern California, and Tomhicken
Springs in the Pocono Valley in northeastern Pennsylvania.

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34

Quality Assurance and Product
Recalls
Starbucks places the highest priority on the safety andwell-being of our customers and our partners. Our quality
assurance (QA) process is extremely rigorous and extends
throughout our entire supply chain – from coffee, dairy andother agricultural products to manufactured goods, such as
brewers, mugs and gift items.
Our commitment to product safety means that we not only
comply with government regulations and operate with fulltransparency in our QA processes, but ultimately, we seek
to do the right thing – for customers, partners and theenvironment – going above and beyond basic regulations
whenever possible and appropriate.
Several years ago we formed an internal “Product Incident
Team,” comprised of representatives from QA, Legal,
Operations and Communications in order to provide
additional monitoring of product quality. The team is tasked
with weekly review of product performance information,customer and partner feedback, and other product usage
information in order to proactively assess any potential issues.
Should a product quality, failure or safety issue arise, an
extensive response system, including communications andoperational components, is rapidly implemented.
Despite having extensive QA controls, certain unforeseen
situations can arise, making a product recall necessary inorder to bring a product into government compliance and/or
to ensure the health and safety of partners and customers.
In Starbucks 35-year history, we’ve had only a handfulof incidents that warranted a product recall, and in eachsituation we took a proactive and universal approach torectifying the situation and maintaining customer trust andloyalty. In fiscal 2006 we conducted a rapid and voluntary
withdrawal of Ethos™ water as a result of quality issues,
explained in more detail on the previous page.

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35

Starbucks GrowTH andCommunity Impacts
In an era of increasing globalization, whencommunities around the world are striving topreserve their cultural uniqueness, one mightassume that a large, global coffee company
is out of touch with the needs of individual
communities or its individual customers.

Starbucks Growth
To realize our ambitions for Starbucks long-term growth, wework to gain the support of local communities to open new
stores and operate our business. This comes down to how well
Starbucks is regarded as an enterprise that adds value to local
communities. When Starbucks is viewed as stimulating local
economic development, providing an inviting gathering place
for residents, and supporting neighborhood interests, we arealmost always welcomed in.

This assumption runs contrary to what we
believe at Starbucks. We do, however, recognizethat Starbucks continued success depends
greatly on our ability to operate our individualstores much like a small, local business does – bybuilding lasting, personal relationships with ourcustomers and neighbors. It also means honoring
the intent of Starbucks Guiding Principles bycontributing positively to our communities.

Occasionally, Starbucks entry into some areas raises concerns
among local residents. Our approach is to engage openly
and directly in the hope of resolving concerns before or as
they arise.

Throughout this section, we discuss Starbucks role in oursociety and the relationships we have with our communities
and customers. Specifically, we address:• Operating in the global community• Starbucks growth• Starbucks community investments

Over the next few pages, we examine some of the specificissues related to Starbucks growth, explain our perspective,
and share what Starbucks is doing to be a responsibleneighbor. Some of the topics discussed below are:• Continuing marketplace evolution• Being respectful of community concerns• Being locally relevant• Supporting local communities and economic development• Investing in communities around the world• The Starbucks Foundation

Store Growth• Starbucks commitment to health and wellness

In fiscal 2006, Starbucks opened 2,199 new stores, bringing
the worldwide total to 12,440 locations. We expect to add as
many as 2,400 new locations next year.

• Being responsive to our customers• Public policy and government affairs

SOCIETY

In October 2006, Starbucks announced plans to increase
the company’s long-term store target from 30,000 to 40,000
locations worldwide, more than tripling the company’s
current store base. We envision having approximately 20,000
locations in the U.S., and another 20,000 locations outside
the U.S. someday.

36

Continuing Marketplace Evolution
Over the past several decades, the marketplace has become
increasingly more competitive and global in nature. Large
retail companies entering the market offer the most visible
signs of this trend through the replication of their successful
store concepts within and beyond their national borders. Thisis also true for Starbucks.
A common misperception is that large global brand retailers
and small, independent retailers cannot coexist. The coffee
retailer market offers an example of such coexistence.
Coinciding with Starbucks growth has been a steady growthof small, independent coffee shops throughout the U.S. This
would suggest continuing synergy between the growth ofStarbucks and that of smaller coffee retailers. Starbucks haslong believed that coffee consumers have a wide variety ofneeds and preferences, and, in turn, their demands support avery diverse range of coffee retailers.
From the beginning, Starbucks has played an integral part increating an industry for gourmet coffee. This growth of thespecialty coffee industry has, in turn, created opportunities
for competing coffee businesses that similarly cater to theincreasingly sophisticated consumer palate for specialty
coffees. As Starbucks has grown, so has the industry, all ofwhich has benefited coffee consumers.

Operating in the Global Community
In our efforts to extend Starbucks presence to markets beyond
the U.S., we have been introduced to a multitude of newplaces, each one uniquely characterized by its history, culture,
sense of community and natural environment. We have also
been introduced to and welcomed by millions of enthusiastic
customers. Overall, our experience of doing businessthroughout the world has been overwhelmingly positive.

Being Respectful of Community
Concerns
The growing presence of global brand retailers has heightenedawareness about the level of homogeneity in the marketplace.
Some local citizens are opposed to national retailers entering
their communities, suspicious that these retailers will forceout small independents by driving up commercial rents oraffecting the unique complexion of their neighborhoods. On
occasion Starbucks has encountered community opposition,although it is far more typical for us to receive a warm andenthusiastic welcome when opening in a new area.
We make every effort to understand the underlying issues
related to these situations and work collaboratively andrespectfully with local citizen groups. Looking for ways
to leverage Starbucks economic impact – jobs, support forcommunity-based organizations, use of local vendors andsuppliers – is one approach we take. Another is to determine
how Starbucks can contribute to the local character of an areaand minimize any undesirable impacts.
Many factors are weighed when considering a specific location
to site a new Starbucks, focusing the end goal on being able
to serve our loyal customers in a welcoming environment.
However, if after thoughtful review we determine that
Starbucks is not a good fit for a particular locale, we may
choose to respectfully withdraw our plans to open a newstore. There have been several instances in the past when we
have elected to do this.
On the next page we report on three experiences we recently
had in California, New York City and London.

There are, however, times when doing business on the global
landscape presents some challenges, including dealing withthe wide spectrum of perceptions people have of America.
In some parts of the world, there has been a rise in antiAmerican sentiment, much of it attributed to the war in Iraq.
As a global company with an American heritage, we strive tobe respectful of other perspectives and responsive when we
encounter misconceptions that may affect our relationships
with our customers, neighbors and/or business partners.

SOCIETY

37

Local Community Case Studies
La Mesa, California
When some members of the community learned of ourplans to open a new store in the heart of La Mesa Village,
they expressed concern that Starbucks arrival might erodecompetition and change the unique character of this area.
La Mesa Village, the city’s oldest, most established shopping
district, is surrounded by many historic buildings that dateback to 1912, the year this city was incorporated in San Diego
County.
Some residents welcomed Starbucks presence, while others
who were more apprehensive registered their concerns withlocal civic leaders and the mayor’s office.
We believe a situation such as this can only be resolved whena climate of mutual respect and trust exists. We took thisto heart in La Mesa and reached out to the mayor, affiliatedwith the local merchant association and looked for otherways to become immersed and invested in the overall successof La Mesa Village. Starbucks also identified opportunities
to support important events that helped to strengthen ourconnection to the local community, which we had been a partof since opening our first store in the area in 1995.
As a result of these efforts, tensions softened and there wasa notable turn in acceptance. To celebrate the opening ofStarbucks new store, we held an event that was attended byrepresentatives from the City of La Mesa, members of the La
Mesa Merchants Association and many local neighbors.
New York City – Astor Place
When Starbucks began planning to make some much needed
repairs and improvements to the atrium area of the historic
Astor Place building, local residents wanted assurance that
Starbucks would be respectful of this 160-year-old landmark
structure as well as the distinctive character of the surrounding
community. The atrium offers ample seating space, which
many customers of Starbucks Astor Place store enjoy.
Many longstanding structures, such as Astor Place, arearchitectural treasures that connect residents to their local
history and add charm and character to their neighborhoods.
In the case of Astor Place, we wanted local residents tounderstand Starbucks commitment to their neighborhoodand our intent to preserve this mixed-use building that holds
a commanding view of the immediate area.

Through our engagement with the community, we wereable to dispel some misinformation that had previously beenreported, and share our desire to work together on a common
goal. Because Starbucks had been operating in this location
for some time, this process also helped to strengthen our
existing relationships in the community and set the course for
ongoing engagement.
London – Bloomsbury District
The occasional opposition to Starbucks has not only been
isolated to specific communities in the U.S. In 2006 we
experienced an incident in London when some local citizens
signed petitions in an effort to keep Starbucks from opening
a store on Lamb’s Conduit Street in the Bloomsbury district.
The resulting media coverage focused largely on the influencecertain celebrities had in galvanizing the community’s
opposition to this new Starbucks.
Since opening in August 2006, our store partners have soughtto establish relationships with neighboring businesses andcommunity organizations, and looked for opportunities tosupport local causes. While some community members havechosen not to frequent this new Starbucks store, others havebecome our customers. Starbucks is committed to building
strong ties to this community and continually looking
for ways we can contribute to the thriving life on Lamb’s
Conduit Street.

My Starbucks –Through its work with local preservationists,
Starbucks demonstrates how a national
retailer can be a good neighbor by helping topreserve community character instead ofdestroying it.
-Richard Moe, president, National
Trust for Historic Preservation

Due to our delay in renewing our local business license,
and the community’s overall concerns about the needed
repairs to the atrium, our permit to use the atrium space was
threatened. We resolved this matter in a positive manner byworking with a local council member, area residents, city
employees and the Landmark Preservation Commission tofind a suitable process that would ensure the preservation ofthis beloved site.

SOCIETY

38

Being Locally Relevant
Providing a consistent experience for our customers is
one of Starbucks greatest strengths. At the same time, weare respectful of our local communities throughout theworld and, when possible, modify our store environmentand customer experience in various ways. For instance, wehave adapted our menu at times to include special fooditems in Asia, Europe and elsewhere; adjusted the days andhours of our store operations depending on local customs;
incorporated architectural elements in our store design
to reflect the uniqueness of a neighborhood; and createddifferent types of store environments that are culturally
attuned to and meet our customers’ needs.
In the UK, Starbucks has an initiative aimed at incorporating
features that make our stores relevant to the local
communities. For example, in Manchester, England, we havepurchased several items for our local stores from Benchmark
Furniture Design, a local maker of wood furnishings with asocial mission.
Some of our stores in the U.S. are also adapted with alocal flair. For instance, instead of building a new store in
Chicago’s Beverly neighborhood, Starbucks refurbishedan existing limestone building and preserved many of theoriginal features, including a distinctive fireplace mantel
which we designed to be a focal point of our new store.

Supporting Local Communities andEconomic Development
Whether it’s an existing location or we are entering aneighborhood for the first time, an important way we ensure
strong ties to the community is through our support of local
programs and causes. This takes a variety of paths, including
our ongoing support for community-based organizations;encouraging our partners to actively volunteer; establishingalliances with nonprofit organizations; and other local
engagement activities.

As the name suggests, UCO focuses on creating opportunities
for communities that may have been overlooked by otherprominent retailers, despite their long-term potential for
economic vitality. At times, Starbucks has been the firstpremium brand retailer to site a store in a certain area, apresence that has helped to serve as an economic stimuluswith the creation of new jobs, use of local suppliers, and by
attracting other major retailers to the neighborhood. (Formore information on UCO, please see page 75)
Building Civic Alliances
In fiscal 2006, Starbucks worked closely with civicorganizations that helped us better understand theopportunities, concerns and challenges faced by our local
communities, including the U.S. Conference of Mayors
and the National Trust for Historic Preservation – Main
Street Center.
These relationships have been mutually beneficial. Not
only have we forged closer connections to our communities
through these civic relationships, we have also been able
to educate the public about Starbucks brand and the value
we bring to local municipalities, and gain a broader range
of insights and feedback at the civic level. We believe theseorganizations have benefited from Starbucks support of issues
that are important to their constituents. Historic preservation,
the environment, infrastructure, jobs and urban revitalization
are just a few of the issues we collectively address throughthese alliances.
In the following pages, we explain how Starbucks isinvesting in our local communities in the U.S. and ourinternational markets.

In addition to this type of support, Starbucks has beena catalyst for local economic development. Since 1998,
Starbucks has had a joint venture with Johnson Development
Corporation, a company owned by Earvin “Magic” Johnson,
through Urban Coffee Opportunities, LLC (UCO). The
goal of UCO is to bring Starbucks stores to diverse local
communities in the U.S. At the end of fiscal 2006, there were
102 UCO stores in operation.

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39

Starbucks Community Investments
Starbucks seeks opportunities to contribute positively
wherever we have a presence. At any given time, we may
be funding a water purification system in Indonesia;
contributing to the rebuilding of a library damaged by anatural disaster; or helping to establish a new high school in arural coffee-growing village.
The specific topics we discuss include:• Our overall approach to community investments• Investing in local communities– Promoting the need for clean water– Rebuilding communities struck by natural disaster– Starbucks partners – supporting their communities– Localized initiatives• Investing in communities around the world– Investing in coffee- and tea-growing communities• The Starbucks Foundation
Our approach to community investments has been shaped by
our increasingly global presence. After thoughtful discourse –internally and with external stakeholders – Starbucks decided
in fiscal 2006 to begin focusing a significant portion of ourcommunity investments on two universally important issues:
education and access to clean water. These two complex yet
critical issues complement Starbucks core values and ourstrategic direction. We also believe that by focusing andaligning the giving priorities of Starbucks Coffee Company
and The Starbucks Foundation, Starbucks contributions will
have greater impact and provide more benefit to communities
around the world.
Given the complex nature of the issues we address, our giving
is done in a number of ways and through various channels.
These include:

We recognize that our focused approach to community
investments needs to remain flexible so we can be responsive
to emergent needs in the areas where we have a local presence.
This was certainly the direction we took in fiscal 2006, by
targeting our giving in the following ways:• Launched a campaign to call attention to the global
water crisis and provided funds to address critical water,
sanitation and hygiene programs in regions of Ethiopia
and Indonesia.
• Provided ongoing assistance for rebuilding efforts in U.S.
Gulf Coast communities affected by Hurricane Katrina.
• Supported locally relevant education programs incommunities where we do business.
• Contributed to the local nonprofits that our partners
personally support with their contributions of timeand money.
• Invested in projects that benefit coffee- and tea-growing
communities.
In fiscal 2006, Starbucks cash and in-kind contributions werevalued at $36.1 million, or four percent of the company’s
earnings before income tax. (See pie chart below.)
Starbucks Donations Paid in Fiscal 2006*
Total: $36.1 million

Starbucks
contribution to
The Starbucks
Foundation$15.9 million

Corporate giving$9.8 million

Projects in coffee
communities$2.7 million**

Product andin-kind donations$7.7 million• Cash contributions made at the corporate, regional andlocal level• In-kind donations of Starbucks products and resources• Partner (employee) volunteer and gift-matching programs• Contributing funds to The Starbucks Foundation for its
grant-making efforts• Adding premiums to some of our coffee contracts to fundcommunity projects* This chart represents grants and product donations paid by Starbucks Coffee

Company
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• Encouraging customer charitable donations

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40

Investing in Local Communities

Rebuilding Communities Struck by Natural Disasters

Starbucks long tradition of supporting important and locally
relevant causes got its start in the U.S., although today ourgiving extends to communities around the world – especiallyin places where we have a strong and growing presence.

Starbucks has been quick to respond to and provide assistanceto local communities devastated by natural disasters inseveral regions around the world. This includes our relief
efforts for communities along the U.S. Gulf Coast, and areas
affected by the tsunami in South Asia and the earthquake inIndonesia. Starbucks also provided support to coffee-growing
communities in Central America affected by Tropical Storm
Stan. Our response to Tropical Storm Stan is described on
page 28.

Below we provide several tangible examples of community
investments Starbucks made in fiscal 2006, beginning withdescriptions of our U.S. initiatives and our support fordisaster relief; followed by a section highlighting our local
community efforts in some of our international markets.
Promoting the Need for Clean Water
In recognition of World Water Day, a UN day of observance,on March 22, 2006, Starbucks launched a multiyear effort
to call attention to one of the most significant public issues
in the world. More than one billion people globally lackaccess to clean, safe drinking water. The public healtheffects associated with this global water crisis are enormous,
including the death of an estimated 1.8 million children eachyear from preventable waterborne illnesses.*
Solving the problem will take a concerted global effort andresources from many different sources. Our goal is to leverage
Starbucks unique culture and global presence to make adifference. Raising awareness with our partners and customers
about the world water crisis – and what we all can do toaddress it – is a first step. In fiscal 2006, we:• Sponsored World Water Day walks in eleven U.S. cities tosymbolize the difficult average three-mile daily walk thatwomen and children in developing countries often maketo get drinking water for their families.
• Launched a World Water Day website,www.worldwaterday2006.org, to inform and mobilize thepublic about the issue.

Hurricane Katrina
In September 2005, following Hurricane Katrina, Starbucks
made a $5 million commitment, funded by both Starbucks
and The Starbucks Foundation, to support the region. This
commitment included an immediate $1 million donation that
Starbucks made to the American Red Cross for emergency
relief services.
The remaining funds will be used for the ongoing rebuildingof local Gulf Coast communities that are still recovering fromthe overwhelming damage caused by this hurricane.
As part of our initial $5 million commitment, Starbucks
pledged a portion of revenues generated by the CD I Believe to
My Soul for the rebuilding efforts. Ten dollars of the purchaseprice of every copy sold in Starbucks company-operated storesin the U.S. and Canada is donated to aid in the Gulf Coast’s
recovery. Donations are made to the American Red Cross andthe Canadian Red Cross and will continue for the lifetimeof the CD. To date, more than $315,000 has been raised
through the sale of I Believe to My Soul.
To learn how The Starbucks Foundation is addressing therestoration of communities in the U.S. Gulf Coast, please see
page 46.

• Encouraged nearly 4,000 partners and individuals
representing NGOs to participate in World Water Day
Walks for Water in cities around the country and on a
“Virtual Walk for Water” online.
For information about The Starbucks Foundation’s
international initiatives to bring reliable and clean water tocommunities in Ethiopia and Indonesia, see page 47.
* Human Development Report 2006 from the United Nations Development
Programme

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41

South Asia Tsunami Communities
As part of our ongoing work with CARE International, aleading humanitarian organization fighting global poverty,
Starbucks provided $50,000 to CARE in fiscal 2006 to
support the restoration of areas in South Asia where the needs
are greatest. With Starbucks support, CARE has been able to:• Develop innovative and local technology to improve waterand sanitation devices in CARE-constructed houses.
• Organize trainings and provide materials that have helped
16,000 people find a range of ways to earn an income,including: tailoring, carpentry, cooking, fishing andsmall shops.
• Conduct three-day trainings on maternal and child healthissues for 245 health workers. Each month, approximately
2,500 women are screened for malnutrition and provided
with supplements.
For a complete picture of CARE and its work in South Asia,
see www.care.org.
Indonesia Earthquake
Starbucks Asia Pacific business established The Starbucks
Indonesia Earthquake Fund as part of a fundraising effort
aimed at helping our partners and others in need who
were recovering from this natural disaster. Starbucks Japan
contributed to the earthquake relief efforts by initiating a
donation program in conjunction with Starbucks Coffee
International and Starbucks Coffee Asia Pacific. Funds
raised through the sales of Indonesian whole bean coffee
during June 2006, approximately $17,800 (¥2,100,149), were
contributed to Japan’s chapter of CARE International.

Starbucks Partners – Supporting Their Local
Communities
Our partners have repeatedly demonstrated a strong desire
to engage in their communities, and Starbucks is proud
to encourage and support their efforts. The following two
programs are unique to the U.S. and Canada, although ourinternational partners are involved in their communities inmany similar forms.
Make Your Mark Volunteer Program
Starbucks volunteer program – Make Your Mark (MYM) –was introduced six years ago in the U.S. and Canada as a way
to encourage and support our partners’ (employees) volunteer
efforts. Through MYM, Starbucks matches our partners’
volunteer efforts by donating $10 for every hour volunteeredto the designated nonprofit organization, up to $1,000
per project.
If our partners enlist the help of customers, Starbucks
matches their volunteer hours, too. Since its inception, MYM
has inspired our U.S. and Canadian partners and customers
to volunteer more than one million hours for thousands of
local community organizations. That’s equivalent to about
480 people working full-time for one year. (See graphs below.)
To learn about The Starbucks Foundation’s special Make YourMark program to support partners’ exceptional community
efforts in the U.S. Gulf Coast region, see page 46.

Make Your Mark Volunteer Hours

Starbucks Make Your Mark Grants$1,487,000

383,000$1,559,000

299,000$801,000
214,000

Fiscal year

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2004

2005

2006

Fiscal year

2004

2005

2006

42

Choose to Give! Gift Matching Program
Starbucks also encourages our U.S. and Canadian partners
to make their own charitable gifts with support fromthe company’s gift-matching program, Choose to Give!
Starbucks matches our partners’ charitable gifts, dollar-fordollar, up to $1,000 annually. In fiscal 2006, 3,800 of ourpartners’ charitable contributions were matched by Starbucks
with $677,000.
Localized Initiatives
In addition to our national community initiatives in the
U.S., Starbucks looks for opportunities to contribute at the
local level in meaningful ways. Based on our belief that
communities greatly benefit when grants are combinedwith volunteerism, we often direct our local community
investments to the organizations where our partners areactively involved. In other cases, Starbucks supports causesthat are locally relevant and contribute in a meaningful way
to enhancing community life.

NA AC P Strategic Alliance
In May 2006, Starbucks announced a five-year, $2.5
million commitment of both cash and in-kind donations
to the National Association for the Advancement ofColored People (NAACP), the oldest and largest civilrights organization in the U.S. This strategic alliance will
enable Starbucks and the NAACP to support programs andactivities reflecting our shared commitment to social andeconomic equality. The NAACP and Starbucks will work
together on an annual basis to identify programs that will
receive funding through Starbucks donations.

Examples of our localized initiatives include the Starbucks
California Giving Program (www.starbuckscalgiving.com),which awards grants annually to eligible community-based
nonprofit programs that allow children an opportunity togrow and flourish. The other is Starbucks Neighborhood
Parks Program (www.starbuckslovesparks.com), an initiative
designed to help improve local area parks in the Greater
Seattle area, Starbucks hometown. With our localized
initiatives, our partners’ involvement is a key component, andstrongly encouraged.

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43

Investing in Communities Around
the World
In our international markets, there are countless examples
of how Starbucks supports local communities throughphilanthropy, partner engagement and by opening our doors
for community events. While our international community
efforts support many causes and often follow the lead of ourpartners’ interests, we are beginning to focus more of ourefforts on support of educational and water-related initiatives
that improve the lives of children. Below are some examples
that represent our activities in fiscal 2006:
Greater China• Mainland China – Since the opening of our first store
in Beijing in 1999, partners have been involved incommunity initiatives, from volunteering in local schools
to assisting other educational nonprofit organizations.
• Hong Kong/Macau – We facilitated a customer toy
and book drive for Operation Santa Claus, an annual
fundraising effort held every December in support of small
charities in urgent need of support.
• Taiwan – Starbucks Taiwan continued its long-term
support of aboriginal children through World Vision
Taiwan, in addition to sponsoring an environmental
awareness campaign and a community cleanup.
Asia Pacific• Thailand – On Earth Day, Starbucks Thailand held a“Green Up” workshop at a central park in Bangkok forcustomers and partners. Workshop participants learned
how to minimize their environmental footprint andplanted new trees in Rot Fai Park.
• Japan – Starbucks Japan, in collaboration with Major
League Baseball, donated $248,500 (¥28.7 million) tofour agencies that enhance the lives of children in Japan,
Ethiopia and Indonesia. Revenues for the donations
were raised through sales of a Starbucks Card featuring
Ichiro, a famous Japanese baseball player who plays for
the Seattle Mariners. The Cards were sold in all Starbucks
Japan stores.

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Europe/Middle East/Africa (EMEA)• The UK – Starbucks partners have worked with the
National Literacy Trust for six years to develop All Books
for Children, a program that introduces preschool children
and their families to the benefits of libraries and reading.
Hundreds of Starbucks partners have been involved withthe program since its inception. For the second year ina row, UK partners were honored for their outstanding
efforts in support of literacy with a prestigious award from
Business in the Community, a movement that encourages
positive civic engagement by businesses.
UK partners also supported an African Wildlife
Foundation (AWF) program in Kenya. AWF is working to
improve the accessibility and reliability of water and bringother basic improvements to a Kenyan coffee-growing
community. Ten UK partners traveled to Kenya in
October 2006 to meet with local coffee farmers who havebenefited from the project and learn about the other workof AWF.
• Germany – Literacy was the focus of our partners inGermany who participated in a nationwide Read-Out
Day in November 2005 in cooperation with the German
Literacy Trust Organization and Die Zeit, a nationwide
weekly newspaper. Twenty-four Starbucks stores hosted
reading sessions for children.
• Greece – Our partners in Greece have continued tosupport SOS Children’s Villages and prioritize children’s
health and welfare in their community efforts. In fiscal
2006, partners lent their support to several programsfor orphaned children. They also helped create libraries
and playrooms for children hospitalized in four state-runorganizations.
• Spain – Our partners organized an in-store children’s bookdrive during the holiday season in fiscal 2006. Many of
our customers donated books, bringing the total to 1,475
books collected. The books were then donated to several
different Children’s Hospitals.
• Turkey – Our partners in Turkey identified education as
an important issue in their communities, due to the young
age of the Turkish population (65 percent are below 18
years of age). Working with the Ministry of Education,
each new Starbucks location identifies a local school towork with. Partners commit personal time to support
events such as parties, fund raising and gift giving as wellas organizing day trips for the children to theatres andmuseums. They have found that the trips can be a once-ina-lifetime experience for some of the children, and this fact
alone has a positive effect on the satisfaction our partners
feel from being involved. As of May 2006, there were 40
schools involved in the program, with an average of 1,000
students each, including two schools that serve students
who are deaf.

44CanadaStarbucks Coffee Canada is dedicated to supporting family
literacy by working with a variety of national and local literacyorganizations. In fiscal 2006, we partnered with the ABC
Canada Literacy Foundation to launch Gift of Words (GOW),
a national program to address funding shortages in schools,
libraries and literacy organizations. GOW will provide children
with access to books and one-on-one reading opportunities toencourage their development as lifelong readers and learners.
In its first year GOW delivered thousands of books to children
across Canada, and more than 69,800 children gained access to
new or improved reading circles.
Starbucks Canada donated $264,000 (CAD$305,000), which
represented the full proceeds of latte sales in all CanadianStarbucks stores on January 19, 2006, to Gift of Words andFrontier College, another national literacy organization.
Latin America• Mexico – Until recently, there was no high schoolin the rural province of Nuevo Paraiso in Chiapas,
Mexico, an area that is home to many coffee farming
families. Attending high school – or taking any classbeyond primary school – meant leaving the province
and relocating miles away. When the coffee cooperative
Comon Yaj Nop Tic looked into building a regional highschool, Tecnológico de Monterrey, a private college, offered
to install a virtual education program, transmitted via
satellite to a central location in the province.
After six months of combined effort by the cooperative,
Starbucks and many community members, as wellas $10,000 in financial support from Starbucks, aCommunity Learning Center was built and opened inJune 2006. The Center, which now serves 150 coffee
farming families and others from five neighboring
communities, provides access to a virtual high school andpost-graduate programs, as well as family development andhealth programs. Permanent instructors staff the Learning
Center under the supervision of Instituto Tecnológico y deEstudios Superiores de Monterrey. More than 50 students
have registered for the 2006-2008 high school program.
Other courses are being developed, including training onsustainable coffee production.
• Chile – Starbucks partners in Chile are dedicating
their efforts to help children with serious medical issues
participate in a special form of movement therapy known
as hipotherapy. Starbucks partners worked twice a weekwith these children as they engaged in hipotherapy asa means to improve their balance and coordination.
Starbucks Chile funded a scholarship to allow one childto receive the treatment in fiscal 2006, and will continue
supporting the program in fiscal 2007 with an additional
scholarship and partner support.

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Investing in Coffee- and Tea-Growing
Communities
Starbucks recognizes the positive impact our trading
relationships and our commitment to education and healthissues can have on coffee- and tea-growing communities.
Starbucks often works with nongovernmental organizations(NGOs) with required knowledge and expertise to ensure ourefforts are effective.
In fiscal 2006, Starbucks continued to support thework of Conservation International, African Wildlife
Foundation, CARE International, and Coffee Kids in theareas of biodiversity preservation, wildlife conservation,
poverty alleviation and microlending, respectively. We
also maintained our collaboration with Save the Children
in Guatemala and our work with Mercy Corps in teagrowing communities.
For information about our investments in coffee- and teagrowing communities, see pages 27 and 31 respectively.

Save the Children
In 2005, Starbucks committed $1.5 million over four years
to bring bilingual education to 20 Mayan communities
in the rural highlands of Guatemala, $426,000 of which
was contributed in fiscal 2006. Starbucks selected Save
the Children USA, an international relief and development
organization, to lead our Guatemala Education Initiative.
Save the Children then successfully leveraged Starbucks
support by securing $600,000 in matching funds from theUnited States Agency for International Development (USAID)
to bring additional educational benefits to rural Guatemala.
The Guatemala Education Initiative aims to provide qualitypreschool, primary and secondary education to rural
indigenous children, with special emphasis on girls. Save
the Children has developed bilingual programs sensitive to
local social and cultural factors, with input from parents,
education officials and community leaders.
In the first year of operation, Save the Children worked in 14
schools in 12 communities and established 14 preprimarycenters. More than 50 teachers were trained and as manyas 1,700 children are now participating in the new bilingual
active learning programs. More information is available on
the Save the Children website: www.savethechildren.org/
corporate/partners/starbucks.html
Starbucks partners have supported the Guatemala Education
Initiative enthusiastically. In fiscal 2006, partner supportof the Guatemala Education Initiative provided funding
to furnish two rural Guatemala schools with backpacks
containing school supplies; school playgrounds; and othervaluable supplemental support for the children.

45

The Starbucks Foundation

Hurricane Katrina Rebuilding Efforts

Starbucks chairman Howard Schultz established The
Starbucks Foundation in 1997 with a mission to create hope,
discovery and opportunity in communities where Starbucks
retail stores are located. Since that time, The Foundation
has provided more than $18 million in funding initiallyto literacy and youth education programs in underserved
communities in the U.S. and Canada. More recently, The
Foundation has broadened its approach to grant making.

In September 2005, following Hurricane Katrina, Starbucks
made a $5 million commitment, funded by both Starbucks
and The Starbucks Foundation, to support the region. The
Starbucks Foundation donated $200,000 to immediate relief
efforts following Katrina, including $150,000 to Habitat for
Humanity and $50,000 to Jumpstart of New Orleans. The
Jumpstart funds will be used to rebuild libraries and replace
books, and the donation to Habitat for Humanity supported
a musicians village project. The Starbucks Foundation has
taken an innovative, community-based approach to helping
the region recover from the hurricane disaster, including:

The Starbucks Foundation, a 501(c)(3) charitableorganization, receives the majority of its funding from
Starbucks Corporation as well as some private donations. The
Foundation, a separate entity from Starbucks Corporation, isgoverned by a board of directors comprised of 11 Starbucks
senior executives and is chaired by Orin Smith, retired
Starbucks president and chief executive officer.
In fiscal 2006, The Foundation made more than 200 grants
to nonprofit organizations, totaling $7 million.
The Starbucks Foundation is increasingly focusing more of
its resources on education and addressing issues related towater. The Foundation seeks to align its giving with its corevalues and mission, and be responsive to emergent needs incommunities where Starbucks has a presence. In fiscal 2006,
The Foundation supported a variety of initiatives around theworld, including:• Rebuilding efforts in areas impacted by two significant
natural disasters• Making grants of $50,000 each to four community
foundations to be used where the need was greatest.
• Setting up Donor Advised Funds totaling $700,000 at
three community foundations to take recommendations
from partners (employees) for gifts of up to $10,000 to
grass-roots, neighborhood nonprofits.
• Instituting a Gulf Coast version of Make Your Mark to
support our partners’ extraordinary volunteerism in theircommunities. The Foundation donates $25 for every
hour that our partners volunteer their time to nonprofit
organizations working to restore homes, lives andcommunities destroyed by Hurricane Katrina. To date,nearly $17,000 has been granted to eight projects throughStarbucks match of the volunteer hours of 86 individuals.

• Projects aimed at improving access to water, sanitation andhygiene education

The Foundation will monitor rebuilding efforts in the region
and work with community leaders to identify the areas ofgreatest need and determine how the reserved funds can best
serve local communities.

• Youth development programs in education, the arts andenvironmental education

My Starbucks –• Continued support of key nonprofit partners that promote
literacy• Funding to establish The Starbucks China Education
Project at Give2Asia

FUTURE GOAL
The Starbucks Foundation will mark its 10-year
anniversary in 2007. Both The Foundation andStarbucks Coffee Company will announce a global
philanthropic framework focused on supporting
educational initiatives in Starbucks retail markets
around the world.

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Jerry Moran, store manager, and his
fellow New Orleans partners have been
instrumental in saving flood-damaged
homes from the bulldozer. The Cityof New Orleans placed a deadline forhomeowners to salvage and treat theirsodden and often mold-infested homes.
The cost was prohibitive for manyfamilies in lower income neighborhoods.
So Jerry and his co-workers, alongwith others throughout the Gulf Coastregion, teamed up with ACORN (The
Association of Community Organizations
for Reform Now) to help recoverthese homes through a combined 670hour volunteer effort. The volunteers
restored 11 homes in fiscal 2006, whileraising an additional $17,000 to support
ACORN through donations from a special
Gulf Coast version of Make Your Mark.

46

Ethos Water Fund and World Water Initiatives
Through the acquisition of the Ethos Water brand in April
2005, Starbucks embarked on an effort to raise awareness of
the world water crisis and support clean water initiatives. For
each bottle of Ethos™ water sold, five cents is donated toward
Starbucks goal of contributing at least $10 million by 2010 tohelp alleviate the world water crisis.
The Ethos Water Fund is housed within and directedby The Starbucks Foundation to support nonprofit andnongovernmental organizations working to bring clean water
to those in need around the world. Funding priority is given
to integrated and sustainable water projects that positively
impact the lives of children and their communities.
On World Water Day 2006 The Starbucks Foundation
announced two new multiyear initiatives to help communities
in Indonesia and Ethiopia gain access to improved water,
sanitation and hygiene education.
Mercy Corps in Sumatra, Indonesia
The Starbucks Foundation committed $1 million over two
years to support Mercy Corps’ Sumatra Healthy Schools
Program on Sumatra Island, Indonesia. In this region, thelack of potable water has helped fuel an anemia epidemic
in young people, among other serious nutritional andhealth problems.

My Starbucks –Sandy Nelson has been engaged in
the world water crisis for the last five
years. She and her husband, Chris, areactively involved with a Seattle-based
international water organization andhave seen firsthand how severe thewater-access issues are in countries
like Honduras, Ethiopia, Bangladesh
and India. “To actually see children
who are sick because their drinking
water is contaminated changes one’s
values tremendously,” Sandy says.
Sandy is a senior designer in the
Starbucks Creative Group, so when
Starbucks acquired Ethos Water in2005 she was eager to bring her
personal experience to help build theEthos Water brand. The passion Sandy
has for bringing safe water to thosein desperate need is now helping to
inform the design and communicationof the Ethos Water mission.

Mercy Corps has identified four interrelated program
components to improve children’s health by addressing
the problem through 960 schools in four provinces. The
Foundation’s Ethos Water Fund is providing needed funds toaddress the water and sanitation components of the programin 760 schools.
For more information about the Sumatra Healthy Schools
Program, see www.ethoswater.com and http://indonesia.
mercycorps.org
WaterAid in Ethiopia
Menge Woreda is located in northwestern Ethiopia near the
Sudan border. Surrounded by mountains, it is a remote andmarginalized region of one of the poorest countries in theworld.
Over a period of three years, beginning in 2005, WaterAidplans to provide all 22 villages in Menge Woreda withaccess to safe water, effective sanitation, and the hygiene
education necessary to make the best use of these facilities.
The Starbucks Foundation has committed $1.13 million
over three years to support this potentially life-changing
project for the 38,000 residents of Menge Woreda. For more
information about this project, see www.ethoswater.com,
or see www.wateraid.org for more about WaterAid’s workin Ethiopia.

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47

Supporting Youth: Arts and Literacy, Environmental
Literacy
Through the Giving Voice grant program, The Starbucks
Foundation promotes literacy for the 21st century. The
regional grant program supports programming for youth ages
6-18. Priority is given to programs that integrate literacy skills
with personal and civic action, and that empower youth tobecome local champions for a sustainable environment. In
fiscal 2006, The Foundation awarded more than $2 million
in Giving Voice grants, ranging from $5,000–$20,000, tocommunity-based organizations in the U.S. and Canada.
City at Peace AwardIn May 2006, City at Peace, an after-school program forteens in Los Angeles, honored The Starbucks Foundation andStarbucks partners for their support over the last three years.
City at Peace was a fledgling organization in 2003 when,with the support of local Starbucks partners, the organization
applied for a grant from The Starbucks Foundation. Today
City at Peace is a dynamic youth development program thatuses the performing arts to bring together teenagers fromvastly diverse backgrounds to create personal and socialchange. The program supports, guides, instructs and nurtures
youth leaders, corresponding perfectly with the goals of The
Starbucks Foundation’s Giving Voice grants.
Key Partnerships
In fiscal 2006, The Foundation continued support of several
national youth organizations in the U.S. and Canada –America SCORES and Jumpstart – and Earth Day Network,
an environmental education organization.
Jumpstart’s Read for the Record
During August 2006, Starbucks supported Jumpstart’s Readfor the Record campaign to promote awareness of earlylearning and school readiness. The campaign raised nationalawareness of Jumpstart’s successful approach to preparing
young children to succeed in school, and achieved thefollowing goals as well:• An official Guinness World Record was set when adults
across the U.S. read The Little Engine That Could to morethan 150,000 children on August 24, 2006.
• In partnership with Jumpstart’s corporate partners,
Starbucks was the exclusive retailer and sold nearly 53,000
copies of a special edition of The Little Engine That Couldin four weeks and donated the sales price of the books,
totaling more than $500,000 to Jumpstart.
• Starbucks stores hosted more than 330 reading events
across the U.S., engaging thousands of partners andcustomers in Jumpstart’s mission.
• Renewed interest in the classic children’s book pushed it to
first place on the New York Times Bestselling Children’sBook list.

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Earth Day Network – National Civic Education Project
The Starbucks Foundation contributed $75,000 in fiscal
2006 to launch Earth Day Network’s new National Civic
Education Project (NCEP). The Project recruits teachers andtheir students from diverse urban neighborhoods to combine
civic and environmental education through a community
environmental project of their choosing.
In its first year, the NCEP worked with three schools inCincinnati and one in Washington, D.C. The project wasparticularly effective in Cincinnati where the teachers
focused on greening schools and contributed greatly to theBoard of Education’s decision to adopt greener building
practices. Student projects ranged from building a green
roof on a school to raising awareness of the economic,
educational and environmental benefits of green schools. The
students presented their findings to the Board of Education,
including such benefits as higher attendance and greater
academic performance.
The Starbucks China Education Pro ject
Starbucks first store in China opened in 1999 and ever since
we have been working to simultaneously expand our store
and community presence. At the heart of Starbucks social
responsibility endeavors in China is the China Education Project.
This project was created to support the emphasis that both China
and Starbucks place on the importance of education. In 2005,
The Starbucks Foundation pledged $5 million over five years toestablish the Starbucks China Education Project at Give2Asia, anorganization dedicated to promoting philanthropy in Asia.
The Starbucks China Education Project is also overseen bya local steering committee in China, comprised of education
experts, foundation and community representatives, andStarbucks executives. Working with this committee of local
stakeholders helps ensure that Starbucks efforts are locally
relevant and address the areas of greatest need in the ruralcommunities targeted for assistance. Since the project
was launched in 2005, the steering committee has been
instrumental in shaping the overall direction and structure of
the project.
The committee identified the need for quality teacher training
as one of the top priorities to improve education. In China,
many teachers in rural villages have little or no formal training.
Almost always, they are the only teacher in their village so theymust teach to all grade levels.
To help address this challenge, the Starbucks China Education
Project is supporting the China Soong Ching Ling Foundationin an effort to provide training for teachers to improve theirskills and offer financial assistance to financially disadvantaged
students pursuing teaching careers in 15 universities in China.
At the first teacher training session held in July 2006, teachers
were trained in the latest techniques and received materials
to continue their education in their home villages. Other
components of the program will offer:• Training for school administrators• Books, supplies and teaching tools
By 2010, the teacher-training program is expected to reachan estimated 3,000 teachers from nearly 1,000 primary andmiddle schools located in five western provinces.

More information about The Starbucks Foundation is available
online at www.starbucks.com/foundation.
48

Starbucks Commitment to
Health and Wellness
In 2004 the World Health Organization (WHO)introduced a major plan, calling attention to
the growing worldwide epidemic of diseases
attributed to poor diet, lack of exercise andobesity. Among them: heart disease, diabetes,
cancer, osteoporosis and tooth decay – all ofwhich have an impact on healthcare systems
worldwide and overall quality of life. According
to the WHO, obesity is not only a formidable
problem in some Western countries, it is now
becoming an issue in the developing world.
As concern over this public health issue mounts, Starbucks
has already implemented a number of health and wellness
measures to offer more choices to our customers. These
include:• Expanding our menu offerings to include an array of
options, and encouraging customization• Providing nutrition information on our beverages and foodproducts• Reducing trans fats in our products• Adopting a long-term and holistic approach to promotehealth and wellness

Expanded and Customized Menu Offerings
Starbucks actively listens to what our customers tell us andcontinually adapts in response to their demands. In recent
years our customers have requested a wider range of menu
options from which to choose and customize. They have also
asked for more nutrition information about Starbucks foodand beverage products. This feedback, as well as feedback
from nutrition experts, helped inform specific actions wetook in fiscal 2006, including the formation of an internalteam to focus on health and wellness initiatives. For
example, this team is looking at nutritional criteria for future
product development.
In addition, Starbucks will drive efforts aimed at providing
a broader selection of product choices to our customers, onboth a companywide and a regional basis. We will build on
options currently offered, such as nonfat, organic and soy
milk; sugar-free syrups used in some of Starbucks handcrafted
beverages; reduced-fat and lowfat baked items; and lower fat
and reduced calorie Frappuccino® blended beverages.
In fiscal 2006, Starbucks introduced several beverage andfood items as part of our commitment to health and wellness.
Here are some examples:• Yogurt parfaits and fresh fruit salads were added to themenu in various stores.
• Prepackaged nut and dried fruit blends began
being offered.
• Pomegranate and Tangerine Frappuccino® Juice
Blends, which contain real fruit juice and are naturally
fat-free, cholesterol-free, and completely non-dairy,
were introduced. These lighter beverages can becustomized with any Tazo® tea flavor, including caffeinefree options.
We encourage our customers to customize and create theirfavorite beverages exactly as they like – from lighter versions
to indulgent splurges. In fiscal 2006, nearly 40 percent of thebeverages consumed by our U.S. customers were ordered withfewer calories and less fat, such as coffee and tea.

SOCIETY

49

Nutrition Information on Starbucks Beverages andFresh Food
We are committed to helping our customers make wellinformed choices about Starbucks food and beverages
by making nutrition information readily available. Our
U.S., Canadian and UK customers can access nutrition
information on Starbucks beverages via an in-store brochure.
The information is also available on Starbucks.com.
In fiscal 2006, we enhanced our website to include nutrition
information on all fresh food items offered at Starbucks storesin the U.S., the majority of which are regional offerings.
Customers visiting the nutrition page on Starbucks website
are prompted to enter their local zip code and then accessnutrition information on specific fresh food items offered attheir local Starbucks store.
Over the past three years, more than six million customers,
nearly half of those in fiscal 2006, visited Starbucks.com fornutrition information. This indicates to us that Starbucks
customers are taking personal responsibility to make theirown well-informed choices.
Addressing the Issue of Trans Fat
Starbucks has taken measures to reformulate our beverage
ingredients in order to reduce trans fat content while still
maintaining the taste and quality our customers enjoy. We arealso working closely with our regional bakeries on efforts to
reduce or eliminate trans fat content in our pastry items.
Some of our accomplishments in fiscal 2006 are listed below:• Complied with the new labeling requirements for transfats. This includes the labeling of our prepackaged foods
and posting information about trans fat content in our
non-packaged foods and beverages online. Since dairy
ingredients contain small amounts of naturally occurringtrans fats, there will always be traces of these fats reported
for our beverages made with dairy products.
• Reformulated our Frappuccino® blended crème base,bringing all of Starbucks beverages to less than 0.5 gramsof artificial trans fat.
• Reduced trans fats to 0 grams (per the U.S. Food andDrug Administration’s nutrition labeling rounding rule) inall of Starbucks national promotional pastry items offeredin the U.S., including our pumpkin cream cheese muffins
and gingerbread loafs.
FUTURE GOAL
In fiscal 2007, work with our regional bakeries toeliminate trans fats from all of our food offerings in
our U.S. company-operated stores.

SOCIETY

Our Long-term Approach to Health and Wellness
Our commitment to health and wellness is a deeply
embedded tenet of Starbucks history and culture. It’s reflectedin the way we care for our partners and in the relationships
we have with our customers. In recent years, Starbucks has
become an advocate for healthcare reform in the U.S.
We believe in being proactive when it comes to addressing
the shared concerns of our customers and the public at large.
In early fiscal 2006, Starbucks held a roundtable discussion
with nutrition experts. We asked for feedback regarding ourhealth and nutrition efforts, and we listened to their advice.
Starbucks valued this dialogue greatly and is now moving
forward on plans for continued engagement.
FUTURE GOAL
Establish a Health and Wellness Advisory Panel tomeet on an ongoing basis, and include experts fromthe medical and nutrition communities who will
provide insight and advice to Starbucks on health andwellness issues; societal expectations of Starbucks
with respect to health and wellness; and our future
initiatives and strategies globally.

My Starbucks —Providing nutrition information enables
our customers to make well-informed
decisions, and customize their orders.
Customization can help people cut calories,
fat and sugar without sacrificing taste
and quality. Customers can tailor theirorder by asking for less syrup or
substitute sugar-free syrup; request
a “light” version of their favorite
Frappuccino® blended beverage; opt for
nonfat milk; or ask to “hold the whip.”
For instance, my favorite beverage - a
Double Tall Sugar Free Vanilla Nonfat
Caramel Macchiato - contains about 100
calories, 1 gram of fat, 3 grams of addedsugar and provides 20 percent of mydaily calcium and 8 grams of protein.
These types of simple adjustments
can easily save 100 calories, which
day after day and over the courseof a year, can translate to a lossof 10 pounds of body weight.
Katie Thomson, RD
Starbucks nutritionist

50

Being Responsive to Our Customers

Starbucks Support of the U.S. Military

Starbucks customers expect an outstanding coffee
experience – at their local store and in every Starbucks
around the world – each time they visit. In the spiritof our fourth Guiding Principle, which inspires us to“develop enthusiastically satisfied customers all of thetime,” we are constantly looking for ways to meet or exceed
their expectations.

More than three years ago a single e-mail erroneously
accused Starbucks of not supporting U.S. military personnel.
The private e-mail began to circulate widely online. In a
subsequent e-mail, the author apologized for the earlier
misstatement and retracted it. Despite this, the original,
inaccurate e-mail has continued to circulate, and customers
frequently ask about it. We assure them that this online
rumor is absolutely false.

At the end of fiscal 2006, we were serving customers aroundthe world more than 40 million times per week. To ensure
their Starbucks Experience is consistently excellent wherever
they are, it’s essential that we stay in touch. We strive to
respond to every customer comment appropriately and ina timely manner. We use our customers’ feedback to make
improvements that enhance their experience and earn theirloyalty and respect.
Listening to Our Customers

Starbucks and our partners have consistently demonstrated
support of U.S. military personnel in a number of ways. We
were honored to receive a 2006 Freedom Award from the
Department of Defense. For specific information about theFreedom Award and our ongoing efforts with the American
Red Cross to support U.S. military personnel, please visit
Starbucks.com.
rBGH-free Dairy

Several channels are available for customers to provide their
feedback. They can call Starbucks customer relations at a
toll-free number, fill out in-store comment cards, or submit
comments online at Starbucks.com. We welcome the valuablecomments we receive from our customers, which we sharewith store partners, management and others as appropriate.

We are actively working with our suppliers to secure anadequate milk supply that is rBGH-free. rBGH is a synthetic
growth hormone given to dairy cows to stimulate milk
production. See page 32 for more information about ourefforts to require our core dairy products to be rBGH-free.

In fiscal 2006, Starbucks received more than 890,000
customer contacts. The majority of customer contacts
concerned the use of a Starbucks Card or the service in a
Starbucks store. Less than two percent of the total volume ofcustomer contacts related to Starbucks social responsibility.
Consistent with prior years, the areas of social responsibility
that customers asked about most often pertained to Starbucks
recycling policies and our ethical sourcing of coffee.
Starbucks is devoted to acting responsibly in all areas ofour business practices and we appreciate that our customers
share our concerns. To learn more about Starbucks ongoingenvironmental efforts or the way we source and purchasecoffee, please see pages 54 and 16 respectively.

As a member of the communities we serve, and as a way
to share the joy of coffee, Starbucks often supports local
activities or events. We frequently donate coffee or host coffee
seminars, free of charge, with no expected recognition in
return. These community efforts are not a sponsorship nor
an endorsement of any event or activity. They are simply away for Starbucks to lend a helping hand and support thecommunity. It is in this way that Starbucks has been affiliatedwith rodeo events in Texas, Wyoming and Calgary, Canada.
We have never sponsored a rodeo event. Our goal is always tosupport, not offend, our community of neighbors.

Customer Feedback
Through various channels, customers also expressed theirinterest in other CSR-related issues in fiscal 2006, including:our support of the U.S. military; our policy on supporting
rodeos; the presence of rBGH in our dairy products; thecaffeine content in our coffee; and our marketing practices
related to youth and Starbucks liqueur products. A summaryof Starbucks policies on each of these issues is provided inthis section.

SOCIETY

Starbucks Affiliation with Rodeos

Caffeine Content in Starbucks Coffee
We select the finest quality arabica coffees from around theworld and roast them to our signature Starbucks Roast.® No
matter how carefully or precisely we roast our coffee, notevery cup of Starbucks coffee will contain exactly the sameamount of caffeine. Many variables contribute to caffeine
content from cup to cup, including where the beans weregrown and roasted, the brewing method, grind, and type ofcoffee beverage purchased. We recognize that some people aresensitive to caffeine. For customers concerned about caffeine
content, we offer several decaffeinated coffees, teas andother beverages, including Frappuccino® blended beverages,
in most markets. Information about the health effects ofcaffeine is available online at www.coffeescience.org or
www.ico.org/caffeine.asp.

51

Marketing to YouthStarbucks customers include people of every ethnicity,
income, and age group with varying tastes and interests. In
addition to our beverages and food items, Starbucks offers
products meant to educate and entertain all age groups. We
also seek out philanthropic opportunities, including event
sponsorships, to support the activities and programs that areimportant to the communities in which we operate.
Some of our product offerings and community activities
may appeal to young people. We are extremely mindful ofconnecting with youth in a responsible manner.
Responsible Marketing of Liqueurs
Starbucks and Jim Beam are committed to the responsible
marketing of Starbucks™ Cream Liqueur and Starbucks™
Coffee Liqueur. The pricing, branding, packaging andmarketing are specifically designed to target mature
consumers. Additionally, Starbucks partners who manage ourliqueur brands are trained on the Distilled Spirits Council of
the United States (DISCUS) Code of Responsible Practices
for Beverage Alcohol Advertising and Marketing.

To gauge customer acceptance of Starbucks in theirneighborhoods, we recently asked survey respondents,
specifically those who presently live near a Starbucks, what
their overall feeling was about having a Starbucks coffee
shop near their home. We found that 66 percent had positive
feelings about having a Starbucks store in their neighborhood,
while five percent indicated negative feelings. When we asked
other respondents, those who do not currently live near a
Starbucks, how they would feel about having a Starbucks
coffee shop open near their home, 53 percent indicatedpositive feelings and 10 percent indicated negative feelings.
(See pie charts.)
The level of positive consumer acceptance that already exists
for Starbucks is encouraging, particularly given our plans
for future growth. We believe Starbucks demonstrated
commitment to social and environmental responsibility
matters to consumers and, if we are successful in increasingawareness, will help us continue to gain acceptance in local
communities and among our neighbors.
Q: What is your overall feeling about having a Starbucks coffee shop near your home?

Both products are available only in locations licensed to selldistilled spirits and are not sold in Starbucks retail locations.
Customer Surveys
Customer surveys offer another mechanism to obtain
feedback about the quality of our customers’ experience.
We recently altered our research methods, moving beyond
surveying for satisfaction and focusing instead on identifying
factors that influence our customers’ experience and theirconnection to the Starbucks brand.
In fiscal 2006 Starbucks launched a new survey tool to gather
ongoing input from coffee consumers and our customers,
including those who had visited Starbucks within 30 days ofthe time of the survey.
When customers were surveyed between May and August
2006 and asked whether they would recommend Starbucks
to a friend or family, 87 percent responded that they were
extremely or very likely to recommend Starbucks.

Respondents who presently have a Starbucks near home.
Somewhat positive
16%

Very positive
25.8%
Somewhat negative
2.9%
Very negative
0.9%
Extremely positive
23.8%

Extremely negative
1.3%

Q: How would you feel about a Starbucks coffee shop opening near your home?
Respondents who do not presently have a Starbucks located near home.

Somewhat positive
Our recent surveys also have found that the majority of
12.7%
respondents are unaware of the company’s socially responsible
initiatives, including Starbucks support for community
Very positive
activities such as local education programs and clean water
17.9%
projects. Awareness among our customers was greater thanamong the general population, with 38 percent associating
Starbucks with good corporate citizenship, although westrive to do a better job informing customers about ourExtremely positiveefforts to be socially responsible in all aspects of our global
22.4%
business operations.

SOCIETY

Neutral/neither positiveor negative
29.3%

Neutral/neither positiveor negative
36.9%

Somewhat negative
3.6%
Very negative
1.7%
Extremely negative
4.9%

52

Public Policy and Government Affairs
As a growing and increasingly more complex global business,
Starbucks participates in the public policy arena, which
includes direct and indirect lobbying at the local, state andfederal level in the U.S. In all of our efforts, we strive tocomply with all applicable laws and regulations, and work
fairly and honestly with government officials and othersin our communities. Starbucks policy forbids partners
from offering or making payments or gifts on behalf of thecompany in order to influence a government official, or from
representing their personal views as those of the company.
Presently, Starbucks does not have a Political Action
Committee established for our partners to make politicalcontributions, nor did the company make any corporate
political contributions in fiscal 2006.
Public Policy Focus Areas
Starbucks has a responsibility to maximize and protect thecompany’s value for our partners and shareholders. Our
efforts are focused on the following:• Tax Policy – Sound tax policy will continue to play a
key role in the competitiveness of U.S.-based companies.
Starbucks closely monitors tax policy developments andhas advocated for a tax structure that maintains incentives
for increased productivity.
• Trade Policy – Starbucks supports bilateral andmultilateral trade agreements that help to create
opportunities for investment in emerging markets. We
provide input to U.S. and foreign governments on specifictrade agreements that help to reduce barriers to U.S.
exports, provide safeguards for intellectual property andtrademarks and promote transparency on both sides of the
trading relationship. In fiscal 2006, our advocacy efforts
related to Peru and Colombia Free Trade Agreements aswell as general market access issues.
• Healthcare – Providing healthcare benefits to our eligible
full- and part-time partners is a commitment Starbucks
stands by. However, we are greatly concerned about the
impact rising healthcare costs will have on our long-term
ability to sustain these benefits. In fiscal 2006, we focusedon identifying and prioritizing the macro issues that we
believe will help to solve Starbucks current healthcare
challenges, which we are using to inform our objectives
and action items for fiscal 2007.

SOCIETY

53

Our Commitment toEnvironmental StewardshipStarbucks commitment to contribute positively
to the environment is a Guiding Principle of ourcompany. Ever since 1992, when we establishedStarbucks Environmental Mission Statement,
we have been expanding our definition of whatenvironmental responsibility means within thecontext of our growing and increasingly more
complex business.
In this section we describe the initiatives we have undertaken
to be good environmental stewards, and report on our
performance in this area. Specific topics covered include:• Starbucks climate change mitigation strategy– Purchasing renewable energy– Saving energy– Joining together with others to raise awareness ofclimate change• Reducing the environmental impacts of our cups
• Understanding and improving our environmental
footprint– Greening the store through design– Greening store operations– Waste and recycling• Looking to our supply chain: sustainable packaging• Portrait of a typical Starbucks store– Energy and water use

Addressing Climate Change
The potentially disruptive changes in the earth’s climate due
to an increase in greenhouse gases (GHG) in the atmosphereis a major concern for our company, our customers, ourbusiness partners and other stakeholders. We agree with theconsensus of the scientific community that climate change
could pose an enormous threat to the future of our planet.
Starbucks core business is high-quality coffee, an agricultural
product that flourishes in tropical microclimates around theglobe. Climatic conditions influence the yield and qualityof coffee crops. We are concerned that climate change could
threaten the production of high-quality coffee crops andultimately impact our business.

Since 1992, Starbucks has been evolving and implementing
an environmental strategy focused in part on the stewardshipof key coffee-growing regions. We revamped our coffeebuying practices several years ago to include specific criteria
for environmental preservation of these areas. We believe
this approach will help to support and encourage ecologicalstability and resilience in coffee-growing areas across the globe.
To address other aspects of our business operations, Starbucks
established a three-year climate change mitigation strategy
focused on:
1. Purchasing renewable energy
2. Focusing on energy conservation
3. Advocating the need for collaborative action
We selected these areas by analyzing our greenhouse gas
footprint and identifying the points of greatest leverage in ourown operations and in the global community. We are now inthe second year of implementing the strategy. Our progress is
described throughout this section.
Starbucks Greenhouse Gas Emissions
In 2004, we conducted an inventory of our 2003 GHG
emissions as part of a broader effort to better understand andquantify our environmental footprint. We used the World
Resources Institute Greenhouse Gas Protocol to conduct theinventory of major emissions from our company-operated
retail stores, coffee roasting, administrative operations anddistribution network. We did not include our international
retail operations or other businesses. The inventory foundthat 81 percent of our GHG emissions are attributable toelectricity purchased for use in our stores, while 18 percent
comes from coffee roasting. We have used the inventory to
guide development of our climate change strategy. Our focus
is on emission sources under our direct control, primarily
electricity used in our stores and coffee roasting (Scope 1 and
2 in the WRI Protocol).
2003 Baseline Greenhouse Gas Emissions – Scope 1 and 2

Coffee roasting andnatural gas
18%
Purchased
electricity
81%

Company-owned
vehicles andaircraft1%

Starbucks believes that governments, organizations andindividuals have a responsibility to take meaningful action
to reduce GHG emissions, regardless of the scale of theircontribution to the issue. We have been working to better
understand the risks of climate change for our business, andidentify measures we can take to mitigate those risks.

ENVIRONMENT

54

Powered by Wind
During fiscal 2006, we quadrupled our renewable energy
purchase to equal 20 percent of the energy used in our
U.S. and Canada company-operated stores. According
to Starbucks GHG inventory more than 80 percent of
the emissions within our direct control result from thesestore operations.
An energy resource is considered renewable if it can benaturally replenished. For our renewable energy purchases,
we worked through the World Resources Institute’s GreenPower Market Development Group to buy 100 percent wind
renewable energy certificates*, offsetting 124 million pounds(56,000 metric tons) of CO2. Pooling our purchasing powerwith other companies has helped us obtain favorable rates forour renewable energy – less than a two percent premium over
our average rate for conventional electricity.
Starbucks is also a member of the U.S. Environmental
Protection Agency’s (EPA) Green Power Partnership. The
size of our renewable energy purchase in fiscal 2006 ranked
Starbucks sixth overall among other participating companies,
and second in the retail sector. On October 24, 2005,
Starbucks was recognized by the EPA with a 2005 GreenPower Leadership Award.

My Starbucks –Our reliance on fossil fuel sources forenergy is contributing to the rapid
acceleration of global climate change.
It’s imperative that we transition
to cleaner and renewable forms ofenergy to help contain environmental
damage. Working with community-based
groups involved with renewable energy
projects, I’ve seen how difficult it canbe to convince businesses to invest inenvironmentally sound forms of energy.
The fact that some companies – suchas Starbucks - are willing to step
forward and support renewable energy
development is notable – and extremely
important to the future of our planet.
Jeff Paulson, principal
Jeff Paulson & Associates, a law
firm specializing in communitybased renewable energy projects

Our plan is to begin offering Starbucks suppliers theopportunity to purchase renewable energy certificates throughour contract, at a “Starbucks preferred pricing” rate. In 2007,
we will extend this offer initially to 388 of our major suppliersin the U.S.
* A Renewable Energy Certificate represents one megawatt-hour (MWh) ofrenewable electricity generated and delivered somewhere on the power grid. Each
MWh of clean renewable electricity results in one less MWh of power comingfrom a CO2 emitting process. Therefore a Renewable Energy Certificate also
represents the environmental benefits of replacing this type of power with clean
power. (Source: 3 Phases Energy Services)

ENVIRONMENT

55

Energy Consumption

Joining Forces

Saving energy is often the cheapest, cleanest and mosteffective way to cut GHG emissions. During fiscal 2006,
we continued to upgrade store equipment to more energyefficient versions, and installed more efficient technology at
our coffee roasting plants.

Climate change is believed to be the greatest environmental
threat of our generation. We believe Starbucks can play a keyrole by helping to increase awareness of climate change, andencouraging collective action among multiple parties. Someof the steps we took in fiscal 2006 included:

We also updated a performance tool geared for store managers
to emphasize the importance of managing the environmental
aspects of store operations, and highlighted both the positive
and negative impacts their actions can have on the bottom
line and the environment.

• Placing six full-page advertisements in The New York Times
that highlighted the need for collective action on this issue.
The advertisements discussed the problem; highlighted
Starbucks emission reductions activities; provided simple,
high-impact actions readers could take to contribute tosolutions; and informed readers of our partnership with
Global Green USA, a nonprofit organization foundedby former Soviet President Mikhail Gorbachev(www.globalgreen.org).

FUTURE GOALS
In fiscal 2007, Starbucks will launch three interrelated
initiatives designed to improve the energy andenvironmental performance in our stores. These
include:• Our work with the U.S. Green Building Council
to develop LEED (Leadership in Energy andEnvironmental Design) standards for the retailsector. These standards set out best practices forenvironmentally sound design of new stores, andprovide a basis for third-party certification to ensure
the standards are met. In 2007, we will complete
our participation in the pilot of these standards.
• We will use a representative sample of stores asa “test bed” to monitor energy and water usageas part of a comprehensive audit. This audit will
provide us with baseline information on how andwhen our stores use energy and water in order todetermine conservation opportunities.
• A complementary program is also being planned
to provide approximately 350 store managers in
six regions with “resource report cards” that give
feedback on store energy and water use, as wellas trend data and comparisons to benchmark
operations. The goal of this program is to help
partners identify ways to use water and energy more
efficiently and reduce costs. Based on experience
with the first group of stores, the program will thenbe rolled out to all U.S. and Canada companyoperated stores on a voluntary basis.

• Continuing to educate partners about the issue throughStarbucks internal communications.
• Supporting and participating in organizations thatare taking effective action on the issue, including
the World Resources Institute’s Green Power Market
Development Group (www.wri.org); The Climate Group,
an international organization dedicated to advancing
business and government leadership on climate change(www.theclimategroup.org); and Global Green USA.
• Acting as a local leader. In Seattle, Washington, thehome of Starbucks global headquarters, Starbucks
former ceo Orin Smith co-chaired Mayor Greg Nickles’
Green Ribbon Commission, which resulted in thecompany serving as a founding member of the Seattle
Climate Partnership. Company staff also chaired the
Seattle Chamber of Commerce Business Sustainability
Committee.

Greening the Cup
As the country’s leading specialty coffee retailer, Starbucks
goes through a lot of cups – purchasing 2.3 billion in fiscal
2006. The Environmental Defense paper calculator tool
estimates that Starbucks move in 2006 to use new hot cupswith 10 percent post-consumer recycled fiber will achieve thefollowing environmental improvements in the first year alone:
Resource savings

Equivalency

11,300 fewer tons of wood
consumed

about 78,000 trees

58 billion BTUs of energy saved

enough to supply 640 homes fora year47 million gallons (178 million
liters) of wastewater avoided

enough to fill 71 Olympic-sizedswimming pools

3 million pounds (1 million
equivalent to 109 fully loaded
kilograms) of solid waste prevented garbage trucks
Source: Environmental Defense (www.environmentaldefense.org), calculation by
www.papercalculator.org.

ENVIRONMENT

56

Paper Hot Beverage Cups

Greening the Store

Paper cups provide a convenient way to serve Starbucks
hot beverages, but they also result in some environmental
impacts.

Both the design and the operation of our stores affect theirenvironmental performance (See “Portrait of a Starbucks
Store” on page 62). For several years, we have led a groupof retailers and worked collaboratively with the U.S. Green
Business Council (USGBC) to explore green building
opportunities in our sector. The USGBC has developed
a widely used and highly regarded set of standards called
Leadership in Energy and Environmental Design (LEED).
Buildings that meet the standards receive LEED certification,
signifying that their buildings use environmentally superiormaterials and incorporate energy- and water-efficient systems.

Paper cups account for nearly nine percent of typical in-store
waste by volume, although most cups are disposed of outside
the store after their use. Our efforts to reduce environmental
impacts of our disposable cups began in the mid-1990s. Overthe last decade, we have taken several actions, including:• Eliminating most double-cupping by utilizing corrugated
hot beverage sleeves made of 60 percent post-consumer
recycled fiber.
• Offering customers a $0.10 discount when they use theirown reusable cups. Customers in the U.S. and Canada
took advantage of this offer more than 17 million times infiscal 2006, keeping 674,000 pounds (306,000 kilograms)of paper from going to the landfill.
• Introducing hot beverage paper cups made with 10 percent
post-consumer recycled content. These cups, which are
the first direct contact food packaging containing postconsumer recycled content to receive a favorable safety
review by the U.S. Food and Drug Administration (FDA),
were introduced in our U.S. and Canada stores in 2006.
Starbucks paper cups, used for hot beverages, are made of
paper fiber with a lining of low-density polyethylene plastic.
The paper provides the rigidity for the cup, while the plastic
layer keeps the paper layer intact by protecting it from the hot
beverage. This plastic layer also makes the hot beverage cups
unrecyclable in most paper recycling systems.

Understanding and Improving ourEnvironmental Footprint

Because we have many stores that generally use similarmaterials and building strategies, the process of certifying
each individual store separately would be costly, repetitive
and time-consuming. During fiscal 2006, we registered our
prototype Single Tenant Building with the USGBC LEED
Retail Pilot. This represents a new certification model for the
USGBC and has the potential to multiply the impact of green
building throughout the retail sector globally.
Our focus is not just on validating the store building
process through certification, but also on a comprehensive
approach to reduce our environmental impacts. For several
years, we have incorporated sustainable building materials,
furnishings, and energy- and water-efficient fixtures to ourstores. For example, we require that the wood used to makeour hardwood furniture is certified by the Forest StewardshipCouncil (FSC), a nonprofit organization that ensures thewood is produced in a sustainable manner. We also convened
a meeting between our major furniture suppliers and the FSC
to explore ways to expand the use of FSC-certified wood in
products we buy. In addition, the cabinets in our stores use acore made of 100% post-industrial content.

When a customer comes into a Starbucks store, we look at it
as an opportunity to exceed their expectations. The customer
may come for a cup of coffee, but we know they also takean interest in our how we run our business, including ourenvironmental performance.

Greening Operations

We continually strive to understand our environmental
footprint and reduce our impacts. We are launching
initiatives in fiscal 2007 that we believe will help us achievea consistent, high level of environmental performance across
our operations and the life cycle of our products.

We also plan to provide stores in six regions (approximately
350 stores) with “resource report cards” that give feedback
on each store’s energy and water usage, as well as trend dataand comparisons to benchmark operations. The goal of thisprogram is to help store operators identify ways to use waterand energy more efficiently and reduce costs. Depending on
the results of the first group of stores, the program will berolled out to all U.S. and Canada company-operated stores on
a voluntary basis.

To gain a deeper understanding of how energy and water isused in our stores, it is our intention in fiscal 2007 to conduct
an energy and water audit that will help us implement
strategies to use both more efficiently.

1

ENVIRONMENT

A Single Tenant Building is a free-standing building (coffee house) built from the ground up.

57

These efforts build on ongoing initiatives to install moreenergy- and water-efficient equipment at our stores globally.
For example, Starbucks Japan stores began using electric
signs that require less energy to operate and last longer.
Our team in Japan also installed water-saving faucets andbegan recycling the water used to cool ice cube dispensers as
wash water.

Closing the Loop – Recycling and Waste Reduction
Starbucks policy for company-operated stores is that where
both space and recycling services are available, stores are
expected to recycle. During fiscal 2006, 79 percent of
stores in the U.S. and Canada recycled where Starbucks
controls waste and recycling of one or more items, including
cardboard, paper, milk jugs, and organic wastes.

In the UK, severe droughts showed that environmental tradeoffs are sometimes needed. Stores in the worst-affected areas
offered customers paper cups rather than ceramic mugs to
reduce the water used for dishwashing. While the use of paper
cups increased the volume of waste generated, the practicehelped to address the immediate threat of a water shortage.

Store Recycling

We also have initiatives to address transportation energy use.
We collaborated on Business for Social Responsibility’s Clean
Cargo Working Group and used the Group’s Environmental
Performance Survey to assess the performance of ourocean transporters.

Percentage

At our Starbucks Support Center (SSC) in Seattle, ourworldwide headquarters, we encourage partners to use avariety of transportation options to cut solo commuting.
In fiscal 2006, 34 percent of our partners at the SSC took
advantage of these options.

Fiscal year

Partners Participating in Transportation Options Program
34
28

29

79

2004

2005

2006

New Life for Old Grounds
At a typical Starbucks store, coffee grounds make up morethan a third of the waste stream by weight (see “Portrait ofa Starbucks Store” on page 62). That’s why we introduced
the Grounds for Your Garden program, which offers
complimentary five-pound (2.27-kilogram) bags of usedcoffee grounds to customers to add to their soil. The program
has spread to a variety of locations including Chile, Greece,
Australia, Hong Kong, Canada, the UK and Korea.
Since 2004, Starbucks Taiwan has encouraged all of its stores
to implement the program. In fiscal 2006, customers and thegeneral public were welcome to pick up coffee grounds fromtheir most convenient store.

Percentage

Fiscal year

77
70

2004

2005

2006

Some locations in China offered the program in fiscal 2006,
and it will be promoted throughout Starbucks Greater China
region in fiscal 2007.
In Winnipeg, Canada, partners took the Grounds for Your
Garden approach a step farther, and are sending their organic
waste, including Starbucks paper cups, to the Wriggler
Wranch, a local worm composting facility.

ENVIRONMENT

58

Other Waste Reduction and Recycling Initiatives

Involving Our Customers

The waste our stores generate varies by location. So do theingenious solutions our partners devise to handle the waste.
Examples of this include:

Our customers share our interest in reducing waste. To help
them help us, we offer a discount of 10 cents in the U.S. andCanada to encourage customers to use their own “commuter”
mugs for their beverages. Customers can also request that
their beverage be served in a ceramic mug if it’s a “for-here”
order. The discount is also offered in Japan (¥20), the UK(10P), several business units in Mainland China (2 RMB) andHong Kong (HK$1).

• Starbucks Chile donated 30,000 milk boxes to Un Techopara Chile, an organization in Chile that builds small
houses for homeless people. The organization used theboxes to cover the floors of the houses.
• More than 100 Starbucks UK stores participated in waste
segregation programs for cardboard and plastics, recycling
an average of 35 percent of their general waste.
• Starbucks Hong Kong ran a “Mooncake box” recycling
program, where the company offered beverage coupons
to customers who returned their used Mooncake boxes.
The program resulted in the return of approximately
5,000 boxes.
• Starbucks Japan is working with suppliers to recycle 20
percent of store food waste by March 2007 in response to
the Law for the Promotion of the Utilization of Recyclable
Food Resources.
New Life for Old Mats
The work areas behind the counters of our stores are equippedwith rubber mats designed to help partners work more
comfortably and safely. Since 2005, all new stores in the
U.S. have been equipped with upgraded mats that have beenshown to reduce slip-type accidents. During fiscal 2006, we
also replaced the mats in more than 3,400 existing stores.
The easiest course of action would have been to throw away
the old mats. But with an estimated 315,000 pounds (143,000
kilograms) of usable material involved, we decided to recycle
them instead. This required setting up a system for ourdelivery drivers to pick up the mats from the stores, collectthem at consolidation points and ship them to a recycler
for shredding. The recycled rubber was used for gaskets andexpansion joints in concrete, among other things, extending
the life of the material and reducing waste.

ENVIRONMENTOn Earth Day 2006, Starbucks Canada promoted thecommuter mug program by inviting customers to enjoy acomplimentary cup of Fair Trade Certified™ Café Estima
Blend™ coffee when they used their own mug. Nearly 9,000
customers took advantage of the offer, increasing commuter
mug usage by 14 percent compared to the same day theprevious year. The promotion also increased the sales ofcommuter mugs.
During fiscal 2006, customers in the U.S. and Canada
used commuter mugs for their beverages 17 million times.
Although this represents a significant achievement, on apercentage basis, commuter mug usage actually decreasedslightly from 2005. We will continue to evaluate additional
ways to encourage customers to use commuter mugs.

Commuter Mug Usage
1.4
1.3

1.2

Percentage

Fiscal year

2004

2005

2006

59

Looking to Our Supply Chain
Beyond our own stores and operations, we have theopportunity to positively influence the environmental
practices of our suppliers. In other sections of this report,
we discuss our work with coffee suppliers to encourage
environmental stewardship (page 16), our sustainablesourcing policies (page 29), our approach to water sourcing(page 34) and our standards for purchasing manufactured
goods (page 33). Through our membership in the Sustainable
Packaging Coalition, we are exploring more sustainable
alternatives to conventional packaging and also methods
for analyzing material choices. Our efforts to “green thecup” described earlier in this section are an example ofthis approach.
We also consider environmental impacts when purchasing
paper and have tracked the recycled fiber and unbleachedfiber content of our paper purchase for six years (see charts).
Starbucks recognizes that the environmental footprint of
paper goes beyond post-consumer recycled and unbleachedfiber. To that end, we have been active participants in the
Paper Working Group, a group of diverse companies led by
the nonprofit organization Metafore. The Paper Working
Group developed the Environmental Paper Assessment Tool
(EPAT), designed to help paper buyers consider all major
environmental impacts over the life cycle of paper. The groupdefines environmentally preferable paper in terms of a set ofseven interconnected desired outcomes. They include:• Efficient use and conservation of raw materials

Paper: Unbleached Paper Fiber
86.3

48.1

86.3

85.9

47.8

47.1

Percentage

Fiscal year

2004

2005

With Hot Cups

2006
Without Hot Cups

Paper: Post-Consumer Fiber
66.4

49.5

46.5

38.8

Percentage

26.0

27.1

• Minimization of waste• Conservation of natural systems• Clean production• Community and human well-being• Credible reporting and verification• Economic viability
Key environmental indicators for these outcomes aremeasurable and within the normal range of attributes
monitored by the pulp and paper industry.

Fiscal year

2004
With Hot Cups

2005

2006
Without Hot Cups

Starbucks tracks the percentage of unbleached paper fiber and post-consumer fibercontained in our annual paper purchases.

In 2007, we will test the tool with our top two suppliers of
paper products. We will review the results of the pilot anddetermine how to best incorporate the tool into our paper
procurement decision processes.

ENVIRONMENT

60

Earthwatch Expeditions
Making Connections in the Rain Forest
In the Costa Rican rain forest, Starbucks customer Arlene
Gutterman worked side by side with scientists, Starbucks
partners and other customer volunteers to replant areas wherefarming had devastated the native forest. The experience wastransforming. “I cherish what I saw,” Arlene said. “It opened
me up.”The reforestation project is taking place in southern Costa
Rica in the region of La Amistad Biosphere Reserve,
established to protect the rich biodiversity of the area.
Sixteen sites, most owned by Costa Rican farmers, are partof a long-term research project to find ways to accelerate
the reforestation of formerly farmed lands. The project
area, once completely forested, is now less than 10 percent
forested. This has impoverished the soil and reduced habitat
for the abundance of wildlife that thrives in rainforests.
Deforestation poses a particular challenge because, oncecleared, it is difficult to re-establish natural rain forest.
The project seeks not only to research the dynamics ofreforestation but also to establish a model of sustainable useof tropical forests. One aspect of this is supporting the local
coffee cooperative in its efforts to use sustainable farming
practices and to set up a coffee mill that will allow it tocapture more of the value of coffee production locally.
A diverse group of people participate in the project, including
academic researchers, students, farmers of coffee and othercrops, community members and volunteers provided by the
Earthwatch Institute (www.earthwatch.org), a nonprofit
organization that places volunteers with environmental
research and restoration projects around that world.
Starbucks has worked with Earthwatch since 2000. In
that time, Starbucks has sent partners on a variety ofenvironmental expeditions around the globe. Our partners
have come back from these expeditions with a newunderstanding of the world around them as well as Starbucks
commitment to the environment.
In 2006, Starbucks enabled 19 customers and 11 partners toparticipate in the Costa Rica expedition. The customers andeight of the partners were winners of a sweepstakes and an
essay contest, respectively, while the other three partners went
as escorts. The volunteers planted, measured and analyzed
trees, and woke before dawn to capture, count and identify
birds. Several volunteers from the 2006 trip, along with somevolunteers from previous years, became so interested in thecoffee cooperative’s mill project that they have continued tosupport it in various ways, including documenting it on a
website: www.unatazacompartida.org.
The scientists running the project have found the volunteers’
help invaluable in extending their research resources. The
volunteers have also been affected. Arlene Gutterman, forexample, has started composting, recycling more, driving less

ENVIRONMENT

and seeking out locally produced foods. “It’s never too late,”
Arlene said. “Be positive. Plant a tree.”In 2006, Starbucks also sponsored volunteers for an
Earthwatch Expedition to Brazil through the Urban Coffee
Opportunities program, a joint venture between Starbucks
and Johnson Development Corporation (JDC). Five college
scholars, a Starbucks partner and a JDC representative
participated in an expedition to the Pantanal, the world’s
largest wetland, researching and analyzing amphibians andbat habitat.
In 2007 Starbucks will be working with Earthwatch ona project that takes place where Starbucks is purchasing
coffee. This will deepen our relationship with Earthwatch
because the research will directly affect Earthwatch scientists,
Starbucks and the coffee-buying world. Our partners andcustomers will have the opportunity to work on coffee farms
that have been verified as using C.A.F.E. Practices and learn
how this has improved their growing practices.

My Starbucks –On June 10 I left for the 17-hourjourney to San Jose, Costa Rica, andmet up with seven other partners
from North America. We continued ourjourney to the little town of Agua Buena
in the southern rain forest bordering
Panama, where we got to know ourfantastic hosts, the Corderos, a familyof coffee farmers. They would get many
opportunities to laugh at our Spanish!
Over the next two weeks we worked
with Dr. Karen Holl and her teamat Earthwatch, planting trees andgathering scientific data on rain forest
regeneration in afforested areas. For
the farmers it’s a win/win situation.
They lease the land they don’t use toothers so that in potentially five years
they can let the coffee grow backwithin the new forest – thus growing
premium organic shade grown coffee.
When you see trees that have grownalmost 30 feet tall after three years,
you begin to see how easy it can bewith dedication and commitment.
That is what Starbucks is willing todo, and the eight of us were glad tobe a part of this crucial project.
Rain Weigel, Starbucks store manager
Maida Vale (#12436), London

61

Portrait of a Starbucks StoreAt the end of fiscal 2006, there were 12,440 Starbucks
stores in 37 countries. Though there are local variations, thestores operate similarly around the world. A look at a typical
Starbucks store provides a better understanding of Starbucks
environmental profile and challenges.
Though the store may be located on a busy street or in abustling mall, it is appointed with furnishings and artwork
in a style that lets someone know instantly they are in a
Starbucks. Less obvious are some of the environmental
features of materials we use in our new stores, and include
as stores are updated: high-efficiency lighting, flooring
containing recycled material, and furniture made from woodcertified as sustainably harvested by the Forest StewardshipCouncil, for example.

As a result of all of these activities, waste is created. This
includes:By Volume

By Weight• 32% cardboard• 37% coffee grounds• 15% milk jugs

• 12% cardboard• 9% paper cups

• 7% newspaper• 8% pastry boxes• 6% food waste• 7% other dairy cartons• 38% other waste• 29% other waste
Source: Starbucks 2002 Waste Audit

Out of sight is an area where materials are delivered tothe store. These include food (coffee and other beverages,
pastries, sandwiches, salads, etc.), packaging (cups and othercontainers), disposable items (napkins and coffee stirrers),
and merchandise for sale (coffee mugs and brewers, CDs,etc.) This is the area where many of our stores have containers
for recycling.
The store gets its electricity, water and other utilities fromlocal service providers. On average, it uses about:• 6.57 kilowatt-hours of electricity per square foot permonth to light and cool the store and operate equipment.
• .059 therms of natural gas per square foot per month toheat water and warm the store.
• 26 gallons of water per square foot per month to make ourbeverages and clean up.
As we continue to integrate sustainable practices into
our store design, development and operations, we will
work to drive these numbers lower, reducing our overall
environmental footprint per store.

6.21

6.40

0.061

6.57*

0.060

0.059**

Therms per squarefoot per month

Kilowatt-hours
per square footper monthFiscal year

Water

Gas

Electricity

2004

2005

2006

Fiscal year

24
(92)

2004

2005

26†
(100)

Gallons (liters)
per square footper month

2004

2005

2006
Fiscal year

* Based on data from 4,900 stores.

23
(89)

2006

** Based on data from 2,305 stores.
†Based on data from 2,052 stores.

ENVIRONMENT

62

Providing a Great Work Environment
When our customers enter a Starbucks store, they expect anddeserve a great cup of coffee. But their Starbucks Experience
goes beyond the coffee – it is also based on the connection
they have with their barista at their local Starbucks. Earningand maintaining the trust and respect of our more than
145,000 employees – whom we call partners – means
improving our customers’ experience and our success as well.
Our goal is to create the best possible workplace environment
for our partners, one that attracts and retains the mosttalented individuals and is regarded by them as a great place
to work.
In this section we describe what we are doing to:• Gather ongoing feedback from our partners

Starbucks Employment Profile – Fiscal 2006
Number of partners globally

145,800

U.S. partners – retail116,100

U.S. partners – nonretail

7,500

International partners – retail

21,200International partners – nonretail

1,000

Net jobs created (Starbucks partners) in
fiscal 2006

31,000Total wages and benefits paid to U.S. andCanada partners*$2.5 billion*Includes salaries, bonuses, vacation, payroll taxes, healthcare
benefits, workers’ compensation and 401(k) match• Partner View Surveys• Mission Review• Business Ethics and Compliance Program• Offer comprehensive and competitive benefits• Partner benefits in the U.S. and Canada• Partner benefits internationally• Support our partners’ health and well being• Outreach to newly covered partners• Thrive Wellness Initiative• Advocating for healthcare reform• Recognize our partners’ efforts• Maintain a CUP (Caring Unites Partners) Fund
• Provide training and career development opportunities• Uphold our workplace policies and respect forpartners’ rights• Ensure a safe and healthy work environment

STARBUCKS HONORED AS A GRE AT
PL ACE TO WORK IN 2006
FO RTUNE 10 0 BE ST C O MPANIE S TO WO RKFO R IN AMERIC A
Starbucks was named one of the “100 Best Companies
to Work For” in 2006 by Fortune magazine. This
marks the eighth time Starbucks has received thisprestigious recognition.

FINANCIAL TIMES 50 BE ST WO RK PL ACE S
IN UK
Starbucks UK was recognized in the Financial Times as oneof the 50 Best Workplaces in the UK. The award, sponsoredby the Great Place to Work® Institute UK, is based on
employee surveys of the level of trust and the quality ofrelationships that exist within the company.

CHEERS M OST S OUGHT AF TERENTERPRISE – TAIWANIn 2006, Starbucks earned ninth place in a study of themost “sought after enterprise” in Taiwan among 100
private enterprises and 50 state-owned enterprises. Cheers
magazine sponsored the competition.

WORKPLACE

63

Listening to Our Partners
Our workplace culture is firmly rooted in our first Guiding
Principle: “Provide a great work environment and treat eachother with respect and dignity.” This is a deeply held valuethat has inspired and driven our workplace practices fornearly two decades. This is the basis of our belief that ourpartners’ opinions should be heard and valued. We act on ourbelief by inviting partners to give us their feedback througha variety of channels. We then use partner input to shape ouractions and enhance the partner experience. One method we
use to get feedback is by conducting Partner View Surveys.
Partner View Surveys
Starbucks conducts a Partner View Survey approximately
every 18-24 months to solicit anonymous feedback frompartners around the globe. The survey touches on many
facets of the partner experience, including development,
communication, senior leadership, coffee knowledge andwork/life effectiveness. By participating in the survey,
partners point out what Starbucks is doing well, and they
identify issues at all levels of the company that need closer
attention. We use this feedback to make adjustments andimprovements in order to increase our partners’ satisfactionand engagement – the connection our partners have totheir store or work group and to our company. Throughthis process, our partners are given a voice in shaping andenhancing their own workplace experience.
The most recent survey was conducted in March 2006. All
partners who work in company-operated stores, support
offices and roasting plants or warehouses in the following
countries were invited to participate: Australia, Canada,
Costa Rica (Farmer Support Center), Germany, Hong Kong,
Ireland, the Netherlands, Singapore, Switzerland, Thailand,
United Kingdom and the United States. This was a significant
expansion over past Partner View Surveys in both its global
reach and response – 101,800 partners participated, an 84
percent response rate.
Partner View Survey Results – Fiscal 2006
Partners’ overall satisfaction rate and level of engagement
remained high – see chart at right. The survey called out
specific areas where Starbucks is succeeding in creating agreat work environment, including training and development
opportunities and the focus on promoting coffee knowledge.

Partners identified several areas that called for attention by
the company:• Pay and benefits• Communication within and between groups• Future job opportunities
Starbucks began to address these issues in fiscal 2006.
Specifically, we:• Increased wages for the majority of hourly store partners in
all U.S. markets• Are working to improve our online tools, and consolidate
publications where appropriate• Are designing a global “Look Internal First” sourcing
strategy for filling all jobs

Partner View Survey Results
87

82
73

73

2003

2005

86
69

Percentage

Fiscal year

% of engaged partners

2006% of satisfied partners* We did not conduct a survey in fiscal 2004.

FUTURE GOALS
In fiscal 2007, additional steps will be taken to
respond to the survey results. We will:• Complete a study of pay for international store
partners.
• Share the success of the company, consistent with
our philosophy, through additional incentive andbenefits programs.
• Look at new ways to communicate pay and benefits
information to our partners, including a new online
training module for store partners.
• Develop tools to enable internal talent sourcing andimprove career opportunity access and preparation
for partners.

WORKPLACE

64

Other Channels for Partner Feedback
In addition to the Partner View Survey, several otherresources offer partners the opportunity to communicate
concerns, provide input about our business practices, andreport matters that appear inconsistent with the company’s
Mission Statement and Guiding Principles and/or legal
and ethical objectives. These include Mission Review and
the Business Conduct Helpline, as well as frequently held
Open Forums.
Mission Review
Mission Review allows partners a way to voice concerns when
they believe company polices or practices are inconsistent
with Starbucks Mission Statement and Guiding Principles,
and to offer suggestions on how the company can do better.
Mission Review comments have helped shape and continue
to influence a variety of programs: Tuition Reimbursement,
Recognition, Risk Management’s Shoes for Work andthe Barista-Level Training Program are a few examples.
Currently, the Mission Review team handles between
350 and 500 comments each month. In fiscal 2006, ourMission Review team recorded more than 4,600 contacts
from partners.
Each partner submission receives a personal and timely
follow-up, either by someone knowledgeable about theissue or topic raised or a member of the Mission Review
team. Executives receive a monthly summary of the volume
and types of issues raised through Mission Review, so thatemerging issues can be identified and addressed.
We are working to improve partner access to Mission
Review. Electronic submissions through Starbucks website
were successfully tested in selected stores in fiscal 2006.
Our goal is to make this capability available to all North
American company-operated stores in fiscal 2007. Some of
our international markets also have embraced this concept
and provide similar feedback forums to their partners.
Efforts are currently underway to connect and coordinate
these programs.

The following channels are available for partners to raise any
questions or concerns, including potentially sensitive mattersthey are uncomfortable reporting elsewhere:• Business Conduct Helpline, a toll-free phone number thatpartners may call anonymously, and which is answered
24 hours a day, seven days a week by an independent
call center• Email via BusinessConduct@Starbucks.com• Direct contact with BEC team members• Auditline, a toll-free phone number for third parties, suchas vendors, investors, and customers, to report possible
accounting or auditing irregularities• Referrals from other departments and programs, such as
Mission Review
The majority of reports received by the BEC program
involve employee relations issues, a trend which is consistent
with other companies – retail or otherwise – that provide
alternative reporting mechanisms as part of a comprehensive
ethics and compliance program. Starbucks does not limit
the types of issues or concerns that partners may report to
the BEC program through these communication methods.
We welcome any and all concerns that partners are not
comfortable reporting to others or do not know how to reportto others. By providing these means of reporting, the program
helps to ensure that Starbucks continues to provide a great
work environment for partners and to remain an employerof choice.
Our comprehensive efforts to ensure an ethical workplace aredetailed in Starbucks Standards of Business Conduct, which
can be reviewed in the “About Us” section of Starbucks.com.
Categories of Partner Concerns Reported toStarbucks Business Ethics and Compliance Program
Business Practices
Corporate policy questions
and concerns (e.g., conflictsof interest, privacy andfinancial reporting)3%

Business Ethics and Compliance
Starbucks Business Ethics and Compliance (BEC) program
develops and distributes Starbucks Standards of BusinessConduct, facilitates legal compliance and ethics training,
investigates sensitive issues including potential conflictsof interest, and provides mechanisms for partners tovoice concerns.

WORKPLACE

Employee Relations
Pay, benefits,
disciplinary action,and other categories
that impact
day-to-day work
83%

Safety & Security
Categories involving
partner and customer
safety, facility conditions
and allegations of theft
12%
Customer Relations
Comments or questions
that involve customers –reported by partners, or inrare circumstances bycustomers who obtained
the Business Conduct
Helpline number in error
2%65

Providing Benefits to Our Partners
Starbucks Total Pay package is the cornerstone of our pledge
to treat partners with respect and dignity. The Total Pay
package varies by country to make sure it is locally relevant.
The components may include competitive base pay, bonuses,
comprehensive health coverage, income protection, vacation,
stock options, a savings program, adoption benefits, tuition
reimbursement and partner perks, including a discount onmerchandise in our stores.

Pay at Starbucks reflects the knowledge, skills and experience
required for a specific job. We regularly consult industry
salary surveys to determine competitive rates, and pay
accordingly. Partners are also eligible for merit pay increases
based on performance.
The chart below summarizes the core benefits that our eligible
part- and full-time partners receive.

Starbucks Benefits
PARTNER BENEFITSPROGRAM DESCRIPTIONSAND COVERAGE

ELIGIBILITY

Comprehensive healthcare benefits(U.S. and Canada)

Benefits include medical, dental, vision,prescription drugs and alternative health coverage.
In the U.S., Starbucks paid 77 percent of healthcoverage costs for partners and 60 percent for
dependents. In Canada, 73 percent of costs were
paid for partners and 45 percent for dependents.

Once initially eligible, full- and part-time partners whoare paid a minimum of 240 hours per calendar quarterand their eligible dependents, including spouses,
domestic partners and children. In fiscal 2006, 65
percent of U.S. partners and 61 percent of Canadianpartners were eligible for these benefits.*

Bean Stock – Starbucks stock
option plan (eligible partners in
the U.S., Canada, UK, Hong Kong,
Netherlands, Switzerland, Germany,
Australia, Costa Rica, China,
Thailand, Singapore, Chile, Republicof Ireland and Puerto Rico)

The board of directors determines annual stock
option grants based on company performance up
to 14 percent of our partners’ eligible base wages.
Every partner through the director level receives
the same percentage of his or her fiscal-year
wages. For fiscal 2006 performance, the basis forstock option grants was 14 percent.

Full- and part-time partners up through director level
who have been employed by Starbucks since April
1 and have been paid for at least 500 hours fromthe first of the fiscal year through March 31 or from
April 1 through the end of the fiscal year. (Eligibility
requirements may vary slightly by country.) More than
70,000 partners qualified for Bean Stock for fiscal
2006 performance.

S.I.P. – Stock Investment Plan (U.S.
and Canada), Share Incentive Plan
(UK)

Partners can purchase company stock at a
discounted price on a quarterly basis (U.S. andCanada) or a semiannual basis (UK).

Partners who have worked as a regular Starbucks
partner for at least 90 days and have been paid for an
average of 20 hours a week during the three months
preceding the offering. No hours requirement in the
UK. In fiscal 2006, 32 percent of eligible U.S. andCanadian partners participated in S.I.P.

Future Roast – Starbucks 401(k)Plan (U.S.), RRSP – Registered
Retirement Savings Plan (Canada)

Starbucks matches from 25 percent to 150 percent(based on the length of service from the partner’s
most recent date of hire) on the first four percent
of pay that partners contribute to the U.S. 401(k)Plan. Eligible Canadian partners receive a 25
percent match on the first four percent of pay thatthey contribute to the RRSP.

U.S. partners age 18 or older may participate after thecompletion of 90 days of service. Canadian partners
are eligible after one year of service. In fiscal 2006,
21 percent of eligible U.S. partners participated in
Future Roast. Sixteen percent of eligible partners in
Canada participated in the RRSP.

*With approximately four company-operated stores opening daily in the U.S. and Canada, we have a large number of partners in their eligibility waiting period,
typically three months.

Partner Benefits – Internationally
While specific benefits differ between regions and countries,
all of our international business partners share Starbucks
Total Pay philosophy. Below are several representative
examples of benefits received by Starbucks partners outside
North America.
• Japan:  All partners who work 30 hours per month ormore are eligible for health insurance including annual
medical checkup. Stock and annual leave (vacation) arealso offered.

WORKPLACE• Chile: All partners are eligible for health insurance, paidvacation and sick leave, among other benefits.
• Greece: All partners are eligible for health insurance, paidvacation and sick leave, among other benefits.
• China: All eligible partners receive health insurance, sickleave and maternity leave.
• Australia: Bean Stock, paid vacation, sick leave and career
training are among the benefits offered.

66

My Starbucks —When I joined Starbucks in 1994 I
began acquiring Starbucks stock
through Bean Stock and S.I.P., andinvested in my future through Future
Roast - Starbucks 401k plan. A couple
years ago, I sold my Starbucks stock
to buy a car and a house in Mexico
for my parents. Today I am a newmom and am buying my first home.
When my sister joined Starbucks in 1996,
I encouraged her to take full advantageof these benefits. She told me thisadvice is the best gift a sister could give.
-Noemi Guevara, Starbucks store
manager in Missouri City, TX

WORKPLACE

67

Focusing on Healthcare and Wellness

Advocating for Healthcare Reform

Starbucks remains committed to providing healthcare
benefits to eligible full- and part-time partners, despite rapidly
rising costs. Starbucks U.S. and Canada healthcare plans are
self-insured, which means healthcare providers are paid with
Starbucks funds, as well as the money our partners personallycontribute toward their coverage. In fiscal 2006, we did
not increase healthcare premiums to partners. Starbucks is
working in a variety of ways to ensure the continuation of ourhealth coverage plan, and assist our partners in their efforts toreach and maintain their optimal health.

Rising healthcare costs and other challenges of providing
healthcare benefits have led Starbucks to advocate for a more
affordable and efficient U.S. healthcare system. For the past
several years, we have focused our efforts on building publicawareness about the seriousness of escalating healthcare costs,
and seeking reform of the healthcare system generally.

Outreach to Newly Covered Partners
In fiscal 2006, Starbucks began testing a novel outreacheffort to newly enrolled partners. Partners receive a welcome
call from our health plan administrator who can answer
questions about their health coverage – from how to selecta physician to how to find weekend or after-hours care. Thisapproach is being tested in 10 locations in the U.S. We hope
to find that through a simple welcome call we can improvepartners’ health, and encourage efficiencies in the use ofhealthcare resources.
Thrive Wellness Initiative
Starbucks commitment to the health and wellness of ourpartners – and our customers – is evident in many of ourprograms and policies. One very direct effort to care forour partners’ health is the Thrive Wellness Initiative, which
combines education, communication and participation to
help our partners live healthy lives. Over 15,000 partners haveregistered on the Thrive website since its inception. Below aresome of the components of the program.
• A web-based health risk assessment that creates a personal“health map” for each partner.
• Online programs for fitness, smoking cessation andimprovement of eating habits.
• Health club discounts at contracted fitness facilities.
• Partner Connection subsidies for up to 50 percent offees for clubs or sports teams that include three or more
active partners.
• Anti-slip work shoes at a discounted price online to help
reduce the risk of slip and fall injuries.
Kinetix, the newest benefit in the Thrive Wellness Initiative,
was piloted in fiscal 2006 and launched in October 2006
at no cost to partners in our support offices in Seattle,
Washington, the location of Starbucks global headquarters.
Kinetix is a comprehensive wellness program that teaches
proper nutrition and exercise through an interactive website,classes and workshops, an eight-week session with a personaltrainer and phone and e-mail support to keep partners on
track to reach their personal fitness goals.

WORKPLACE

In fiscal 2006, we worked to become more strategic in
our efforts. First, we analyzed the greatest challenges that
Starbucks faces in delivering affordable, accessible healthcare.
We then identified the following areas where we will focus
efforts: access, technology, innovation, quality and lifetime
solutions. In fiscal 2007, we will highlight specific initiatives
in these key areas. Through our efforts, we hope to alleviate
healthcare challenges for Starbucks and our partners, andall other U.S. companies and employees whose healthcare
benefits are threatened.

My Starbucks –Sean Couture, a Starbucks store
manager in Williston, Vermont, saw
golf as a great team-building activity
for fellow partners and managers
in his region, but wondered whether
the expensive golf fees could be put
to better use. When Sean learned
about Starbucks Partner Connection
program, he found a way to combine
his passion for golf with his desire to
bring together a group of partners
for camaraderie and a good cause.
Sean formed a Starbucks Partner
Connection Golf Team and put out acall to the three stores in his region,
asking partners if they’d like to join. For
their first outing, the team participatedin a Muscular Dystrophy Cornerstone
Cup Tournament that raised a total of$12,000 for the Muscular Dystrophy
Association (MDA). In addition tocontributing half of the team’s entry
fees, Starbucks also donated cups andcoffee to the event. The team has teed
up for other good causes including the
local Chamber of Commerce and Chill, anintervention program for disadvantaged
kids. According to Sean, “Once you get ateam set up, it’s easy. It’s a great way
for partners to get to know each otherbetter, get closer, feel more like a teamand also contribute to a great cause.”

68

Recognizing Our Partners

The CUP Fund

Starbucks success reflects the quality, imagination andinitiative of our partners. We developed the Starbucks Partner
Recognition Program to honor our partners’ contributions.
Currently there are 18 formal recognition programs
that partners can use as tools to reward and inspire one
another. They range from company awards for leadershipand exceptional service to “on the spot” awards given byco‑workers for a job well done.

Since 1999, the CUP (Caring Unites Partners) Fund has
assisted partners with financial support as a result of an
unexpected event such as the death of a partner or family
member, fire or natural disaster. Starbucks partners support
the CUP Fund with personal contributions. All Starbucks
partners are eligible to apply for assistance. In total, the CUPFund provided more than $1.4 million in direct financial
assistance to more than 1,600 partners in fiscal 2006.

In recognition of our outstanding performance as a company,
Starbucks shared a special cash award with more than
100,000 partners in May 2006.

My Starbucks –D epartment of D efense Freedom Award
Starbucks was honored by the U.S. Department of Defensewith the 2006 Secretary of Defense Employer Support
Freedom Award for outstanding support of activated partners
who serve in the National Guard and Reserve. The Freedom
Award is the highest award bestowed by the Department of
Defense in recognition of an employer. Starbucks partner
Matt Parkinson nominated Starbucks for the award after
serving 15 months in Iraq. Starbucks supports partners, like
Matt, by making up the difference between partners’ militaryand civilian pay as well as continuing benefits. Partners areable to continue medical, dental and vision coverage for up
to 24 months of active duty and to continue Starbucks lifeand disability insurance for up to 12 months

Starbucks CUP Fund rescued my family
from a difficult financial situation. We
were drowning financially, due primarily
to tens of thousands of dollars inmedical expenses. My family is so thankful
for the small but regular contributions
that many Starbucks partners maketo the CUP Fund. These partners
embody the truth that “we are a people
company that sells coffee.” In addition,
the partners that I spoke with about
the CUP Fund were kind, compassionate
and timely in their response to ourrequest. In times of need, it’s nice toknow Starbucks partners provide eachother a lifeline through the CUP Fund —caring really does unite partners.
Dave Mahoney, barista, Memphis, TN

WORKPLACE

69

Partner Training and Career
Development

Workplace Policies and RespectingPartners’ Rights

Starbucks continually invests in training programs and careerdevelopment initiatives to help partners grow and advancetheir careers at Starbucks.

Starbucks workplace policies provide for equal employment
opportunities, and strictly prohibit discrimination orharassment on the basis of age, race, gender, color, national
origin, religion, sexual orientation, physical or mental
disability, as well as any other basis prohibited by federal,state, local or provincial laws. We follow all laws regarding theemployment of minors. The current standard minimum ageof employment at Starbucks is 16, although it may be higher
or lower in some locations as required by local regulations.

All store partners receive comprehensive training. Baristas
receive two weeks of initial training to become experts in the
preparation and delivery of our products. After 90 days on
the job, they receive additional training to deepen their coffeeknowledge and build their confidence. When a barista moves
into another retail position, he or she receives four weeks oftraining as a shift supervisor, eight months of development as
an assistant store manager, eight weeks as a store manager and
15 weeks as a district manager trainee. In total, in fiscal 2006,
our U.S. and Canadian retail partners received an estimated
4.9 million hours of training, in addition to practice hours.
In fiscal year 2006 Starbucks added two new careerdevelopment programs for store managers:• Store Manager 200 offers over 50 hours of in-place
training to develop leadership and other key
managerial skills.
• Store Manager 301 is a year-long mentorship anddevelopment program that helps high-potential store
managers build the competencies necessary for the nextlevel in their careers.
We believe in looking internally first and offering ourpartners opportunities to grow and advance. Partners receive
information about career advancement opportunities on
mypartnercareer.com, and through partner and leadershipcommunications.
The following figures reflect internal promotions for certain
positions in fiscal 2006:• 86% of shift supervisor positions were filled byStarbucks baristas.
• 67% (approximately) of assistant and store managers werefilled by internal partners.
• 54% of district manager positions and over 70% ofregional director positions were filled by internal partners.

Starbucks also recognizes our partners’ right to organize.
We have always focused on providing a great workplaceenvironment and a comprehensive Total Pay package. (Seepage 66 for information about Total Pay.) At the end of fiscal
2006, 129 Canadian partners in two cities were the only
Starbucks partners who had certified union representation.
In March 2006 Starbucks entered into an informal settlementagreement with the National Labor Relations Board (NLRB),
resolving all outstanding unfair labor practice charges filedby the International Workers of the World (IWW) Local
660. The charges originally were filed in connection witha May 2004 petition by the IWW, which it subsequently
withdrew, to unionize one Starbucks store in New York City.
The settlement agreement provided that Starbucks admitted
no wrongdoing or liability, but allowed Starbucks to resolve
all charges without the distraction of a long and expensive
hearing process.
This settlement and the underlying claim have generated somenational and international press attention. We understandthat the press coverage stems from a belief that employees
should be treated fairly, with dignity and respect. This is avalue very much shared by Starbucks.
Starbucks has always sought to provide a great place towork for all our partners, while staying true to our Mission
Statement and Guiding Principles. Starbucks is committed
to following any and all labor laws in a fair and consistentmanner. We do not take action or retaliate against partners
who express their views about unions or who take part inunion activity.

Starbucks named to the Training
Magazine Top 10 0 list in 20 06
For the third year in a row, Starbucks has been named to theTraining magazine Top 100 list. This recognition is basedon an evaluation of the company’s training and development
programs and resources. Starbucks training programs notedin this award include those for career development, coffee
education, leadership and front-line manager training.

WORKPLACE

70

Health and Safety
Starbucks is committed to creating a safe environment forour partners and customers by reducing the risk of injuries.
Safety programs for Starbucks stores and roasting plants aredesigned to meet or exceed the most stringent regulatory
standards wherever we do business.
Partner and customer safety is a primary consideration in
the development and selection of all Starbucks products
and equipment in an effort to engineer out as many causes
of injury as possible. Where potential risks of injury are
identified in our stores and production facilities, specificprograms are implemented to remove or mitigate those risks
through design, engineering, equipment or materials changes
that further protect partners and customers from common
causes of injury such as hot liquids, repetitive stress, liftingor falls. In addition, the company stresses partner awarenessof Starbucks safety standards and potential risks in the work
environment, and reinforces awareness through partnertraining, safe work procedures, regular communication,
inspections and audits.

Injury Rate Per 200,000 Hours Worked – Starbucks Retail Stores*

7.92
7.05

8.00

5.46
6.00

4.00

Fiscal year

2004**

2005**

2006* Injury rate per 200,000 hours worked is an average for all U.S.
full- and part-time store partners, the majority of whom are baristas.
** Data have been retroactively adjusted to reflect new claims
that were filed after the fiscal years ended.

The Interstate Experience Modification Factor, a metricprovided in this report in previous years, has been removed
going forward to ensure that we accurately report our partner
injury experience. Starbucks has chosen to become selfinsured for Workers’ Compensation insurance in a numberof states, and the Experience Modification Factor – whichis calculated by an outside agency and does not take into
account Starbucks injury experience in self-insured states –does not accurately reflect the company’s partner injury
experience. The Injury Rate per 200,000 Hours Worked
continues to be the best measure of Starbucks workplace
injury experience. (See graph.)

WORKPLACE

71

Fostering Diversity andInclusion

Diversity and Inclusion in the
Workplace

At Starbucks, we “embrace diversity as an
essential component in the way we do business.”
This is a Guiding Principle of the company andone of our core values.

At Starbucks, our diverse workforce includes men andwomen of various ages, races, national origin, religious
affiliations, sexual orientation, physical and mental attributes,
and differing levels of education, skills and experiences.
Our partners also come with their own ideas, opinions andcommunication styles. We respect the differences our partners
bring to the workplace. We view their differences as assetsthat can help us to be more creative and innovative in our
approach and products, more competitive globally and more
attractive as an inclusive employer wherever we do business,

As we expand throughout the world, Starbucks
is recruiting and operating within a broad rangeof multicultural, multilingual, and multiracial
environments. Not only must Starbucks actively
prepare to embrace and navigate diversity acrossthe globe, we must tailor our efforts to eachunique area of the world.
Our continued success compels us to create a business that, at
all levels, reflects the communities in which we operate, thecustomers and marketplaces we serve, and the shareholders
who invest in our company. Featured in this section are ourcompanywide efforts to embrace diversity, which include
the following:• Diversity and inclusion in the workplace• Supplier diversity• Urban Coffee Opportunities: Bringing the Starbucks
Experience to diverse communities

Starbucks Makes DiversityInc
Top 50 List
Starbucks was recognized as one of the Top 50 Companies
for Diversity in 2006 by DiversityInc magazine, which
reports and analyzes diversity issues and their impact on
business in the U.S. Starbucks also ranked in the Top 10
Companies for DiversityInc’s Latinos sub list. The application
process for the Top 50 list entails an in-depth analysis of acompany’s diversity management, leadership and marketing.

C orporate Equality Inde x
In 2006, Starbucks achieved a score of 85 out of 100 on
The Human Rights Campaign (HRC) Foundation’s Corporate
Equality Index (CEI), a nationally recognized measure ofgay, lesbian, bisexual and transgender (GLBT) workplace
equality. This index is the principal method of evaluating
diversity efforts toward GLBT employees and consumers.
Scores are based on a voluntary survey of company policies
as well as independent research by HRC.
To achieve a higher score, Starbucks must first have awritten nondiscrimination policy covering gender identityand expression. We are currently working on updating ournondiscrimination policy and hope to achieve a higher HRC
score in the future.

DIVERSITY

We implemented the following initiatives and programs infiscal 2006 in an effort to reach our diversity and inclusion
workplace goals and objectives.
• A “Diversity and Inclusion Scorecard” was createdfor our ceo and his direct reports, which includes key
metrics for diversity and inclusion in the workplace. The
scorecard establishes benchmarks related to workforce
representation, diversity leadership competencies,
workplace environment, supplier diversity and customer
experience.
• Partner Network Groups were initiated to bring partners
together voluntarily to partner with the business in anadvisory capacity. Additionally, these groups provide
personal and professional networking opportunities,
address issues of concern and opportunity, and provide
mutual advocacy to help the company achieve our diversity
and inclusion goals. The program was piloted with threegroups: The Pride Alliance Network: (lesbian, gay, bisexual, transgender), Partners with Disabilities Network,
and Emerging Workforce, a group of partners that isworking to develop flexible workplace solutions in order toachieve both their business and personal goals. The Partner
Network Groups are currently available to partners at the
Starbucks Support Center (SSC), the company’s global
headquarters in Seattle.
• Diversity and Inclusion Leadership Teams were organized
to identify strengths, gaps and opportunities within
specific business units and regions as well as to create
structures to foster sustainable, robust diversity andinclusion strategies throughout the company. Team
members are partners from all levels of the company
bringing cross-functional expertise in efforts to drive
ownership of the diversity and inclusion strategy within
Starbucks. In fiscal 2006, two regional teams werelaunched in the U.S. and seven were launched within
specific business units or functions at the SSC.

72

• The Disability Standard Assessment, a comprehensive
tool that addresses disability, access and accommodation
as it affects every aspect of our company, was initiated.
Starbucks is undertaking the Assessment in partnershipwith the Employer’s Forum on Disability, an organizationthat provides guidance on all aspects of disability,
access and accommodation as a business and an equal
rights issue. We will complete the assessment in fiscal
2007 and use the results to guide the development of acomprehensive plan.
• Executive diversity education was researched and designed
in fiscal 2006, with plans to pilot and integrate it into acomprehensive educational plan for partners in fiscal 2007.
Diversity and inclusion education at Starbucks includes
integration into existing and developing programs, standalone offerings and experiences that extend beyond theclassroom, such as forums, facilitated discussions andreciprocal mentoring.

Women

34%

31%

Fiscal year

2004

33%

2005

Executives (vice presidents
and above)• Several partner training programs, focused on workplace
disability matters, were enhanced or developed at many
levels. Additionally two new workshops were created andpiloted: “Best Practices: Creating a Deaf Friendly Work
Environment” and “Best Practices: Disability 101.”

66%

65%

63%

2006
Total U.S. workforce

People of Color
30%

Starbucks is dedicated to developing our diversity andinclusion strategy globally. In fiscal 2006 we began working
to define diversity and inclusion priorities by region, but wehave not yet completed a global strategy.

15%

30%

14%

30%

15%

FUTURE GOALS
In fiscal 2007, we will strive to:

Fiscal year

• Make Partner Network Groups a permanent
diversity and inclusion program at the Starbucks
Support Center.
• Design and deliver customized diversity andinclusion educational programs to our Partner
Resources (HR) department.
• Audit Starbucks core educational offerings from adiversity and inclusion perspective.
• Incorporate the new Best Practices: Creating a Deaf
Friendly Work Environment into our educational
offerings.
• Develop a diversity and inclusion DVD in which
Starbucks partners, with a facilitator, share theirpersonal stories in an effort to increase awareness inthe areas of diversity and inclusion.
• Continue the creation and implementation ofbusiness unit–specific Diversity and Inclusion
Leadership Teams across the company.

2004

2005

Executives (vice presidents
and above)

2006
Total U.S. workforce

The following table represents the percentage of women andpeople of color holding senior positions at Starbucks:
Starbucks Senior Officers*
Fiscal 2006
Women

28%

People of color

22%*Senior vice presidents and above• Solidify a strategic initiative to link the Diversity andStaffing organizations.

DIVERSITY73

My Starbucks –The National Braille Press honored
Starbucks barista Cindy Rogers andStarbucks with its prestigious Hands On!
Award in September 2006. The award
recognized Cindy’s outstanding work onbehalf of braille literacy, and Starbucks
supportive workplace environment andemphasis on literacy. Cindy shared
the honor this year with First Lady
Laura Bush at a Gala event in Boston.
Since June 2005, Cindy has hosteda Children’s Story Hour in her Mesa,
Arizona, Starbucks store to read braillestorybooks to children and adults.
She also has visited 75 schools in thepast year, talking to children about
her blindness, and passing out braillealphabet cards to help children learn
letters. Cindy credits Starbucks forencouraging her to start her Story
Hour series. “Starbucks inspires us
to give back to our communities, so I
decided to make it my mission to sharemy passion for braille literacy as avehicle to transform lives,” Cindy said.

In fiscal 2006, Starbucks made the following improvements
in our supplier diversity program:• Developed a new coding system to better identify
minority- and women-owned suppliers, which we plan toimplement in fiscal 2007.
• Increased our presence at minority business events anddiversity trainings.
• Increased our level of participation with the National
Minority Supplier Development Council and Women’s
Business Enterprise National Council.

Spending with Diverse Suppliers(in millions)

$213

$166

$114

Fiscal year

2004

2005

2006

Supplier Diversity
To operate and grow our business, Starbucks depends on abroad network of suppliers that ranges in size and scope. We
are dedicated to providing a world-class supplier program that
supports diversity. Starbucks instituted a Supplier Diversity
program several years ago to ensure that qualified andcertified diverse U.S. businesses have equal opportunities toprovide our goods and services. A diverse supplier is definedby Starbucks as a business that is certified by an independent
third party to be at least 51 percent owned, operated andmanaged by women, minorities, or individuals who aresocially or economically disadvantaged.
The commitment we’ve made to supplier diversity is intended
to provide not only opportunities for diverse businesses, butalso to create a positive and sustained economic impact on thelocal communities where these businesses are based.
In fiscal 2006, Starbucks did $213 million in business with
first tier* women- and minority-owned businesses, exceeding
our goal of $206 million.
* First tier suppliers are paid directly or relationships are managed directly byStarbucks for their products and services. Only first tier suppliers are counted inour diverse supplier spending.

DIVERSITY

FUTURE GOALS
Our goals for fiscal 2007 include:• Spending $250 million on purchases from certified
diverse suppliers.
• Implementing a supplier diversity training programfor all new buyers.
• Developing a five-year supplier diversity plan thatenables Starbucks to further advance our diverse
supplier base.
• Creating a supplier diversity advisory council tosupport the advancement of supplier diversity atStarbucks.
• Developing meaningful key performance indicators(KPIs) to help track and measure progress toward
our supplier diversity goals.

More information about Starbucks Supplier Diversity
program is available at Starbucks.com.

74

Urban Coffee Opportunities
Bringing the Starbucks Experience to Diverse
Communities
In 1998, Starbucks formed a joint venture with Johnson
Development Corporation (JDC), which is owned by
Earvin “Magic” Johnson. Together we created Urban Coffee
Opportunities, LLC (UCO), bringing Starbucks stores todiverse communities. We opened 15 new UCO stores in fiscal
2006 and ended the year with a total of 102.
We are close to meeting our goal of opening 125 UCO storesin the U.S. and expect to reach the 125 store benchmark bylate 2007 or early 2008.
When scouting for new UCO locations, Starbucks and JDC
consider the economic vitality and long-term potential ofa given market. In many of the communities where UCO
stores have opened, Starbucks arrival has helped to serve as an
economic stimulus with the creation of new jobs, use of local
suppliers, our support for community-based organizations,and by attracting other retailers to the area. The collective
economic impact that our UCO stores generated in fiscal
2006 included:• Providing more than 2,100 jobs in 102 UCO stores.
• Paying an estimated $29.8 million in salaries/wages
and benefits to UCO partners.
• Providing healthcare benefits to eligible and participating
part- and full-time store partners, their spouses, domestic
partners and eligible dependent children.

DIVERSITY75

Independent Assurance Report
To the Stakeholders Starbucks Coffee Company:
We have been engaged to provide assurance on the Corporate Social Responsibility (“CSR”) Fiscal 2006 Annual Report (the“Report”) of Starbucks Coffee Company (“Starbucks”), for the fiscal year ended October 1, 2006.
We have performed evidence-gathering procedures on the following subject matter:• Key Performance Indicators Summary and Highlights for Fiscal 2006;• Information and data provided in each area of focus of the Report (Products, Society, Environment, Workplace, andDiversity) and• The management and reporting for the preparation of this information and data.
We have considered the subject matter against the following evaluation criteria:• The procedures by which the CSR information and data were prepared, collated and compiled internally and• The control environment over the quality of the information and data.
Our statement should be considered in conjunction with the inherent limitations of accuracy and completeness for CSR data,
as well as in connection with Starbucks internal reporting guidelines.
The Board of Directors of Starbucks is responsible for both the subject matter and the evaluation criteria.
Our responsibility is to report on the internal reporting processes, information and data for CSR based on our evidencegathering procedures. Currently there are no statutory requirements or generally accepted verification standards in the
United States of America that relate to the preparation, presentation, and verification of CSR reports. There are international
standards for the CSR reports that were approved by the International Auditing and Assurances Standards Board (IAASB) in
January 2005. Using the IAASB approved standards as a guideline, we planned and performed evidence-gathering proceduresto provide a basis for our conclusion. However, we have not performed an audit in accordance with the International
Standards on Auditing. Accordingly, we do not express such an opinion.
Our evidence-gathering procedures included, among other activities, the following:• Testing the effectiveness of the internal reporting system used to collect and compile information on each area of focus in
the Report;• Performing specific procedures, on a sample basis, to validate the CSR data on site at Starbucks coffee buying operations in
Switzerland; C.A.F.E. Practices operations in Costa Rica; and corporate headquarters in Seattle, Washington;• Interviewing partners responsible for data collection and reporting;• Interviewing partners at retail locations;• Assessing the information gathering and compiling process of each area of focus in the Report;• Reviewing relevant documentation, including corporate policies, management and reporting structures and• Performing tests, on a sample basis, of documentation and systems used to collect, analyze and compile reported CSR
information and data.
In our opinion, based on our work described in this report, the CSR information contained in the Report gives a fair
representation of CSR performance and activities of Starbucks Coffee Company for the fiscal year ended October 1, 2006.
Statements, assertions and data disclosed in the Report are reasonably supported by documentation, internal processes andactivities, and information provided by external parties.

Moss Adams LLP
Seattle, Washington
January 15, 200776

Your Feedback Matters

Verification

In preparing Starbucks Fiscal 2006 CSR Annual Report,
we provided a copy of our previous year’s report to a broadcross-section of stakeholders, and asked for their candid
feedback and advice on the ways in which we could improvetransparency. We also received a great deal of feedback fromreaders of last year’s report via an online survey, something weare doing again. This collective input provided some excellent
suggestions that we incorporated into this year’s report,
including the changes we made to print only an abridged
version focused on our most material issues and to publish thefull report online.

External verification of the data and statements made inStarbucks CSR Annual Reports began in 2002, when thecompany retained Seattle-based Moss Adams LLP, the12th largest accounting and consulting firm in the U.S.
The selection of Moss Adams met Starbucks criteria for ahigh-quality firm that had not worked with the company
previously, and a firm that could develop a customized
approach for verifying CSR-related data and content. (Seepage 76.)

We invite our readers to help us improve our future reportingby providing feedback on Starbucks fiscal 2006 CSR Annual
Report. This can be done via an online survey at www.
starbucks.com/csrsurvey. Please be assured that all feedback
will be thoughtfully considered and greatly appreciated.

To minimize the environmental impact, this report was
printed on 100 percent post-consumer recycled fiber.

About the Paper Used for this Report

For more information:
Starbucks Coffee Company
Customer Relations
PO Box 3717
Seattle, WA 98124-3717 USA
Phone: 800-23-LATTE(800-235-2883)
Contact us through the “customer service” section ofStarbucks.com.
To receive a printed copy of this report, please call thenumber listed above. The report is also available online atwww.starbucks.com/csr.
© 2007 Starbucks Coffee Company. All rights reserved.
Printed in the USA. CSR-199 SKU-XX
This report includes forward-looking statements regarding trends
in or expectations regarding store openings. These forwardlooking statements are based on currently available operating,financial and competitive information and are subject to various
risks and uncertainties. Actual future results and trends may
differ materially depending on a variety of factors including but
not limited to successful execution of expansion plans, fluctuations
in U.S. and international economies, the impact of initiatives bycompetitors, and other risks detailed in the company’s filings with
the Securities and Exchange Commission, including the “Risk
Factors” section of Starbucks Annual Report on Form 10-K forthe fiscal year ended October 1, 2006. The company assumes noobligation to update any of these forward-looking statements.

77