Striking a Balance
CORPORATE SOCIAL RESPONSIBILITY

Fiscal 2004 Annual Report

“Is Starbucks responsible? I don’t know.”– Jordan Hoyt, owner of Beartooth Coffee
Roasters in Billings, Montana

C OV E R
José Manuel Barrientos Alfaro (right) farms coffee on the fertile slopes of the Poás Volcano in Costa
Rica’s central valley. He’s built a strong working relationship with Carlos Mario Rodriguez (left),the director of agronomy at the Starbucks Farmer Support Center in nearby San José. Carlos
has helped guide José on his way to becoming a Starbucks preferred supplier through C.A.F.E.
Practices. To read more on this, please see page 20.

Dear Stakeholders,
The question posed by Jordan Hoyt – Is Starbucks responsible? – is an important one. While my immediate
response is yes, I believe this deserves a more thoughtful explanation. I hope this report will help you determine
for yourself whether Starbucks is a responsible company.
The theme of our Corporate Social Responsibility Fiscal 2004 Annual Report, “Striking a Balance,” underscores
our approach to conducting business. During the early days of Starbucks, we were determined to create a company
with a heart and conscience – one that would continually deliver shareholder value while touching people’s lives
and enriching the human spirit. Our good intentions led us to establish Starbucks Mission Statement and Guiding
Principles in 1990, the foundation we needed to help us balance our priorities and integrate social responsibility
into everything we do.
The idealism we felt so strongly has not faded with time. The phenomenal success Starbucks has achieved
conﬁrms my belief that a company can do good and do well at the same time. For instance, Starbucks is taking
the lead among major coffee companies through our approach to responsible coffee purchasing. We are continuing
to introduce coffee farmers and suppliers to Coffee and Farmer Equity (C.A.F.E.) Practices, a set of socially
responsible buying guidelines that have evolved from our two-year pilot project and were further reﬁned by the
feedback we received from coffee growers, sustainability experts and others.
We have also recognized that to ensure the sustainable production of high-quality coffee, more is needed. So, inJanuary 2004, we opened our Farmer Support Center in Costa Rica, enabling our team of experts in coffee quality
and sustainability practices to collaborate directly with coffee farmers on measures that will help them sustain
their farms and surrounding communities.
From the very beginning, we have vowed to always treat our partners (employees) with the highest level of respectand dignity. One of the best examples is our ongoing commitment to provide healthcare beneﬁts to eligible fulltime and part-time partners, despite the escalating costs. We have shared our concern with policymakers that all
Americans should have access to affordable healthcare and have supported a campaign to raise awareness of thisimportant issue.
While we are proud of our accomplishments, we recognize our challenges. Our effort to revolutionize the coffeeindustry through C.A.F.E. Practices will not happen overnight and will remain an ongoing journey. Our rapid
expansion challenges us to maintain – for our partners, customers and communities – the intimacy that is ahallmark of the Starbucks Experience. And occasionally, we have met resistance from neighborhood groups
concerned that the presence of a Starbucks will impact the unique character of their communities and locallyowned businesses.
We are committed to facing our challenges responsibly, openly and with sensitivity. We believe a responsible
company is one that listens to its stakeholders and responds with honesty to their concerns. Throughout thisreport, we have included external comments and responded to questions from various stakeholders as a wayof offering more candor and disclosure to our readers.
(continued on page 2)

1

This is a year of change for Starbucks. In March 2005, Orin Smith, Starbucks president and ceo, will retire. Orinhas offered unfaltering leadership to the company and in the area of social responsibility. He has set an example
for all of us. I can assure you that Jim Donald, our incoming president and ceo, will continue to lead Starbucks
with the same commitment to social responsibility that has been demonstrated over the years.
So, is Starbucks responsible? There is no end to this journey, but I know this: our ongoing success will always bemeasured by how well we balance our ﬁscal responsibility with our goal to enhance the lives of those whom weserve and who serve us.

Sincerely,

Howard Schultz
chairman2

CONTENTS

STARBUCKS ANDCORPORATE SOCIAL RESPONSIBILITY – 4

Global Reporting Initiative(GRI) Indicators

Starbucks Mission Statement and Guiding Principles ............................................................4
Company Proﬁle ...................................................................................................................5
About This Report ................................................................................................................6
Performance Summary – Starbucks Key Performance Indicators ...........................................7
Governance at Starbucks .......................................................................................................8
Stakeholder Engagement .......................................................................................................9
Purchasing Responsibly from Suppliers ...............................................................................10

3.7
2.1, 2.2, 2.8, EC1
2.11-2.13, 2.20, 2.21
EC4, EN17
3.1-3.3, 3.5, 3.6, 3.8, LA11
2.9, 3.11, 3.12
3.7, 3.16, HR3, HR5, HR7

COFFEE FARMERS – 12
Sustaining Our Hallmark of High-Quality Coffee ...............................................................15
The World of Coffee ...........................................................................................................16
Our Approach to Sustainable Coffee Production .................................................................18
Coffee and Farmer Equity (C.A.F.E.) Practices ....................................................................20
Starbucks Farmer Support Center........................................................................................25
Purchasing Conservation and Certiﬁed Coffees ...................................................................26
Investing in Social Programs ................................................................................................30
Providing Access to Affordable Credit .................................................................................31

3.7, 3.12, 3.16, EC13, EN27, HR2, HR3, HR5-7
EN6, EN25, EN27, EN28, PR6
EC10
EC13

SOCIETY – 32
Building Strong Community Ties........................................................................................35
Starbucks Growth................................................................................................................35
Urban Coffee Opportunities ...............................................................................................38
Investing in Communities ...................................................................................................39
The Starbucks Foundation – Supporting Youth Education ..................................................41
Investing in Coffee- and Tea-Growing Communities...........................................................43
Contributing to Communities Around the World ...............................................................45
Being Responsible to Our Customers ..................................................................................47
Our Approach to Public Policy in the United States ............................................................48
United Nations Global Compact.........................................................................................49

EC10
EC10
EC10
EC2
PR1, PR8
SO33.14

ENVIRONMENT – 50
Starbucks Environmental Mission Statement.......................................................................52
Environmental Responsibility and Leadership .....................................................................53
Understanding Environmental Issues and Sharing Information with Our Partners ..............53
Developing Innovative and Flexible Solutions to Bring about Change .................................54
Striving to Buy, Sell and Use Environmentally Friendly Products ........................................56
Recognizing That Fiscal Responsibility Is Essential to Our Environmental Future...............56
Instilling Environmental Responsibility as a Corporate Value ..............................................57
Measuring and Monitoring Our Progress for Each Project ..................................................58
Encouraging All Partners to Share in Our Mission ..............................................................60
Challenges and Opportunities .............................................................................................61

3.7
EN8
EN17
EN14
SO4
EN2, EN3, EN5

WORKPLACE – 62
Starbucks Employment Proﬁle ............................................................................................64
Creating a Great Work Environment ...................................................................................65
Partner Beneﬁts ...................................................................................................................66
Fostering Diversity and Inclusion...........................................................................................66
Partner Training and Career Development..............................................................................68
Recognizing Our Partners ...................................................................................................69
Listening to Our Partners ....................................................................................................70
Health and Safety ................................................................................................................71

EC5

Independent Veriﬁer’s Report ..............................................................................................72
Feedback and Further Information: Is Starbucks Responsible? .............................................73

2.21
2.10, 2.22

3LA12, LA17
LA10, LA11, HR4
LA9, LA17
HR6, LA3
HR10
LA7

STARBUCKS MISSION STATEMENT AND GUIDING PRINCIPLES
To establish Starbucks as the premier purveyor of the ﬁnest coffee in the world while
maintaining our uncompromising principles as we grow.
The following six Guiding Principles will help us measure the appropriateness ofour decisions:• Provide a great work environment and treat each other with respect and dignity.
• Embrace diversity as an essential component in the way we do business.
• Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.
• Develop enthusiastically satisﬁed customers all of the time.
• Contribute positively to our communities and our environment.
• Recognize that proﬁtability is essential to our future success.

Starbucks Corporate Social Responsibility
Fiscal 2004 Annual Report
is dedicated to
ORIN C. SMITH

Starbucks retiring president and ceo
In 1990, Starbucks leaders went on a retreat tomap out the company’s future. They returned with
Starbucks Mission Statement and Guiding Principles,
which reﬂect the personal values of Howard Schultz,
Orin Smith and several others, and serve as thefoundation of Starbucks culture. We thank Orin Smith,
who is retiring in March 2005, for his uncompromisingcommitment to live these values every day and for
inspiring all Starbucks partners to do the same.

4

STARBUCKS AND CORPORATE SOCIAL RESPONSIBILITY

Company ProﬁleIn addition to coffee, Starbucks also produces and sells awide variety of consumer products that includes Tazo’s lineof high-quality teas, CDs from Hear Music,™ coffee-brewing
equipment and other merchandise. Starbucks owns Seattle
Coffee Company, which includes the Seattle’s Best Coffee®
and Torrefazione Italia® coffee brands, offering alternative
varieties of coffee ﬂavor proﬁles.

Starbucks Corporation has grown from a single store in1971 to become the leading retailer, roaster and brand of
specialty coffee in the world, with retail locations in North
America, Latin America, Europe, the Middle East andAsia Paciﬁc. We believe our growth and success are theresult of our unwavering commitment to offer the highestquality coffee and an exceptional customer experience
while conducting our business in ways that produce social,environmental and economic beneﬁts for communities inwhich we do business.

Starbucks Corporation is incorporated in Washington State,in the United States. The company is listed on the Nasdaq
Stock Market under the symbol SBUX. As of December 2,
2004, there were approximately 434,000 beneﬁcial
shareholders of record.

Company Data
Fiscal year

2002

2003

2004*

Total net revenues ................................................................................

$3.3 billion$4.1 billion$5.3 billion

U.S. company-operated stores .............................................................................

$2.4 billion$3.0 billion$3.8 billion

U.S. specialty (licensing, foodservice, other)........................................................

$403 million$507 million$690 million

International company-operated stores ................................................................

$368 million$484 million$657 million

International specialty (licensing, foodservice, other)...........................................

$93 million$119 million$146 million

Net earnings ..........................................................................................

$213 million$268 million$392 million

Earnings per share – diluted ...............................................................

$0.54

$0.67

$0.95

Shareholders’ equity ............................................................................

$1.7 billion$2.1 billion$2.5 billion

Total income taxes ................................................................................

$126 million$168 million$232 million

Cash paid for income taxes ..................................................................

$105 million$140 million$173 million

U.S. federal and state ..........................................................................................

$100 million$134 million$163 million

International .......................................................................................................

$5 million$6 million$10 million

Effective tax rate .................................................................................

37.3%

38.5%

37.2%

Number of countries where Starbucks stores are located .............

30

32

34

Total retail stores ................................................................................

5,886

7,225

8,569

U.S. company-operated stores .............................................................................

3,209

3,779

4,293

International company-operated stores ...............................................................

703

802

922

U.S. licensed stores ..............................................................................................

1,033

1,422

1,839

International licensed stores ................................................................................

941

1,222

1,515

Number of partners ..............................................................................

62,00074,00097,000* Fiscal 2004 included 53 weeks. For further information about our financial performance, please see our Fiscal 2004 Annual Report to shareholders,available online at www.starbucks.com/aboutus/investor.asp.

®

®

5

About This Report

Global Reporting Initiative
Starbucks was inﬂuenced by the Global Reporting Initiative(GRI) guidelines in determining relevant content andperformance metrics to include in our report. Presently, we are
not in full accordance with the GRI, but each year we strive
to increase our use of its principles and indicators. The GRI
indicators included in this report are referenced in the tableof contents on page 3. In some cases we address only elementsof speciﬁc indicators. More information about the GRI isavailable at www.globalreporting.org.

Scope
This report includes information on Starbucks U.S. andCanada company-operated retail and coffee supply-chain
operations, the areas that represent the majority of Starbucks
economic, environmental and social impacts.
Starbucks system for collecting and reporting reliable economic,
environmental and social data does not encompass all Starbucks
operations. Where available, anecdotal information is includedin this report on international and licensed store operations.
Information on our total coffee purchases is for both Starbucks
Coffee Company and Seattle Coffee Company.

Information Integrity
Starbucks management is responsible for the preparation andintegrity of the information presented in this report. Througha system of internal controls, including a comprehensive
veriﬁcation process involving internal subject matter experts,
we believe this report fairly represents our CSR activities andresults for the ﬁscal year ended October 3, 2004.

Reporting Year
This report covers activities that occurred during Starbucks
ﬁscal year 2004 (September 29, 2003, through October 3,2004), unless otherwise noted.

External veriﬁcation is provided by Moss Adams LLP. The
veriﬁcation process includes testing the accuracy of speciﬁcdata and content. (See the Moss Adams veriﬁcation letter on
page 72.)

Currency
All references to currency are in U.S. dollars.

Previous Reports
Starbucks past three Corporate Social Responsibility(CSR) Annual Reports are available online atwww.starbucks.com/csrannualreport.

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STARBUCKS AND CORPORATE SOCIAL RESPONSIBILITY

Performance Summary – Starbucks Key Performance Indicators
To measure how well we are doing at upholding our commitment to social responsibility and to our Guiding Principles, Starbucks has identified thefollowing key performance indicators as the most relevant metrics for our business. We will report our performance relative to these metrics in the
future, and may add new metrics as our business continues to evolve.

Indicator

2003

2004

2005 target(where available)Moreinformation
Pages 20–24

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

Fair Trade
Certified™ coffee

Pounds of coffee purchased frompreferred suppliers

13.5 million(goal: 3.5
million)43.5 million(goal: 30
million)75 million

Percentage of total coffee purchases

NA

14.5%

NA

Pounds of coffee purchased fromFair Trade Certified™ cooperatives

2.1 million

4.8 million

10 million

Percentage of total coffee purchases

NA

1.6%

NA

Pages 26, 28–29

COMMUNITY
Charitable
contributions

Total cash and in-kind contributions $11.3 million $14.6 million* NA
2.6%

2.3%

NA

Volunteerism(Make Your Mark)

Percentage of U.S. Starbucks partners 21%
who volunteer in their communities

14%

NA

Page 40

Percentage of pre-tax earnings

Page 39CUSTOMERS
Highly satisfied customers

52%

55%

NA

Page 47

Customers who think Starbucks contributes tolocal communities

46%

49%

NA

Page 38

ENVIRONMENTGreenhouse gas
emmissions

Metric tons of CO2 equivalents

254,000

NA

Set CO2 emmissions
reduction target;
purchase 5%
renewable energy

Pages 53–54

Electricity

Kilowatt hours per square foot ofretail space

5.84

6.62

NA

Pages 58–59

Water

Gallons per square foot of retail space 20.3

27.1

NA

Paper

Percentage of post-consumer fiber(not including hot cups)

48.1%

46.5%

48%

Percentage of unbleached fiber(not including hot cups)

88.9%

86.3%

90%

Percentage of satisfied partners

82%

NA

NA

Partner engagement Percentage of engaged partners

73%

NA

NA

Health and safety

Injury rate per 200,000 hours
worked – retail

8.02**

7.56

7.25

Page 71

Women

U.S. workforce

63%

63%

NA

Pages 66–67

People of color

U.S. workforce

24%

24%

NA

Suppliers

Amount spent with certified
minority- and women-owned
businesses$80 million$114 million(goal:$95 million)$140 million

WORKPLACE
Partner satisfaction

Page 70

DIVERSITY

NA = Not Available* Previously, we reported separately the amount invested by Starbucks in social projects in coffee-growing communities.
We are now including these investments as part of our total global contributions.
** Fiscal 2003 information has been retroactively adjusted to reflect new claims that were filed after the fiscal year ended.

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STARBUCKS AND CORPORATE SOCIAL RESPONSIBILITY

Page 11Governance at Starbucks

Starbucks Auditline
External stakeholders (non-partners) may call Starbucks
Auditline with concerns regarding accounting controls or
auditing matters and they may refer communications to theBoard of Directors, to the committees of the board and toindividual directors.

Eleven members serve on the Starbucks Board of Directors,
including eight who meet the deﬁnition of independence
according to the National Association of Securities Dealers(NASD). Individual board members are up for election
every three years and are nominated based on speciﬁc criteria
intended to strengthen the overall quality and depth of theboard. For instance, each candidate should demonstrateintegrity and ethics in his/her personal and professional life.
In addition, each candidate should contribute to the board’s
overall diversity – in terms of background, gender, race,
ethnicity or other differentiating characteristics – to add tothe variety of opinions and perspectives.

Emerging Issues Council
To assess potential risks and opportunities to the company,
Starbucks created an Emerging Issues Council (EIC) in
2004. The EIC is a cross-functional team of Starbucks
executives led by our vice president of CSR.
Two issues the EIC will address in ﬁscal 2005 pertain tococoa purchasing and climate change:

There are three committees of the board: Audit andCompliance, Compensation and Management Development,
and Nominating and Corporate Governance. All three arecomposed of independent directors.

• Cocoa purchasing – Starbucks purchases processedcocoa and chocolate through suppliers that sourcefrom several tropical countries, including the Ivory
Coast, West Africa. In 2001, allegations arose about theuse of forced child labor on cocoa farms in the Ivory
Coast. Starbucks has shared our concerns about these
allegations with our suppliers, who have assured us thatthey are taking measures to ensure that their purchasing
practices promote sustainable and responsible cocoa
farming. However, the EIC will continue to monitor
this issue and, if necessary, adopt new policies andmeasures related to our cocoa purchases.

Board Diversity
The members of Starbucks board have professional
experiences in various industries, such as technology,
ﬁnancial investment, consumer products, retail, and thegovernment and nonproﬁt sectors. Of the 11 members,
one is female and one is African American.
Executive Compensation• Climate change – The potential threat that climatechange poses to the environment and to coffee-growing
communities has led the EIC to prioritize this issue.
In 2004, Starbucks conducted a climate inventory of
our greenhouse gas emissions. The EIC will evaluate
an emissions reduction strategy and determine whether
other measures are needed for Starbucks to proactively
and responsibly address the issue of climate change in aleadership capacity.

To determine compensation for Starbucks chairman,
president and ceo, and other certain executives, theCompensation and Management Development Committee
ﬁrst examines the compensation levels at peer groupcompanies and strongly considers the company’s short-termand long-term performances. All independent directors
vote on the committee’s speciﬁc recommendations for the
executive compensation package, which consists of threecomponents: annual base salary, incentive bonuses and stock
option awards.

More information, including our ﬁscal 2004 Proxy Statementthat discusses executive compensation and our Corporate
Governance Principles and Board Committee Charters, isavailable online at www.starbucks.com/aboutus/investor.asp.

Corporate Social Responsibility (CSR)
At present, there is not a committee of the board dedicatedto CSR. However, Starbucks senior vice president of CSR
reports directly to the company’s president and ceo, andhas access to present CSR-related matters at the company’sboard meetings.

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STARBUCKS AND CORPORATE SOCIAL RESPONSIBILITY

Stakeholder Engagement
Our stakeholders include partners (employees), customers, coffee farmers, suppliers, community members, environmental groups, activists,
shareholders and many others. Starbucks believes we have a responsibility to our stakeholders that begins by building relationships andfostering two-way communication. We’re working on being good listeners to our supporters and to our critics. Below are several examples of
how Starbucks listened to and engaged with our stakeholders in fiscal 2004. Throughout our report, we include comments and questions
from various stakeholders and provide responses when appropriate.

Subject

Stakeholder
groupsIssues and outcomes

C.A.F.E. Practices –coffee buying
guidelines focused on
the sustainability ofhigh-quality coffee
production

Coffee farmers,
processors and suppliers;
non-governmentalorganizations (NGOs);
coffee industry
representatives;
academics; Starbucks
partners

Starbucks hosted a feedback session on our preferred supplier program and coffee buying guidelines
in February 2004. The input helped us improve the guidelines, which are the foundation of Coffee
and Farmer Equity (C.A.F.E.) Practices. Details on the feedback session can be found online atwww.scscertified.com/csrpurchasing/starbucks.html.

Starbucks growth andstore locations

Local neighborhoodgroups and smallbusiness community

A small number of local neighborhood preservation groups have opposed Starbucks plans to open stores intheir communities. These experiences have reminded us how important it is to build trusting relationships
with our future neighbors and to gain a deep appreciation for what each individual community values. Prior
to opening a store in the Fillmore district of San Francisco in 2004, we engaged with local residents anddiscovered how Starbucks could fit in with their community and make a positive contribution.

Skyrocketing
healthcare costsin the United States

Government
policymakers

Howard Schultz, Starbucks chairman, met with federal policymakers to share the company’s concern about
the impacts that rising healthcare costs are having on all Americans and many employers. Starbucks helped
sponsor a Robert Wood Johnson Foundation campaign – Cover the Uninsured Week – to focus attention on
this critical issue.

Starbucks partners

Our partners have indicated their concerns related to higher healthcare costs. Starbucks responded to theirneeds by providing better resources to help them manage their personal health.

Sustainable dairy andfood products

Starbucks dairy andbakery suppliers,socially responsible
investors (SRI),
shareholders andcustomers

In 2004, Starbucks surveyed our dairy and bakery suppliers to determine their current sustainability practices
and the feasibility of having them adopt more stringent measures to produce sustainable products.
Specifically, we are determining whether our suppliers could potentially deliver rBST-free dairy products andbakery ingredients grown under environmentally friendly conditions. We also met with representatives fromSRI groups to gather and exchange information on possible alternatives to use in developing our sustainable
dairy and food program. In 2005, Starbucks will review all the feedback previously received and develop ournext steps and future strategies.

Responsible marketingof Starbucks™ Coffee
Liqueur

Advocacy groups,
university student
organizations, elected
officials, local
businesses

Prior to announcing Starbucks™ Coffee Liqueur with Jim Beam Brands Co. in April 2004, Starbucks
proactively engaged with several advocacy groups, including Mothers Against Drunk Driving, and otherinterested parties in Colorado and Texas – the test markets for the product. We assured them of our intent
not to market our new product to underage consumers and of our commitment to promote responsible
drinking through our product marketing and advertising. This product will not be sold in Starbucks stores.

Transparency anddisclosure on Starbucks
business practices

Socially responsible
investors (SRI)

At the request of various SRI fund managers, Starbucks responded to extensive surveys that included detailed
information on our social and environmental performance so each fund could determine whether Starbucks
is worthy of inclusion on their specific index. In 2004, Starbucks was listed on the Dow Jones Sustainability
Index, FTSE4Good Index Series, KLD’s Domini Social Indices (DS 400, BMS, LCS, CV 400, SS), Calvert
Social Index and Zürcher Kantonalbank.

Starbucks partners andcustomers, businessleaders, NGO
representatives,
academics, activists

Starbucks invited candid feedback from a wide array of stakeholders on the credibility and merit of our
Corporate Social Responsibility Fiscal 2003 Annual Report. We incorporated stakeholders’ feedback toaddress weaknesses in last year’s report in an effort to improve the report for 2004. For example, stakeholders
noted that last year’s report lacked information about our challenges, especially with regard to our coffee
buying practices and the impact of our growth on local communities. As a result, we have included a morein-depth look at these topics in this report.
We invite feedback on this report through an online survey at www.starbucks.com/csrsurvey.

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STARBUCKS AND CORPORATE SOCIAL RESPONSIBILITY

Progress Report on 2004 Goals – Code of Conduct and Supplier Diversity
Goals
To complete training for Starbucks global procurement team on the Supplier Code of Conduct and suppliersocial responsibility.
To select an independent third-party auditor and begin conducting Supplier Code of Conduct compliance audits.
To create a stronger business and communications strategy for the Supplier Diversity program.
To create a new position at Starbucks to oversee the Supplier Diversity program.
To increase the amount we spend with diverse suppliers to $95 million.
key:achievedmaking progress

did not achieve

Purchasing Responsibly
from Suppliers

In ﬁscal 2004, we developed and delivered initial Codeof Conduct training for most of our global procurement
team. We interviewed potential third-party auditors for our
program and began the selection process, but ultimately
decided to hold off until we could develop a more effective
compliance program. Now that we have internal staff
resources dedicated to implementing our Code of Conduct,
we are strengthening our program. In ﬁscal 2005, we will
increase our training efforts to include ongoing training
for Starbucks global procurement team as well as for our
suppliers and factories.

Code of Conduct
Starbucks published a Supplier Code of Conduct for
product manufacturers in 2003 that outlines principles
regarding worker rights and treatment, workplace healthand safety, and environmental protection. As a company
committed to treating all individuals with dignity andrespect and contributing positively to the environment, we
believe that incorporating these principles into our supply
chain is part of our social responsibility. A description of
our Supplier Code of Conduct can be viewed online atwww.starbucks.com/aboutus/supplier_code.asp.

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STARBUCKS AND CORPORATE SOCIAL RESPONSIBILITY

Supplier Diversity• We made progress toward our goal of developing
a business and communications strategy byenabling a Supplier Diversity link on our website
and creating a Supplier Diversity registration form.

A Guiding Principle of Starbucks is to “embrace diversity
as an essential component in the way we do business.” As
the U.S. population becomes increasingly more diverse,
it’s essential that the diversity of our suppliers reﬂects
the communities in which we operate. Several years ago,
Starbucks established a Supplier Diversity initiative toensure that qualiﬁed and certiﬁed diverse businesses in the
United States have access to equal opportunities to provide
our goods and services.

Our goal in ﬁscal 2005 is to spend $140 million onpurchases from diverse suppliers. We also plan to expand
our efforts by offering enhanced tools and training for ourbuyers and business unit managers, and joining national
supplier diversity organizations.

We deﬁne a diverse supplier as a business that is certiﬁedby an independent third party to be at least 51% owned,
operated and managed by women, minorities, or socially or
economically disadvantaged individuals.

$114 million

In 2004:$80 million• Starbucks spent more than $114 million with certiﬁed
minority- and women-owned businesses, as well associally or economically disadvantaged businesses,
exceeding our goal of $95 million.

$69 million• We hired a manager to oversee the continued growth of
our Supplier Diversity initiative.
• We actively participated in the Northwest Minority
Business Council (NMBC) by having a Starbucks
representative serve on its board. Our representative
received NMBC’s 2003 Leadership Award.

Fiscal year

2002

2003

2004

Spending with Diverse Suppliers

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STARBUCKS AND CORPORATE SOCIAL RESPONSIBILITY

What’s the relationship between theprice of a cup of Starbucks coffee andwhat Starbucks pays for coffee beans?

12

COFFEE FARMERSCOFFEE FARMERS

The day when a cup of coffee went for aquarter is long past.
Indeed, Starbucks customers are paying more, but they
are getting the highest-quality coffee and an exceptionalcustomer experience in return. This allows Starbucks to pay
top prices for the ﬁnest coffees grown around the world.
In the end, the price of a cup of Starbucks coffee and thecost of freshly harvested coffee beans are determined by
the same measure – quality.

13

Progress Report on 2004 Goals – Coffee Farmers
Goals
To purchase 30 million pounds (13.6 million kilograms) of coffee from preferred suppliers who have successfullycomplied with our coffee buying guidelines and met our requirement for independent verification.
To continue to purchase Fair Trade Certified coffee and increase the number of locations where it’s available.
TM

To open a Farmer Support Center (agronomy field office) in Costa Rica.
To invest more than in previous years in social development projects that benefit coffee-growing communities.
To provide $1.5 million over three years to the Conservation International (CI) coffee program and form a three-way
alliance with CI and the U.S. Agency for International Development (USAID) that enables CI’s program to expand.
key:achievedmaking progress

did not achieve

14

COFFEE FARMERSSUSTAINING OUR HALLMARK OF
HIGH-QUALITY COFFEEThe overall decline of coffee consumption in
the United States may concern some farmers,
especially those growing coffee beans at lower
elevations in tropical regions. It’s a different situation forfarmers producing high-quality arabica coffee at tropical
altitudes above 3,000 feet (914 meters). The demand forpremium-quality coffee has steadily increased in recent
years, while demand for lower-grade arabica or robusta
beans has not.
Starbucks buys only the ﬁnest arabica coffee that meets ourrigorous standards for high quality. We uphold a Guiding
Principle of Starbucks by applying the highest standardsof excellence to our coffee. Our customers’ willingness to
pay high prices for our coffee is largely based on Starbucks
promise to deliver exceptional quality. Compromisingon quality could erode the trust our customers have inStarbucks and undermine our business in the long run.

The hills of Guatemala provide superb conditions for
growing some of the world’s ﬁnest coffees. A large
portion of Starbucks coffee is grown here.

We recognize that high-quality coffee is more expensive to
produce than lower-grade coffee. In ﬁscal 2004, Starbucks
paid $1.20* per pound on average in an effort to ensure thatcoffee farmers can cover their production costs and earn a
proﬁt. This approach is not only the right thing to do forfarmers, it’s also essential to the long-term sustainability ofhigh-quality coffee production and a critical component ofStarbucks success.

*On average, Starbucks paid $1.20 per pound ($2.64 per kilogram) in ﬁscal year 2004
for purchases of green (unroasted) coffee. The average price we paid was 74% higher
than coffee purchased at New York “C” market prices during ﬁscal 2004.

15

COFFEE FARMERS������

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Quick Facts about Coffee• There are two commercial speciesof coffee: arabica and robusta.

• Coffee provides a livelihood for an
estimated 25 million people* (coffee
farmers and their families) living withinthe “bean belt” – the area between the
Tropics of Cancer and Capricorn.

• Caffeine content in arabica beans is
0.8%–1.4%, compared to 1.7%–4.0%
for robusta beans.*• Total world coffee exports were 11.6
billion pounds (5.3 billion kilograms) in
the 2003–2004 coffee year (October–
September), down slightly from theprevious year.*

The World of Coffee

Coffee beans are the seeds inside the small fruit of the coffee
tree, called cherries. The plants are larger than typical shrubs
but smaller than most trees. One plant usually produces
enough fruit every season for one pound (453 grams) ofroasted coffee beans. More than half the world’s arabica
coffee is grown on small family farms, often located inremote, hilly areas where the fruit is harvested by hand. The
annual crop yield on a small coffee farm is about 1,000 to
2,000 pounds (454 to 907 kilograms). A large portion ofStarbucks® coffee is grown on such farms.

The ﬁrst coffee plants are believed to have come from theHorn of Africa, where East African tribes consumed coffee
berries as a food rather than a beverage. Around the year
A.D. 1000, Ethiopians made a type of wine from the fruit,
but coffee wasn’t brewed and developed into a hot drink
until later in the 11th century.
Today, coffee is one of the most popular beverages worldwide.
More than 70 tropical coffee-producing countries export
this commodity.

Arabica coffee is also grown on estates, which are mid- tolarge-scale farms. Generally speaking, the more care that’s*Source: International Coffee Organization

16

COFFEE FARMERSCOUNTRIES WHERE STARBUCKS CURRENTLY PURCHASES COFFEE�������������

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Quick Facts about Starbucks• Starbucks purchased 299 million
pounds (136 million kilograms) of highquality green (unroasted) arabica coffee
in ﬁscal 2004, approximately 2.2% ofworld coffee production.
• Starbucks paid $358 million for green(unroasted) coffee in ﬁscal 2004, at
an average price of $1.20 per pound($2.64 per kilogram).

• In ﬁscal 2004, Starbucks purchased
coffee in 25 countries, the majority
coming from Guatemala, Costa Rica
and Colombia.
• Starbucks coffee buyers and executives
spent an estimated 400 days in thecoffee-producing countries where wepurchased 90% of our coffee in 2004.

taken in growing, harvesting and processing the beans,the higher the quality of coffee. Starbucks purchases
high-quality coffee from many estates and, in some cases,
we have established long-term, exclusive and/or directbuying relationships.

demand. Recently, this imbalance has begun to evenout, causing “C” prices to start rising in response.
• Higher-quality arabica beans, sold as specialty coffee,
represent 10%** of total worldwide coffee purchases.
Prices for specialty coffee are often negotiatedindependent of the “C” prices and set higher tocompensate farmers for quality. Coffee can bepurchased from exporters, brokers, cooperatives and insome cases farms. In 2004, Starbucks purchased 94% of
our coffee at prices independent of the “C” market.

Arabica coffee is traded in two ways:• The majority of arabica coffee is traded as a commodity
on the highly competitive New York “C” market (theworldwide reference used by coffee traders). Over the
past few years, “C” market prices were suppressed due
to an oversupply of lower-grade coffee that exceeded**Source: Specialty Coffee Association of America

17

COFFEE FARMERSSTARBUCKS COFFEE
SUPPLY CHAIN

The value chain that extends from farmer tocustomer includes coffee growers, pickers,
mill workers, exporters and roasters. At every
stage our quality standards must be met,

FARMERS/PRODUCERSCOOPERATIVESWET MILL PROCESSORS

Estates are medium- to large-scale
farms that typically employ workers to
help harvest and process the coffee
crops. Estates usually have their own
processing facilities.

Small-holder farmers often form cooperatives to achieve economies of scale,obtain bargaining power and collaborate on
production methods. Cooperatives also serve
as processors and sometimes as exporters.
Fair Trade Certiﬁed™ coffee is produced
exclusively by cooperatives.

Wet mills buy or receive coffee cherries fromfarmers and process them by removing the
fruit and drying the beans. They are standalone operations or integrated facilities onlarge farms or cooperatives. Some wet mills
can handle the dry mill processing on-site.
If not, they send the coffee beans to a drymill for further processing.

Small farms are usually family-run farms
that grow coffee on 5–12 acres (2–5
hectares) along with other crops of fruits
and vegetables. Small-holder farmers deliver
their harvested crops to a collection point,where they are sold to an intermediary or aprocessor. They are typically self-employed
and might hire one or more workers, andprobably rely on their families to help
during the harvest season.

In ﬁscal 2004, Starbucks began requiring
detailed and veriﬁable documentation forﬁnancial transactions along the supply chain.

ECONOMIC TRANSPARENCY
Farmers/producers – We ask to see theinvoice or receipt for the coffee thatthe farmer delivered to the processor orexporter. If the farmer represents a large

estate, wage and salary transparency isalso requested to determine whether farmworkers are receiving fair compensation for
their labor.

Our Approach to Sustainable
Coffee Production

Processors – Evidence must be furnishedindicating payments up and down the
supply chain, including payments madeto farmers and receipts from exporters• Paying premium prices to help farmers make proﬁts andsupport their families.
• Encouraging farmers to participate in Coffee and Farmer
Equity (C.A.F.E.) Practices.

Many measures are needed to sustain the farms that
produce high-quality coffee, as well as their surrounding
communities. Starbucks has adopted an integrated approachto sustainable coffee purchasing, which includes six
fundamental measures:• Operating our own Farmer Support Center (agronomy ﬁeld
ofﬁce) in Costa Rica that enables us to collaborate with farmers
and provide them the technical support and training needed toensure the sustainable production of high-quality coffee.

18

COFFEE FARMERS

and we have begun to require economictransparency in an effort to ensure that
farmers are receiving equitable prices fortheir crops.

DRY MILL PROCESSORSEXPORTERSSTARBUCKS

Dry mills buy or receive processed coffee
beans directly from farmers or wet mills.
Dry mills conduct the ﬁnal stage whencoffee beans are checked for quality, sorted
and graded. Green coffee is then sold to
local buyers or exporters. A dry mill might
be integrated into an export operation, or
included on a large farm or cooperative.

Exporters receive or buy green coffee beansfrom mills and cooperatives. They contract
and arrange for shipment of the green coffeeand sell the coffee to importers or roasters.
Exporters are either independent agents inthe supply chain or, in some cases, havetheir own dry mill facilities. And some farms
do it all – grow and process the coffee andserve as exporters. The exporter can be a
local company or part of a large holding
company with importing ofﬁces around theworld. Starbucks uses exporters because
they provide valuable services and reducerisk for both Starbucks and farmers.

Importer – Starbucks buys green(unroasted) coffee from exporters, farmers
and cooperatives, and occasionally fromother importers.
Roaster – Green coffee is then transported
to one of our company-operated plants androasted to Starbucks standards.
Distributor – Roasted coffee is packaged
and distributed to Starbucks stores, grocery
stores and wholesale accounts, such asuniversities, hotels and restaurants.
Retailer – Starbucks sells coffee in morethan 8,500 stores worldwide.

Achieving economic transparency is difﬁcult
and will take time. However, we’re encouragedby the progress made thus far.
that show the amount paid for the coffee.
Documentation is also required on the costs
associated with processing, as well as yields
obtained from processing.

Exporters – Prices paid to processors
and prices charged to importers must be
disclosed.

• Purchasing conservation (shade-grown) and certiﬁed
coffees, including organic and Fair Trade Certiﬁed.™

DEFINING “SUSTAINABILITY”:• Investing in social programs that beneﬁt coffeegrowing communities.

meet the needs of the present without• Providing farmers access to affordable credit.

generations to meet their own needs.

Conducting business in ways thatcompromising the ability of future

Source: The Brundtland Report

19

COFFEE FARMERS

C.A.F.E. PRACTICES TIMELINE
1998–2000

2001

2002

• World coffee prices were declining
to historic lows.

• CI helped Starbucks build on theConservation Principles and develop
broader quality, social, environmental andeconomic guidelines for the sustainableproduction of high-quality coffee.

• We began to pay incentive premiums
for coffee from our approved preferredsuppliers after an independent third party
veriﬁed that the coffee was produced in amanner consistent with our guidelines.

• The ﬁrst phase of Starbucks Preferred
Supplier Program (PSP) was created toencourage coffee farmers and suppliers to
adopt new coffee buying guidelines.

• Initial feedback from the pilot phase shedlight on the strengths and weaknesses of
the guidelines.

• To ensure that farmers were fairly
compensated for their high-quality
coffee, we began to modify our coffee
buying practices.
• Starbucks aligned with Conservation
International (CI) to begin addressing
environmental concerns in coffeegrowing regions.
• Through multi-stakeholder collaboration
between CI, the Consumer’s ChoiceCouncil, the Rainforest Alliance,
and the Smithsonian Migratory Bird
Center, the Conservation Principles
for Coffee Production were developed,
which inﬂuenced Starbucks coffee
buying practices.

• Starbucks launched a two-year pilotof PSP.

Coffee and Farmer Equity(C.A.F.E.) Practices• 50 applications from coffee farmers andsuppliers were submitted to Starbucksby those hoping to become preferredsuppliers.

economically responsible coffee buying guidelines that have
evolved to reﬂect more than three years of work and thecontributions of many people, particularly coffee farmers,
sustainability experts and our colleagues at Conservation
International (CI). We have chosen the name C.A.F.E.
Practices to emphasize the importance of farmer equity inrelation to Starbucks coffee.

To create a sustainable future for coffee farmers and theirsurrounding communities, Starbucks recognized that a
far-reaching approach was needed, beyond what anyone in
the coffee industry had attempted. We began by conducting
a two-year pilot project, then applied our own experienceand stakeholder feedback to pioneer coffee buying practices
that strive to improve the lives of farmers and increase theamount of high-quality coffee that is grown, processed
and traded in a sustainable manner. At the foundation of
C.A.F.E. Practices is a set of environmentally, socially andWe have introduced coffee farmers, processors and suppliers
to C.A.F.E. Practices and explained how the guidelines
work. Farmers and suppliers who demonstrate the useof best practices according to the guidelines, and obtain
independent veriﬁcation of their performance, may become
Starbucks preferred and strategic suppliers. We hope to

20

COFFEE FARMERS

2003

2004

2005 AND BEYOND• Starbucks established an audit process
for independent third parties to verify
farmers’ practices. However, one of thechallenges was ﬁnding enough reliablethird parties to do the inspections.

• Starbucks hosted a feedback session
in Seattle attended by coffee farmers,
processors, suppliers, NGOs and activists.

• C.A.F.E. Practices was ofﬁcially
implemented at the beginning ofﬁscal 2005.

• PSP was enhanced and renamed C.A.F.E.
Practices, which stands for Coffee andFarmer Equity Practices.

• We will continue to provide extensive
training for inspectors, farmers andStarbucks partners on C.A.F.E. Practices.

• We made economic transparency arequirement of C.A.F.E. Practices and tiedsocial indicators to international laws,
customs and conventions.

• Ongoing feedback will be sought fromfarmers and NGOs, so we can further
reﬁne and improve C.A.F.E. Practices.

• Feedback from the pilot phase indicatedthe need for more ﬂexible and speciﬁc
guidelines to account for local conditions,
altitude, climate and laws.
• 166 coffee farmers and suppliers from
16 countries had applied to become
Starbucks preferred suppliers; 60
were approved.
• Starbucks purchased 13.5 million
pounds (6 million kilograms) of coffee
from preferred suppliers.

• We opened our Farmer Support Centerin Costa Rica to work more closelywith farmers.
• 248 coffee farmers and suppliers from 22
countries had applied to become Starbucks
preferred suppliers; 139 were approved.
• Starbucks purchased 43.5 million
pounds (19.7 kilograms) of coffee frompreferred suppliers.

expand our list of preferred suppliers by encouraging others
to use these guidelines. We also hope that C.A.F.E. Practices
will become a model for other coffee buying companies toadapt and integrate into their own businesses.

• We will work with CI and other third parties
to develop regional indicator supplements
and small-holder farmer guidelines.
• We will make additional efforts toimplement C.A.F.E. Practices in Africa
and Asia.
• Tools and systems will be developed tomeasure the ﬁnancial impacts and the
beneﬁts of the program.

receive preferential buying status, higher prices and better
contract terms.
The guidelines contain 28 speciﬁc indicators that fall underﬁve focus areas: product quality, economic accountability(transparency), social responsibility, environmental
leadership in coffee growing and environmental leadershipin coffee processing.

C.A.F.E. Practices – How the Guidelines Work
The guidelines deﬁne what we believe to be the critical social,environmental, economic and quality aspects of growing,processing and selling coffee for Starbucks. To become
a C.A.F.E. Practices supplier, coffee farmers, processors
and exporters must meet minimum requirements anddemonstrate best practices, which are subject to independent
veriﬁcation under the guidelines. High-scoring suppliers

Each indicator is assigned a maximum number of points
that can be earned, except for our prerequisites of productquality and economic accountability. A total score istabulated to determine preferred supplier status. (Seepage 22 for a sample scorecard.)

21

COFFEE FARMERS

C.A.F.E. Practices – Guidelines for Coffee Farmers and Processors*
Focus Area

Indicators

Maximum Points

Product quality
General conditions

Green preparation ........................................................... ...............Required
Cup quality ..................................................................... ...............Required

Economic accountability
Incentives for sustainability

Demonstration of economic transparency ....................... ...............Required
Equity of financial reward ............................................... ...............Required

Social responsibility
Hiring practices andemployment policies

Minimum/living wage, overtime regulation .................... .................... 5
Freedom of association .................................................... .................... 5
Regulation of child labor/forced labor and discrimination.

Worker conditions.................... 5

Access to housing, water and sanitary facilities .................. .................... 5
Access to education ......................................................... .................... 5
Access to medical care ..................................................... .................... 5

Environmental leadership,coffee growing
Protecting water resources

Water-quality protection .................................................. .................... 5Conserving biodiversity

Maintenance of shade canopy and natural vegetation ........ .................... 5

Environmental management
and monitoring

Ecological pest and disease management andreducing agrochemical use................................................ .................... 5

Environmental leadership,coffee processing
Water conservation

Minimizing water consumption ....................................... .................... 4

Waste management

Waste-management operations ......................................... .................... 4

Energy use

Energy conservation ........................................................ .................... 4*This sample scorecard lists only 16 of 28 indicators. The maximum point total is 105. The full scorecard is available online atwww.scscertified.com/csrpurchasing/starbucks.html. We have also developed individual scorecards for farmers, processors and suppliers.

“The most fundamental corporate

C.A.F.E. Practices – Progress to Date

responsibility challenge faced byDuring the course of the pilot phase, we solicited feedback
from a variety of stakeholders, from coffee farmers to someof our most vocal critics. They told us what worked andwhat didn’t. This input helped shape a more comprehensive
program. However, the program is still relatively new andwill continue to evolve. Many challenges remain that must
be addressed. For instance:

Starbucks, or any other coffee company,
is to secure concrete progress in
improved working conditions andrespect for the basic rights of coffee
workers; in many instances, simply
ensuring suppliers’ adherence to local• Although we have trained approximately 85 independent
inspectors/veriﬁers on C.A.F.E. Practices guidelines,
coffee farmers report a lack of third-party veriﬁcation
organizations that are capable of undertaking ourcomprehensive inspection requirements on remote farms
or among large networks of producers.

labor laws would provide signiﬁcantadvances in wages and beneﬁts.”– Stephen Coats, U.S./Labor Educationin the Americas Project

22

COFFEE FARMERSIt took three years before the coffee grown on Santa Teresa
reached Starbucks quality standards. Along the way, theexporter worked with Cordova on implementing quality
improvements. In 2003, we signed a three-year contract
to buy all of Santa Teresa’s high-quality coffee at premium
prices and added a provision that earmarks funds for social
improvement and environmental protection projects to
beneﬁt the farm. Cordova’s accomplishment is now the prideof his father.
The Starbucks contract gives Cordova security in knowing
he has a buyer for his future crops and one that contributes
to the quality of life on Santa Teresa. “Now I feel that I will
work my entire life as a coffee producer because my farm issustainable,” he said. Clearly, Cordova’s investment is paying
off. And for Starbucks, we gain a wonderful source of highquality coffee grown under sustainable conditions.

INVESTMENTS PAY OFF
For years, the Santa Teresa farm did well enough by
producing regular extra-prime coffee rather than higherquality specialty grade. But that changed when world
coffee prices hit rock bottom several years ago. Ervin
Pohlenz Cordova, the son of the farm’s owner, wasn’t
earning enough for his crops to cover the farm’s expenses.
The farm nearly went bankrupt.

Cordova is a ﬁrm believer in C.A.F.E. Practices, and his goal
is to become a Starbucks preferred supplier in 2005.

Cordova was introduced to Starbucks through his
exporter and discovered he could earn more by producing
higher-quality coffee. Santa Teresa is located in Chiapas,
Mexico, an area known for its optimal altitude, fertile
soil and shade trees – perfect coffee-growing conditions.
Some investments were needed to improve quality andimplement sustainable farming practices, a commitment
Cordova was willing to make, despite initial resistancefrom his elderly father.

• Achieving economic transparency is very difﬁcult
because we’re relying on parties that have traditionally
lacked reliable information systems for tracking
payments throughout the supply chain.

Starbucks currently measures the success of C.A.F.E.
Practices by tracking the number of applications we receive,the number of our preferred suppliers and the amount ofcoffee Starbucks purchases from preferred suppliers. (See
C.A.F.E. Practices timeline on pages 20–21.)• As we continually reﬁne and improve elements of
C.A.F.E. Practices, information will also need to be
regularly updated and effectively communicated tofarmers, suppliers, our industry and the public.

In the future, we hope to provide more transparency on
various aspects of C.A.F.E. Practices, including levels of
performance among preferred suppliers or within speciﬁc
coffee regions.

• To comply with C.A.F.E. Practices, farmers andsuppliers may need to adopt new measures that could
prove costly for them.

For complete information on C.A.F.E. Practices,
visit Scientiﬁc Certiﬁcation Systems (SCS) at
www.scscertiﬁed.com/csrpurchasing/starbucks.html.
SCS is a third-party evaluation and certiﬁcation ﬁrm
retained by Starbucks for the development, training
and auditing of C.A.F.E. Practices.

• We will continue to deﬁne and measure what
constitutes ﬁnancial equity for farmers.

23

COFFEE FARMERS

Q: “How would C.A.F.E. Practices help to solve the economic and social
problems of coffee-growing families?”– Manuel Antonio Barrantes, Herbazu Farm in Costa Rica

A: Starbucks established C.A.F.E. Practices as a way
to provide incentives to farmers based on the qualityof their coffee and on comprehensive measures that
support the long-term sustainability of coffee farms
and the surrounding communities.

By producing high-quality coffee, farmers are better
positioned to earn more and have greater security,
which enables them to invest in their farms andcommunities for a sustainable future. Through ouragronomy ofﬁce in Costa Rica, Starbucks Farmer
Support Center, we are providing on-the-groundresources and support to farmers who want to improvetheir coffee quality and implement sustainable
farming practices so that they can become Starbucks
preferred suppliers.

When buying high-quality coffee, Starbucks
often pays considerably more than conventionalor commodity market prices. C.A.F.E. Practices
suppliers who achieve scores above 60% receive
preferred supplier status and are eligible for premium
prices and preferred contracts. Those who scoreabove 80% receive the same beneﬁts and are paid
additional premiums of $0.05 per pound (453
grams). All scores are independently veriﬁed.

24

COFFEE FARMERSThree of Starbucks Costa Rica–based partners from our Farmer Support Center discuss C.A.F.E. Practices with membersof Coopronaranjo R.L., a coffee cooperative located in Naranjo.

Starbucks Farmer
Support Centerin Mexico and South America, which helps build longterm and strategic relationships with those who share ourcommitment to the sustainable production of high-quality
coffee. Our Costa Rica partners also help implement
C.A.F.E. Practices, oversee regional social programs andengage with local governments on sustainability issues.

In January 2004, Starbucks opened an agronomy ﬁeld
ofﬁce in Costa Rica to house our team of experts in soil
management and ﬁeld-crop production (agronomists),
and in coffee quality and sustainability practices. They
collaborate directly with farmers and suppliers in Central
America and provide services to farmers and suppliers“Being introduced to C.A.F.E. Practices has been valuable for farmers because now weunderstand Starbucks better. We know that Starbucks puts quality ﬁrst, so quality is
top of mind for us.”– Carlos Rivera, Coope Tarrazú, a coffee cooperative in Costa Rica

25

COFFEE FARMERSConservation and Certiﬁed Coffees
5.7 million(2.6 million)
4.8 million(2.2 million)

Pounds(kilograms)

Pounds(kilograms)
2.1 million
1.8 million 1.8 million (1.0 million)(0.8 million) (0.8 million)

Fiscal year

2002

2003

2004

Pounds(kilograms)

2.8 million(1.3 million)

2.1 million(1.0 million)

1.7 million(0.8 million)

Fiscal year

Conservation (Shade-Grown)

2002

1.1 million(0.5 million)

2003

2004

Fiscal year

Certified Organic

2002

2003

2004

Fair Trade Certified™

Note: Coffees may be certiﬁed in more than one category. Starbucks purchased a total of 299 million pounds (136 million kilograms) of coffee in ﬁscal 2004.

Purchasing Conservation
and Certiﬁed Coffees

Certiﬁed Organic Coffee
Certiﬁed organic coffee is grown without the use ofsynthetic pesticides, herbicides or chemical fertilizers to
help maintain healthy soil and groundwater. Organic
coffee beans must be processed in certiﬁed organic mills
and roasting facilities. Two of our certiﬁed offerings are
the Serena Organic Blend® and Organic Shade Grown
Mexico coffees.

An important component of our sustainability model
is buying certiﬁed or eco-labeled coffees that have beengrown or sold in ways that help to preserve the naturalenvironment and/or promote economic stability. These
include conservation (shade-grown), certiﬁed organicand Fair Trade Certiﬁed™ coffees. (See graphs above foramounts purchased.)

Starbucks and the U.S. Agency for International
Development (USAID) have been longtime supporters of
the work of Conservation International (CI). In September
2004, a signing ceremony was held in Mexico City tolaunch the Conservation Coffee Alliance, a program
involving Starbucks, CI and USAID. This new program
will support the development of Conservation Coffee™
projects in Mexico, Panama and Costa Rica that are
being partially supported by USAID with a $1.2 million
grant to CI, payable over three years. From left: Adolfo
A. Franco, assistant administrator for Latin America andthe Caribbean, USAID; Glenn Prickett, CI’s senior vicepresident; Orin Smith, Starbucks president and ceo; andAntonio O. Garza Jr., U.S. ambassador to Mexico.

26

COFFEE FARMERS

Q: “Will Starbucks commit to not using GMO coffee
or tea products (once they come to market) unlessindependent long-term testing proves they are notharmful to humans, animals and the environment?”

A: Yes. In addition, Starbucks
has consistently reafﬁrmedthat our coffees and teas do
not come from crops that havebeen genetically modiﬁed.

– Michael Passoff, As You Sow Foundation
Conservation Coffee™ Program Update
MexicoEl Triunfo Biosphere Reserve
Launched: 1997

Peru
Upper Tambopata Valley
Launched: 1998

Colombia
Paraguas-Tatama
Conservation Corridor
Launched: 2000

Number of farmers actively
participating in project

694

1,534

340

Number of people living infarming community

6,970

8,640

1,360

Land managed under CI’s
Conservation Coffee™ best practices

5,436 acres (2,200 hectares)

9,340 acres (3,780 hectares)

5,100 acres (2,064 hectares)

Wildlife benefiting from project

An estimated 300 species of birds(including the near-threatenedquetzal), many of which are foundonly in this area, 45 types ofreptiles, and 30 species of mammals

Endangered species, including
the giant otter and the
harpy eagle

More than 200 endemic species
such as the emerald toucanet
and the bespectacled bear

Amount of coffee purchased byStarbucks in fiscal 2004

1.5 million pounds(0.7 million kilograms)

343,000 pounds(155,000 kilograms)

194,000 pounds(88,000 kilograms)

Average price per pound(kilogram) of coffee paidby Starbucks$1.25 per pound($2.75 per kilogram)$1.32 per pound($2.90 per kilogram)$1.19 per pound($2.62 per kilogram)

Premium paid to farmers
over local prices

44%

159%

80%

Starbucks products

Starbucks® Organic
Shade Grown Mexico andDecaf Shade Grown Mexico

Starbucks® Conservation Peru

Starbucks® Conservation
Colombia

Project Site

Conservation Coffee (Shade-Grown)

encouraging small-scale coffee farmers to use traditional
cultivation methods. Over time, the results have been
positive for local farmers because they began producing
higher-quality coffee that sold at premium prices throughCI’s Conservation Coffee™ program. In 2004, Starbucks
and CI introduced a measure to increase transparency in the
program’s purchasing and contract processes. This is helping
participating farmers – those working with our establishedexporter – achieve greater ﬁnancial transparency in theirtransactions and has led to increased sales to Starbucks, aswell as an increase in the farmers’ earnings.

On large coffee plantations, shade trees are often strippedaway and replaced with tight rows of coffee trees that are
exposed to the bright sun. The crop yields may be higher,
but the quality is often lower than coffee grown in a morenatural, shaded setting. Moreover, when tree canopies are
removed, the habitats of numerous species of birds, wildlife
and plants are also lost. Starbucks believes biodiversity must
be protected, especially in coffee-growing regions located insome of the world’s most sensitive areas. Our environmental
commitment led us to align with Conservation International(CI) in 1998. CI is a nonproﬁt organization dedicated toprotecting global biodiversity.

Building on the success of our initial project, Starbucks
and CI applied the same model to similar situations in
Colombia, Peru and, most recently, Costa Rica. (See
Conservation Coffee™ Program Update above.)

Our partnership initially focused on protecting the
El Triunfo Biosphere Reserve in Chiapas, Mexico, by

27

COFFEE FARMERSFair Trade Certiﬁed™ Coffee($3.10 per kilogram) for organic beans. These establishedprices, which are set by Fairtrade Labelling Organizations
International, include $1.19–$1.21 for the coffee(depending on region), $0.05 for a social premium and$0.15 for an organic premium.

In 2000, Starbucks established a licensing agreement withTransFair USA, the sole U.S. licensor of Fair Trade products,
including Fair Trade Certiﬁed™ coffee. In subsequent
years, in order to increase our global Fair Trade offerings,
we have entered into additional licensing agreements with
Fair Trade initiatives around the world. Starbucks sharescommon interests with the Fair Trade movement in ensuring
coffee farmers are fairly compensated for their crops
and in working together for the beneﬁt of farmers, theircommunities and the industry.

Consumer demand for Fair Trade Certiﬁed™ coffee in ourstores has varied, from a low level in the United States to asomewhat higher level in Canada, Europe and elsewhere.
We continue to work with several of the national Fair Tradelicensing initiatives to promote Fair Trade Certiﬁed™ coffee
at Starbucks.
Starbucks has expanded its collaboration with Fair Tradeinitiatives worldwide. In ﬁscal 2004, we purchased
4.8 million pounds of Fair Trade Certiﬁed™ coffee, which
represents 1.6% of our total coffee purchases and is morethan double the amount we bought in 2003. We are also
licensed to sell Fair Trade Certiﬁed™ coffee in 23 countries,
up from 20 countries the previous year.

Today, the International Fair Trade registry includes
more than 680,000 small-holder farmers who belong todemocratic, farmer-owned cooperatives – approximately
3% of the world’s coffee farmers. When Starbucks purchases
Fair Trade Certiﬁed™ coffee, we pay a guaranteed minimum
price that typically is $1.26 per pound ($2.77 per kilogram)for non-organic green arabica beans and $1.41 per pound

Q: “When will Starbucks live up to its promises to the Fair Trade community, becomea true industry leader and buy at least 5% (of its total volume) Fair Trade Certiﬁed™
coffee to guarantee a fair price for farmers? It is shameful that the same company that
netted revenues of $5 billion in ﬁscal 2004 refuses to ensure that the producers of its
coffee can feed, clothe and provide decent shelter for their families. Currently, lessthan 1% of Starbucks coffee is Fair Trade Certiﬁed.™ ”– Valerie Orth, Global Exchange
A: To answer Valerie Orth’s question, Starbucks has
never promised to buy Fair Trade Certiﬁed™ coffee
in quantities expressed as a percentage of our
total coffee purchases. Since 2000, Starbucks has
demonstrated a very strong commitment to purchaselarge quantities of Fair Trade Certiﬁed™ coffee,
including our most recent decision to purchase
10 million pounds (4.5 million kilograms) in ﬁscal
2005. All of our previous commitments related to Fair
Trade Certiﬁed™ coffee were stated either in terms ofthe number of pounds we planned to purchase or our
distribution plans. These various commitments were
published in our ﬁscal 2001 and 2003 Corporate
Social Responsibility Reports, which are available
online at www.starbucks.com/csr. We have met all ofthese commitments.

Starbucks shares the interests of the Fair Trademovement in making sure farmers receive fair
prices. But we view Fair Trade Certiﬁed™ coffee
as one option among others to ensure farmers’
economic sustainability. Starbucks believes the moresustainable approach is to encourage farmers to focus
on improving the quality of their coffee so they are
consistently paid premium prices, which enables themto feed, clothe and provide shelter to their families.
We are working on-the-ground with farmers to help
them improve their coffee quality and implement
sustainable farming practices, measures that are
already producing long-term social, economicand environmental beneﬁts for them andtheir communities.

28

COFFEE FARMERS

José Andrade and Gonzalo Apaza, two Peruvian coffee farmers, shown with their families, are members of the Fair Trade
cooperative CECOVASA. The cooperative is part of Conservation International’s Conservation Coffee™ program andprovides coffee for Starbucks and our stores in Peru.
Although Starbucks is one of the main purchasers of Fair
Trade Certiﬁed™ coffee, we have been sharply criticized in
the past for not buying larger volumes. While we are striving
to buy more, several factors have impacted how much Fair
Trade Certiﬁed™ coffee we have purchased:

Starbucks maintains a strong commitment to Fair Trade.
Speciﬁcally, Starbucks will seek out Fair Trade Certiﬁed™
producers of high-quality coffee to fulﬁll our target ofpurchasing 10 million pounds (4.5 million kilograms) of
Fair Trade Certiﬁed™ coffee in ﬁscal 2005, which we believe
will make Starbucks the largest purchaser of Fair Trade
Certiﬁed™ coffee in North America.

• Fair Trade Certiﬁed™ coffee is produced only by smallholder farmers organized into cooperatives, so the overall
supply is limited and consistency of supply can be an issue.

In addition, a very productive relationship has beendeveloped with TransFair USA during ﬁscal 2004.
Some new goals have been established to foster bettercollaboration, including the following:• All the coffee we buy, including Fair Trade Certiﬁed
coffee, must meet Starbucks standards for quality. We arepleased to see that increasing volumes of Fair Trade coffees
that suit our ﬂavor proﬁles are becoming more available.
™

• Starbucks will increase our channels of distribution
and product offerings of Fair Trade Certiﬁed™ coffee
in North America.

• Starbucks purchases coffee from many sources that are
not included in the Fair Trade system. While we arecommitted to increasing our Fair Trade purchases, wewill also continue to buy coffee from small, medium
and large coffee producers and other cooperatives withwhom we have developed long-term relationships.

• TransFair USA and Starbucks will contribute ourcollective marketing expertise to help promote Fair
Trade branded products to our customers.
• Starbucks and TransFair USA will continue to work
cooperatively on the issue of economic transparency
by providing evidence on how much of the guaranteed
Fair Trade price actually goes to farmers.

We work with our coffee suppliers to improve quality,
secure a consistent, scalable supply, and develop long-term
ethical trading partnerships that encompass premium
prices, environmental and social aspects of sustainability
and supply chain transparency. For Starbucks, purchasing
Fair Trade Certiﬁed™ coffee is one important element ofa larger, comprehensive approach we take to help sustain
coffee farmers and their farms. It is within this context that

• TransFair USA will provide feedback to Starbucks on
the strengths and weaknesses of C.A.F.E. Practices
and will explore opportunities for Fair Trade coffee
cooperatives to participate in C.A.F.E. Practices.

29

COFFEE FARMERSResidents of Ayarza, a coffee-growing village in Guatemala, attend the grand opening of a health clinic and kindergarten
facility that Starbucks co-funded with Exportcafé, one of our coffee suppliers.

Investing in Social Programs

farming practices to local coffee farmers that we hope willoffer them a better option than migrating to big cities
and abandoning their crops. Since the housing project’s
inception in 1999, approximately 2,300 people havebeneﬁted, including 700 in 2004.

The rural communities surrounding coffee-growing areas
often lack basic necessities such as adequate housing,health clinics, schools, good roads and fresh drinking
water. Starbucks has a history of helping to improve local
conditions, particularly in areas where we buy large volumesof coffee. We work with local farmers to understand thegreatest needs in their communities, then together wedevelop projects that can help meet those needs.

Ayarza Clinic and Kindergarten, Guatemala
Starbucks contributed $79,000 to help build and equipa health clinic and kindergarten facility in Ayarza,a remote coffee-growing village in the highlands ofeastern Guatemala. Our supplier, a coffee exporter,
matched our contribution. Today, the village has its
ﬁrst doctor and a kindergarten facility. Approximately
50 people visit the clinic daily and 80 children attend thekindergarten annually.

In ﬁscal 2004, Starbucks contributed nearly $1.8 million
for 35 social projects, up from an estimated $1 million theprevious year. Two projects we supported in 2004 focusedon improving housing in Colombia and building a healthclinic and kindergarten in Guatemala. (More informationon our social investments in coffee communities is available
on page 43.)
Housing Improvement Project, Colombia
Starbucks contributed more than $1 million to improve
housing for coffee-growing families in the Colombian stateof Nariño, an area of extreme poverty and political unrest.
This multiyear project will also introduce sustainable

30

COFFEE FARMERS

Providing Accessto Affordable Credit
One problem farmers face is having access to affordable
loans at the local level. Without enough capital, small-scale
farmers may be forced to sell their crops prior to harvest
at lower prices. If they turn to local moneylenders, they
are often charged high interest rates that put them further
in debt.
Since 2000, Starbucks has provided loan funds to several
organizations that assist farmers in obtaining affordable
loans and helping them improve their agricultural
techniques so their coffee is of higher quality. In ﬁscal 2004,
Starbucks committed $6 million to several loan programs.

Farmer Loan Programs
Loan program

Starbucks
total
commitment

Length ofcommitment

Participating
farmers

Location ofprograms

Calvert Foundation$1 million to be
repaid at 2% interest

Three years(Feb. 2004–2007)

Approximately 10,000
small-scale Fair Tradefarmers

Costa Rica, Mexico
and Nicaragua

Verde Ventures,
managed byConservation
International$2.5 million to be
repaid at 3% interest:

Seven years(Dec. 2003–2010):

Latin Americaand Asia• $1.25 million• $1.25 million

Dec. 2003–2008
Dec. 2005–2010

Small-scale farmers
participating in CI’s
Conservation Coffee™
program sites andapplicants to
C.A.F.E. Practices

EcoLogic Finance$2.5 million to be
repaid at 2% interest

Three years(July 2004–2007)

Approximately 15,000
small-scale Fair Tradefarmers

Latin Americaand Africa“Starbucks has taken a leadership position by aligning its investment capitalwith the company’s mission and products to create more sustainable coffeegrowing communities.”– Shari Berenbach, Calvert Foundation

31

COFFEE FARMERSWhy does Starbucks keep opening
more stores when they are seemingly
everywhere?

32

SOCIETY

SOCIETY

It’s not a secret. We plan to keep growing
by opening more stores in the United States
and around the world.
Some may view this as a negative, but we want to point out
the positive. Each time we open a new store, an average of 16
new jobs are created; additional local tax revenue is generated;neighbors get a comfortable place to gather; and we have theopportunity to give back to the community. Plus, we think ourcustomers like having us around.

33

Progress Report on 2004 Goals – Society
Goals
To increase the percentage of partners volunteering in the community.
To increase the percentage of partners making their own charitable gifts.
To increase the number of Starbucks leaders who serve on the boards of community organizations.
To loan a Starbucks executive to CARE for one year to assist in developing best practices for corporate alliances.
To renew The Starbucks Foundation’s national partnerships with Jumpstart and America SCORES and continue to increase
partner involvement.
To increase Tazo’s support of Mercy Corps in order to serve tea communities in India.
To continue to monitor the debate on genetic modification and be guided by regulatory authorities and concerns expressedby our customers.
To continue to support the World Cocoa Foundation.
To develop strategic alliances with organizations that serve diverse communities, such as NAACP and National Council of La Raza.
To increase the number of Urban Coffee Opportunities, LLC (UCO) stores in diverse communities.
key:

achievedmaking progress

did not achieve

34

SOCIETYBUILDING STRONG COMMUNITY TIES

13,570*12,200S

tarbucks is located in thousands of neighborhoods,
and we consider each neighborhood our home.
Starbucks believes we have a responsibility tocontribute positively to our communities in ways that
beneﬁt everyone.

11,16010,3306,132

Understanding our impact in local communities and openly
sharing this information with our stakeholders are also our
responsibilities. In this section we:

5,201
4,242
3,475

• Discuss the implications of our growth.
• Provide information on our community investments.
Fiscal year

• Describe our relationship with customers.

2001

2002

2003

2004

Coffeehouses in the United States• Explain our public policy activities.

Total Starbucks stores in U.S. (company-operated and licensed)
Smaller chain and independent coffeehouses in U.S.

Starbucks Growth

Source: Mintel Consumer Intelligence 2003 Report and Starbucks
Coffee Company*Starbucks estimated 2004 ﬁgure, assuming a ﬂat growth rateof 13% over 2003.

Starbucks has a solid strategy in place to support continued
growth well into the future. In ﬁscal 2004, we opened
634 company-operated and 710 licensed stores, bringing thetotal number of Starbucks stores around the world to 8,569
as of October 3, 2004. Over the next ﬁscal year, Starbucks
plans to open an estimated 1,500 new locations worldwide.

of the store and plant a Molotov cocktail to display theiranti-Starbucks sentiment.

Starbucks has been instrumental in introducing many
consumers to specialty coffee and helping to create a
coffeehouse culture in North America. As Starbucks
has opened stores over the years, a growing number of
independently owned coffeehouses have also sprung up
across the United States, stimulating competition (seegraph, above right). As a result, consumers are offered morechoices, new jobs have been created and neighborhoods havebeen enriched with the addition of local gathering places.

To gain a better understanding of attitudes, we asked people
in a recent survey about their overall feeling of having a
Starbucks near their home. Only 5% expressed extremely
negative feelings, while 95% conveyed more neutral toextremely positive feelings.** Still, we’re mindful of thenegative perceptions, especially ones that suggest Starbucks
hurts independently owned coffee shops and erodes theunique character of local neighborhoods. On the following
pages, we share our recent experiences in two very different
places – the Fillmore district in San Francisco and Harlem in
New York City.

In most cases, Starbucks receives a warm welcome when
opening a new store. Less typical was our experience last
May when we opened a store on Division Street in Portland,
Oregon. Someone attempted to smash through the window**Source: Starbucks Brand Strength Monitor Study, June 2004

35

SOCIETY

Case Study: Our Experience in San Francisco
Starbucks ambitious growth strategy may sometimes appear
at odds with our strong desire to contribute positively to
our communities. Consider San Francisco, a market we ﬁrst
entered in 1992, and one where we’ve gradually added more
locations to keep pace with increased customer demand.
At the end of ﬁscal 2004, there were 70 Starbucks storesin San Francisco, including a few licensed operations. Our
San Francisco customers have been enthusiastically loyal andhave helped make this a proﬁtable market for us.
Our growth has also stirred sentiments from somepassionate residents who are striving to retain the charmand ﬂavor of their wonderful neighborhoods. A groupof residents took issue with formula retailers that havemore than 11 locations and a standardized look. They
launched a campaign and successfully lobbied for a citywide
ordinance that bans or restricts chain stores from certain
neighborhoods. The impact of the legislation that passed
in March 2004 restricts Starbucks growth in the Hayes
Valley and Cole Valley neighborhoods. The situation in
San Francisco is remarkably similar to what has occurredin other places – from Coronado, California, to Bristol,
Rhode Island.

Starbucks partner Juan Michel manages the Fillmore
district Starbucks store in San Francisco, which opened in
2004. This store is one of 73 Urban Coffee Opportunities,
LLC (UCO)** locations in the United States. Residents of
the Fillmore district were receptive to having a Starbucks
open in their neighborhood.

Despite the challenges we’ve encountered in San Francisco,Starbucks continues to directly and indirectly contribute to
the city. In ﬁscal 2004 we:Starbucks respects the will of local citizens to preserve theirneighborhoods. However, we don’t believe that Starbucks is
detrimental to local businesses, especially other coffeehouses.
According to an article in the Wall Street Journal, the battle
between independent coffeehouses and Starbucks may be
one of the most misunderstood rivalries in retailing. Most
independent coffeehouses are doing ﬁne – and have foundproximity to Starbucks to be a beneﬁt.*• Employed more than 1,000 partners locally andprovided an estimated $19.1 million in salaries/
wages and beneﬁts.
• Paid an estimated $16.3 million in local and
California State taxes.

We believe there’s plenty of room in the market for
Starbucks to expand alongside the growing number of
independent coffeehouses. As we grow, we must focus on
engaging with local groups, listening to our neighbors about
what’s important to them and determining how Starbucks
can best contribute to their neighborhoods. If we takethis approach, we believe Starbucks will be welcome inmost communities.

• Offered healthcare beneﬁts to all eligible part-time andfull-time partners, including their spouses, domestic
partners and eligible dependent children.
• Contributed $98,000 in grants and product donations
to local nonproﬁt organizations, including the Every
Child Can Learn Foundation and Urban Solutions.
• Inspired our partners and customers to volunteer
nearly 400 hours in the community, which is equivalent
to one person working full-time for 10 weeks.

* Source: “Counting Beans – Despite Starbucks Jitters, Most Coffeehouses
Thrive,” the Wall Street Journal, September 24, 2002** For information about UCO, see page 38.

36

SOCIETY

Located on the corner of 125th and Lenox in Harlem, this is one of the ﬁrst UCO stores Starbucks and Johnson
Development Corporation opened together.
Case Study: Our Experience in Harlem

Association and reassured them of our commitment to theirneighborhood. We shared our intent to ﬁnd a more suitablelocation where we could serve their community and run an
economically sustainable store. Since then, we’ve scouted
several new sites in this part of Harlem but haven’t yet foundthe perfect location; this process can sometimes take months
or years. In the meantime, Starbucks has continued tosupport Harlem and the Hamilton Heights neighborhood
in a number of ways:

In April 1999, Starbucks established a presence in theHarlem neighborhood of New York City with the openingof an Urban Coffee Opportunities, LLC (UCO) store on
the corner of 125th and Lenox, down the street from thelegendary Apollo Theater. Our decision may have seemedbold at the time, but we listened to our instincts that thisculturally rich community would be an ideal place tooperate a successful business. Other national retailers soon
followed, as did new residents who took to refurbishingsome of Harlem’s historic and lovely brownstones.

• In April 2004, a team of 85 Starbucks partners andcommunity members volunteered 425 hours at St.
Nicholas Park, spreading compost, dirt and grass seed,planting perennials and clearing brush. Starbucks
matched $10 for every hour volunteered and pledged$4,250 to the City Parks Foundation.

In July 2001, Starbucks opened in a second Harlem
location, in the Hamilton Heights community on 138th
and Broadway. Maybe it was poor timing or a less than
optimal site, but after three years the store’s lackluster
performance eventually forced us to close it. Hearingof our impending closure, residents expressed extreme
disappointment and launched a concerted effort to get us tostay. They worried that when Starbucks pulled out of theircommunity, it would have negative implications for the
economic future of Hamilton Heights.

• We provided park grants of $2,000 to the St. James
Project Park Committee and the Friends of St. Nicholas
Park, and $5,000 to the West Harlem Community
Preservation Organization for restoration efforts at
St. Nicholas Park.
• In July 2004, we supported the Historic Harlem Parks
Coalition’s Third Annual Film Festival – ThroughAfrican Eyes – with an $8,000 grant.

Four Starbucks partners and representatives fromJohnson Development Corporation visited the homes ofseveral members of the Hamilton Heights Homeowners

37

SOCIETY

Last May, an independent survey was conducted to measure the perception ofStarbucks as contributing to local communities. Of those surveyed who are aware ofStarbucks, 49% agreed that Starbucks contributes to local communities, while 16%
did not agree.* These results are consistent with other similar surveys of leading
foodservice companies.

*Source: Starbucks Brand Strength Monitor Study, June 2004

Urban Coffee Opportunities

Some of the ways UCO contributed to the economic wellbeing of communities in ﬁscal 2004:

The result of a joint venture between Starbucks andJohnson Development Corporation, owned by Earvin“Magic” Johnson, was the 1998 creation of Urban Coffee
Opportunities, LLC (UCO), which brings Starbucks stores
to diverse communities. At the end of ﬁscal 2004, 73 UCO
stores were in operation around the United States. When
Starbucks locates in ethnically diverse neighborhoods,
the typical reception from the local community isoverwhelmingly positive. People recognize that a Starbucks
store injects economic life into communities because local
employees and contractors are hired, and Starbucks presence
can help attract other businesses to the area.

• Employing more than 1,000 partners at 73
UCO locations.
• Paying an estimated $17.5 million in salaries/wages
and beneﬁts to UCO store partners.
• Providing healthcare beneﬁts to eligible part-timeand full-time store partners, their spouses, domestic
partners and eligible dependent children.
A listing of all UCO locations in the United States can befound online at www.starbucks.com/aboutus/magic.asp.

Earvin “Magic” Johnson with kidsfrom Project Chance at the openingof Starbucks UCO store in Brooklyn,
New York, in August 2004.

38

SOCIETY

Investing in Communities
As a company, Starbucks supports nonproﬁt organizations
in our communities with cash contributions and productdonations. We do this through our corporate giving
and regional grant programs, local store efforts, ourcontributions to The Starbucks Foundation and our newly
created Starbucks Card Duetto™ Visa® program. In ﬁscal
2004, Starbucks cash and in-kind contributions were valued
at $14.6 million, which represents 2.3% of the company’s
earnings before income tax (see pie chart at right). The
majority of our giving was directed in four ways:

Corporate giving$4.6 million

Starbucks contribution to
The Starbucks Foundation$1.7 million
Social projects incoffee communities$1.8 million**

Product andin-kind donations$6.5 million• To local nonproﬁt organizations that our partners
personally support with their contributions of timeand money.

Starbucks Community Support in 2004*• To youth education programs that beneﬁt diverse andunderserved communities.

* Total contributions in ﬁscal 2004 were $14.6 million.
** Represents the total amount Starbucks paid through some coffee contracts
to fund various social development projects.

• To environmental initiatives that help preserve
biodiversity and build awareness in our communities.
• To projects that support coffee- and tea-growing
communities.

Q: “I heard that when a U.S. marine stationed in Iraq asked Starbucks for a donationof coffee, your company refused because it doesn’t support the war or the troops. Is
this true?”– Louis Hampton, Clovis, California

A: Starbucks donates to nonproﬁt organizations
that are designated as public charities under Section
501(c)(3) of the IRS code. The U.S. military andindividual military personnel do not qualify asa public charity, and therefore we do not makecorporate donations to them. However, in times ofmajor conﬂict, as we are now experiencing in Iraq
and Afghanistan, we are proud to give coffee to U.S.
troops through our partnership with the American Red
Cross. In November 2004, we announced a donationof 50,000 pounds (22,680 kilograms) of coffee tothe American Red Cross for distribution to troops
serving in Afghanistan, Iraq and Kuwait. We believe
it is important to support those who are willing to risk
their lives and preserve our freedoms and security.
Moreover, on an individual, grassroots level, many ofour partners have made personal donations to military
personnel or military units, including their weekly
pound of free coffee they receive as an employee
beneﬁt. We are very proud of the many donations ourpartners have made.

39

SOCIETY

Make Your Mark
$1,147,000**

214,000
199,000*$801,000$433,000

68,000Fiscal year

2002

2003

2004

Fiscal year

Total Volunteer Hours

2002

2003

2004

Starbucks Make Your Mark Grants*Includes 110,000 hours for September Make Your Mark.

**Includes $697,000 for September Make Your Mark.

Make Your Mark – Our Volunteer Program

Choose to Give! – Our Charitable Gift Matching Program

Four years ago Starbucks launched Make Your Mark
(MYM), a program that encourages partners to volunteer intheir neighborhoods and rewards their efforts by providing
cash contributions from Starbucks to the nonproﬁtorganizations where they volunteer. Starbucks matches$10 for every hour volunteered, up to $1,000 per project.
It gets even better – our partners can enlist their friends,
families and customers to participate on a team project, andStarbucks will match all the hours volunteered.

Most nonproﬁt organizations depend on the generous supportof individuals to fund their programs and services. Our partners
have steadily shown their desire to contribute over the years.
When our partners make their own charitable gifts, Starbucks
provides a dollar-for-dollar match, up to $1,000 annually.
In ﬁscal 2004, more than 1,500 of our partners’ charitable
contributions were matched with $314,000 from Starbucks.
Executive Community Leadership Program
Dedicated and talented leaders are always in demand,
especially among community organizations. Many Starbucks
leaders are involved with such organizations, serving on
boards and making personal contributions of their time andmoney. In recognition of their efforts, Starbucks also provides
support to these organizations. In ﬁscal 2004, 37 Starbucks
leaders (vice presidents and above) were involved with acommunity organization.
Starbucks Holiday Angels Toy Drive –A Local Stores Initiative
When the holiday season arrives, it heightens thecommunity spirit in our partners and customers. For the
past four holiday seasons, Starbucks has held a toy drive inour stores to bring much-needed joy to children who areseriously ill. Our U.S. partners and customers donated morethan 440,000 toys in ﬁscal 2004, and our stores contributed
more than $40,000 to the Starlight Children’s Foundation,
an international nonproﬁt organization.

More than 100 Starbucks partners and customers, wearing
red T-shirts, formed a human red ribbon near Philadelphia
City Hall as a way to raise awareness for the 2004
Philadelphia AIDS Walk. Many of them also participatedin the AIDS Walk, which Starbucks supported throughour Make Your Mark program.

40

SOCIETY

The Starbucks Foundation –Supporting Youth Education
Since 1997, The Starbucks Foundation has provided
ﬁnancial support to nonproﬁt organizations across North
America for the purposes of creating hope, discovery
and opportunity in our communities. The Foundation
has primarily focused its resources on youth education
programs in underserved communities. In ﬁscal 2004, The
Foundation’s Board of Directors began a process to review
its current mission and determine the future direction of its
focus and initiatives.
The Starbucks Foundation, a 501(c)(3) charitableorganization, contributed $1.8 million in the form of 159
grants to local community organizations in ﬁscal 2004. On
the national level, The Foundation continued its supportof two organizations serving youth: Jumpstart and America
SCORES. (More information about the partnership with
Jumpstart is available on page 42.)

Alex Mack (left) and Diana Montero practice interviewing
techniques during a pre-apprenticeship workshop at Spy
Hop Productions, a nonproﬁt organization in Salt Lake
City, Utah. The Starbucks Foundation gave a $10,000
grant to Spy Hop in ﬁscal 2004 in support of its Media
Studio Youth Apprenticeship Program, which is dedicatedto providing underserved youth with hands-on, real-world
career experience in the multimedia ﬁeld.

The Foundation receives funding from Starbucks Coffee
Company, as well as from private donations. Additional
funding is provided through the recently established
Duetto™ program, the result of a relationship between
Starbucks Coffee Company, Chase and Visa. Starbucks
Card Duetto™ Visa® rewards Starbucks customers for theirloyalty and provides funding to nonproﬁt organizations.
After each new Card holder’s ﬁrst purchase, Starbucks makes
a $5 contribution to The Starbucks Foundation. Each year,
The Foundation’s Board of Directors will determine therecipients of the Duetto™ program funding. In ﬁscal 2004,
recipients included Jumpstart, Conservation International,
Earth Day Network and the African Wildlife Foundation.
A listing of The Foundation’s grants can be found online atwww.starbucks.com/foundation.

41

SOCIETY

“The entire Jumpstart network thanks

A Partnership with Jumpstart

The Starbucks Foundation for the

What started as a college project in 1993 today serves nearly
8,000 low-income preschoolers in 57 Jumpstart sites acrossthe United States. Jumpstart’s program pairs highly trainedcollege students for intensive one-to-one interaction withpreschoolers who lack the skills they will need to succeed
in kindergarten. The Starbucks Foundation pledged$1 million to Jumpstart in 2001 to be paid over four years.
In ﬁscal 2004, The Foundation contributed $350,000,
which included part of its previously pledged amount plus
additional funds from the company’s Duetto™ program.
The Foundation renewed its partnership with a $1.2 million
pledge over the next three years. Starbucks also pledged$300,000 in in-kind support over three years.

extensive support over the past four
years, which has had immeasurable
impact on preschool children, college
students and our communities aroundthe country.”– Rob Waldron, Jumpstart

The funding provided to Jumpstart from The Starbucks
Foundation has enabled it to add more program sites
across the United States. As Jumpstart has expanded, it hasrecognized the need to clearly communicate its mission toits stakeholders. In 2004, several Starbucks partners took
a personal interest in Jumpstart and offered their creative
talents pro bono to develop a new brand identity andmessage guide. The Starbucks team devoted almost a year
to the project, collaborating with Jumpstart staff to create
a new Jumpstart logo and other marketing materials (seebelow). The expertise provided by Starbucks partners isalready helping Jumpstart raise its visibility and increase its
exposure to other supporters.

Walter Baddoo (left), a Jumpstart Boston Corps member
from Tufts University, encourages David Rosa during oneof their tutoring sessions.

umps
SPAR

Director

Alison Pitz

phone:

jstart.org
Jumpstart

42

SOCIETY

erof Communications617.542.
5867 x24
fax:
alison_pi 617.542.2557
tzer@jstar
t.org

tar t

K A
LIFE

93 Summer Street Boston, MA 0211

0

Investing in Coffee- andTea-Growing Communities
As our business becomes more global, Starbucks strives tomaintain a local touch. This can be seen in some of ourinternational initiatives that are broad in scope but geared
to help individual communities. Below are some examplesof what we are doing to help create more sustainablecommunities in coffee- and tea-growing regions. (Moreinformation on our sustainability efforts can be found on
pages 15–31.)
Conservation International (CI)In the six years since Starbucks and CI formed a partnership,
we’ve worked together to preserve tens of thousands of acresof sensitive habitat areas, helped thousands of farmers earnmore for their coffee and established a sustainable modelfor growing coffee. Beyond our collaborative relationship,
Starbucks also provides ﬁnancial support to CI as anonproﬁt organization. This funding is essential for CI tostrengthen and expand its conservation efforts around theglobe, particularly in areas where biodiversity is under severe
threat. In ﬁscal 2004, Starbucks contributed $454,000 toCI, a portion of which was from the Duetto™ program.
(More about our partnership is found on page 27.)

Deidra Wager (left), Starbucks executive vice president,
and the CARE team met with Juana and Mateo, village
volunteers and leaders in San Pedro Jocopilas, Guatemala,in their home last summer. The village leaders, local
municipal ofﬁcials and government representatives all
attended the meeting.

CARE International
Starbucks and CARE International, a global humanitarianorganization, have been working together since 1992 to help
alleviate poverty and create long-term solutions in coffeegrowing communities. Our partnership was strengthenedin ﬁscal 2004 when Deidra Wager, Starbucks executive vicepresident, spent the year as an “executive on loan” to CARE.
With 25 years of corporate leadership experience, Deidra
worked with CARE to help improve collaboration between
CARE and its corporate partners and to launch a twoyear pilot project in the remote Guatemalan municipalityof San Pedro Jocopilas. The CARE team is developing
integrated and sustainable community health services,primary education programs and village banking networks.
The combination of CARE’s experience in this region plus
funding from Starbucks is expected to beneﬁt 4,600 local
residents – many of whom migrate seasonally to pick coffee.
Additional information is available at www.careusa.org.

Coffee Kids
Starbucks continued its four-year support of Coffee Kids, a
nonproﬁt organization established to help improve the livesof women and their families in coffee-growing communities
around the world. Starbucks provided $25,000 in ﬁscal
2004 for micro-credit projects that beneﬁted more than
3,500 women and their families in Veracruz, Mexico, andMatagalpa, Nicaragua.

43

SOCIETY

Part of the support provided to Mercy Corps by Starbucks, Tazo and Tazo’s suppliers has been used for healthcare initiatives
that beneﬁt village residents in the Darjeeling region of India, a tea-growing area.

African Wildlife Foundation

Mercy Corps engages local residents in a process todetermine the most critical issues facing their communities.
From this, projects are developed with Mercy Corps’
oversight, including ones to improve water quality andaccess, create vocational training opportunities for youth
and support regional self-governing administrative bodies.

In 2004, Starbucks and the African Wildlife Foundation(AWF) teamed up to build awareness for conservation of
the wildlands and wildlife of Africa. For more than 40 years,
AWF has been in coffee-growing countries such as Kenya
and Tanzania, working with local communities to protect
wildlife and make optimal use of their natural resources.
Starting with a $20,000 donation in ﬁscal 2004, and a$200,000 commitment for support in ﬁscal 2005, Starbucks
and AWF are exploring new ways to bring sustainable
coffee-growing practices to these regions.

Starbucks, Tazo and Tazo’s suppliers made an initial pledge
of $600,000, based on Tazo’s projected tea purchases fromthis region. Tazo’s purchases exceeded expectations, so thethree-year commitment was increased to $880,000. In
ﬁscal 2004, Starbucks provided $100,000 while Tazo andits suppliers contributed $229,000, for a total of $329,000.
These funds will enable CHAI to expand to 24 villages andhelp build roads, community halls, a food-processing unit,
footpaths, and irrigation and water-supply systems; sponsor
community events to cultivate youth leadership; and provide
healthcare to villagers.

Mercy Corps
Since 2002, Tazo has been collaborating with Mercy Corps,
an international humanitarian aid organization, on a projectcalled CHAI (Collaboration for Hope and Advancement inIndia). This three-year project aims to improve the qualityof life for 11,000 people living in 24 rural communities inand around Darjeeling, a region of India where some of theﬁnest teas are grown.

44

SOCIETY

Contributing to Communities
Around the World

Europe, Middle East, Africa (EMEA)Over the past nine years, Starbucks has opened 670 storesin more than 15 countries in this region of the world andcurrently provides an estimated 9,000 jobs. A strong bondconnects Starbucks partners across national borders anddiverse cultures, especially when it comes to their support ofchildren’s causes. An example of this is the Adopt a School
program, which was launched in December 2003 by ourpartners in Turkey, and included the involvement of ourcustomers. The program began with a toy drive, followed
by a book drive, volunteer activities at local schools anddonations of school supplies.

Starbucks entry into Japan in 1996 marked our ﬁrst movebeyond the borders of North America. Since then, Starbucks
has developed license agreements with local business
partners and expanded our presence in three major regionsof the world: Europe, Middle East, Africa (EMEA); Latin
America; and Asia Paciﬁc. At the end of ﬁscal 2004, there
were 1,999 Starbucks stores in more than 30 countries
outside the United States and Canada, including our newest
locations in France and Cyprus.

The Fair Trade movement and products such as Fair
Trade Certiﬁed™ coffee and chocolate are more widely
known in Europe than in the United States. Prior to 2004,
Starbucks was licensed to sell Fair Trade Certiﬁed™ coffee
in the United Kingdom, Germany, Spain, Austria andSwitzerland, and Fair Trade Certiﬁed™ chocolate bars in the
United Kingdom. In ﬁscal 2004, we signed new licensing
agreements with Fair Trade Germany that allow us to offer
Fair Trade Certiﬁed™ coffee in Greece and Cyprus, and one
with the Fair Trade organization Max Havelaar that extends
to France. Altogether, Starbucks is licensed to sell Fair Trade
Certiﬁed™ coffee in 10 countries in the EMEA region.
(More discussion about our participation in the Fair Trade
system can be found on pages 28–29.)

Except for our company-operated international stores in
the United Kingdom, Canada, Australia, Singapore andThailand, we have looked to local business partners fortheir business acumen and to uphold Starbucks valuesof social responsibility. For the purposes of this report,each region compiled examples of how Starbucks is
impacting the communities we’re in. Because we lack
uniform systems for collecting social and environmental
data from our international retail operations, we present
a few of their accounts as examples of our efforts in ourinternational markets.

Starbucks provided support to build a bridge that serves an estimated 70,000 Ethiopians living in a coffee-growing village in
the Sidamo region. The new bridge, which was completed in August 2004, provides safe passage for farmers so they can accessmarkets and sell their products. Starbucks funded the project jointly with our supplier by adding a premium to the coffee wepurchased from this region. The project was also supported by partners in Starbucks EMEA region.

45

SOCIETY

Starbucks UK initiated some major projects, including:• A one-year collaboration with Oxfam Great Britain that
included funding of a project focused on improving
conditions for coffee farmers and their families in the
East Hararge region of Ethiopia. The results of thecollaboration, which launched in October 2004, will bereported at its conclusion.
• A partnership with the Royal Society for the
Encouragement of the Arts, Manufactures andCommerce (RSA) to create the RSA Coffeehouse
Challenge. Starbucks hosted more than 80 community
meetings across the United Kingdom, bringing an
estimated 2,000 people together to identify local
challenges and ﬁnd solutions to help make the United
Kingdom a better place to live and work. Six winning
Coffeehouse Challenge projects received recognition
from RSA and awards from Starbucks.

Starbucks Australia partner Cayden Richards and an East
Timor coffee farmer work together spreading green coffee
beans so they can dry under the warm sun.

Latin America
Asia Paciﬁc

In recent years, Starbucks extended our retail presence toLatin America, the part of the world where the majority of
our coffee is grown. Presently, Starbucks stores are locatedin Mexico, Peru and Chile. As we enter new markets,
our initial focus is on establishing our brand, educating
consumers about Starbucks and ﬁnding opportunities tocontribute to our new communities. The recycling initiative
we undertook in our Mexico City stores is one example of
how we are making a positive difference.

Starbucks Asia Paciﬁc region extends from Japan toAustralia and includes nine other countries. One of ourproudest accomplishments emerged from this region – theintroduction of Timor Lorosa’e, a single-origin coffee
produced by Fair Trade farmers in East Timor.
After a long struggle, East Timor gained independence in1999 and, with the help of the international community, hasbeen rebuilding ever since. Starbucks has been working withlocal farmers to improve coffee quality and has provided past
support for a healthcare clinic and more recently, a cleanwater facility in the village of Goulolo. Today, we believe
Starbucks is the largest buyer of East Timor’s highest-quality
coffee, which will be offered ﬁrst in Australia and New
Zealand, and eventually throughout the Asia Paciﬁc region.

Our stores launched an effort in May 2004 to reduce theamount of solid waste that is disposed of in landﬁlls by
separating recyclable packaging waste from trash. We’ve
partnered with a nonproﬁt group, Junior League Mexico,
to transport the recycled waste to a factory that uses thesematerials to produce recycled paper, which we purchasefor other uses. We estimate that our 32 stores in Mexico
are collectively saving almost ﬁve trees per week throughthis initiative.

A list of the countries where Starbucks has stores can befound on pages 13 and 14 of our Fiscal 2004 Annual
Report to shareholders, which is available online atwww.starbucks.com/aboutus/investor.asp.

46

SOCIETY

Being Responsible to
Our Customers

pertained mostly to the quality and consistency of theservice and products in our stores. We also received many
requests for nutrition information about our products.

At the end of ﬁscal 2004, Starbucks was serving
approximately 30 million customers around the globe
every week. Many customers visit daily, while others drop
in for the ﬁrst time. We view every customer interaction as
our opportunity to make that person’s day. If we fall short,
we risk losing our customers’ trust and business.

Providing Customers with Nutrition Information
Obesity is a major health concern
today. Having access to nutrition
information on foods and beverages
helps consumers make informed
choices. In ﬁscal 2004, Starbucks
published a brochure that provides
nutrition information on ourbeverages, based on Starbucks
standardized beverage recipes. This
brochure is available in our stores,
and the same information is on
our website. Regarding fresh foodproducts, nutrition information for
selected items is currently available on our website.

We are pleased with the loyalty our customers have shown
Starbucks. Their loyalty suggests we’re doing somethingright. We believe it comes down to our uncompromisingcommitment to our Guiding Principles, in particular
our commitment to “develop enthusiastically satisﬁed
customers all of the time.”
Our customers expect great coffee and exceptional service
when they come to Starbucks. It’s what they’re paying for.
But they also expect Starbucks to be responsible in how werun our business. They give us feedback and trust that we’lllisten. And we do.

We have also expanded our product offerings to include
more options for customers seeking a broader range offood and beverage alternatives, such as soymilk, fresh fruit,yogurt, Penza™ nutrition bars and Frappuccino® Light
blended coffee beverages.

Customer Satisfaction
To get reliable feedback on how well Starbucks meetsthe needs of our customers, we survey for satisfaction.
Speciﬁcally, we measure ourselves against our own highstandards by focusing on “highly satisﬁed” customers. Our
national retail customer satisfaction survey, conductedin August 2004, found that 89% of our customers weresatisﬁed. Overall, 55% were highly satisﬁed. Starbucks iscurrently developing a measurement tool that will provide
performance feedback to our stores relative to our key
satisfaction metrics. Our stores will use this feedback tomake needed improvements and ensure that more customers
are highly satisﬁed with their Starbucks Experience.

This is only the beginning. We’ve created a nutrition
strategy with targeted initiatives for the future. For instance,
Starbucks plans to:• Publish a new brochure for our stores in the UnitedStates that contains nutrition information on food andbeverage products, by January 2006.
• Report trans fat content of packaged and nonpackaged
food and beverage products, by January 2006.
• Continue to introduce new food and beverage productsthat meet the wide variety of our customers’ needs,
including those tailored to customers looking forspeciﬁc nutritional beneﬁts.

Listening to Our Customers
Our customers are usually comfortable providing feedback
to local store partners. If their needs can’t be addressed at
the store level, our customer relations partners are available
for calls daily through a toll-free line, 800-23-LATTE(235-2883). This line is open to our customers as well as
our other stakeholders. We strive to answer the letters andcomment cards we receive within a week and respond toemails within 24 hours. In ﬁscal 2004, Starbucks received
862,000 customer contacts. The nature of these contacts• Commit to not sell our products in schools forgrades K–12.
• Gather feedback through a Starbucks-hosted nutrition
and wellness stakeholder engagement session in ﬁscal
2005 that will enable us to be more responsive to theneeds and concerns of our consumers.

47

SOCIETY

Our Approach to Public
Policy in the United Statesshould have access to affordable healthcare. But escalating
healthcare costs are undermining the ability of all companies
and individuals to purchase affordable coverage. At
Starbucks, we have experienced double-digit increases overthe past four years for the healthcare coverage we provide to
our partners. While we continue to look for ways to containrising healthcare costs, we see little end in sight.

Until recently, Starbucks has been relatively quiet on the
public policy front. We’ve made few political donations in
the past and have not typically engaged in lobbying efforts.
During ﬁscal 2004, Starbucks began to engage in thepolitical process, contributing $75,000 to local education
initiatives in Washington State. We also spoke out on theissue of rising healthcare costs.

Given these realities, Starbucks has become an advocate formaking America’s healthcare system more efﬁcient, reliable,transparent and affordable. In May 2004, Starbucks
proudly sponsored Cover the Uninsured Week, an annual
campaign of the Robert Wood Johnson Foundation focusedon expanding access to affordable, quality healthcare
coverage. Howard and other Starbucks leaders have met
with federal policymakers and will continue to engage
with them to offer our assistance and urge them to takemeaningful action.

Our chairman, Howard Schultz, has been a longtime
champion of healthcare coverage, ensuring that the same
comprehensive healthcare beneﬁts Starbucks provides tofull-time workers are extended to our eligible part-time
partners. Doing so has helped establish a value system
within Starbucks that, we believe, is directly linked toour success. Starbucks ﬁrmly believes every American

Right to left: Howard Schultz, Starbucks chairman; Dave Pace, executive vice president, Partner Resources; andChet Kuchinad, senior vice president, Total Pay; met with U.S. Representative Joe Barton (R-TX), chairman of the
U.S. House Energy and Commerce Committee, to discuss viable solutions for escalating healthcare costs.

48

SOCIETY

United Nations
Global Compact
At the World Economic Forum in January 1999,
U.N. Secretary-General Koﬁ Annan challenged world
business leaders to advance responsible corporate citizenshipand universal social and environmental principles thatmeet the challenges of globalization. The Global Compact
was conceived as a voluntary international network of
corporations, U.N. agencies, trade unions and nongovernmental organizations that support 10 universal
principles on the environment, labor, human rights andcorruption. Starbucks joined the Global Compact inJune 2004. We consider our participation to be a naturalﬁt with our own Guiding Principles that are based onsocial responsibility.
When companies join the Global Compact, they are asked
to report on the ways in which they are supporting its
10 principles. We will report on our progress at the endof ﬁscal 2005.

49

SOCIETY

Behind the Starbucks green aprons,
how green is the company?

50

ENVIRONMENTENVIRONMENT

We’ll be the ﬁrst to say that Starbucks isgreener in some areas than in others.
To understand just how green Starbucks is, we analyzed ourenvironmental footprint and have recently evaluated how
our operations contribute to climate change. Both studies
shed light on our opportunities for improvement. But thetrue sign of a green company isn’t knowledge, it’s action.
So behind the green aprons, we’re taking action to be moreenvironmentally responsible.

51

STARBUCKS ENVIRONMENTAL MISSION STATEMENTStarbucks is committed to a role of environmental leadership in all facets of ourbusiness. We will fulﬁll this mission by a commitment to:• Understanding environmental issues and sharing information with our partners (employees).
• Developing innovative and ﬂexible solutions to bring about change.
• Striving to buy, sell and use environmentally friendly products.
• Recognizing that ﬁscal responsibility is essential to our environmental future.
• Instilling environmental responsibility as a corporate value.
• Measuring and monitoring our progress for each project.
• Encouraging all partners to share in our mission.

Progress Report on 2004 Goals – Environment
Goals
To conduct a climate inventory to better understand our greenhouse gas emissions.
To increase the number of our U.S. stores participating in a recycling program by 10%.
To increase our purchases of in-store furniture made from wood certified by the Forest Stewardship Council.
To participate with the Paper Working Group to encourage the increased use of environmentally preferable paper.
To develop a strategy for incorporating post-consumer fiber in our cups.
To achieve target of 30% post-consumer fiber content in our paper purchases.
To pursue sustainable packaging solutions through participation in the Sustainable Packaging Coalition.
To launch an “energy test bed” in a sampling of our stores to monitor all energy usage and test new conservation initiatives.
key:achievedmaking progress

did not achieve

52

ENVIRONMENTENVIRONMENTAL RESPONSIBILITY
AND LEADERSHIP

E

Climate Inventory

nvironmental responsibility is essential if wehope to sustain the quality of life on our planet.
Starbucks recognized this long ago and in 1990
embedded the value of “contributing positively to ourcommunities and our environment” within our Guiding
Principles. It’s been part of our culture ever since.

In ﬁscal 2004, Starbucks conducted an inventory of
our GHG emissions with support from CH2M HILL,
one of the leading consultancies in helping multinational
companies understand their contributions to climatechange. We used the World Resources Institute/World
Business Council for Sustainable Development GHG
Protocol Corporate Standard (revised edition) inassessing the impacts of our business activities on climatechange. (For information on the GHG Protocol, visit
www.ghgprotocol.org.)

In this section of the report, we present information on our
performance relative to each tenet of our Environmental
Mission Statement, which was established in 1992 (see left).

Understanding Environmental
Issues and Sharing
Information with Our Partners

Q: What is causing climate change?
A: Climate change is a result of increased carbon
dioxide (CO2) and other gases caused by “humanactivities, primarily from the burning of fossil
fuels and from deforestation,” according to theWorld Resources Institute. “Carbon that has beensequestered in the Earth’s crust (in the form of oil,coal and other fossil fuels) over millions of years
has been extracted, burned, and released into theatmosphere in large quantities over the past two
centuries,” causing the planet’s average temperature
to change.

In ﬁscal 2004, Starbucks set out to understand more about
the risks associated with climate change and to evaluate ourcontribution to global warming. This effort dovetailed withearlier work we had done to assess Starbucks environmental
footprint. The ﬁndings – as well as the measures we aretaking – have been shared with key partners and executives
and are outlined below.
Climate Change
A wealth of scientiﬁc evidence suggests that climatechange could be an enormous threat to the future of ourplanet. The cooperation of governments, corporations
and individuals is needed to address this issue. Starbucks
has voluntarily taken action to assess our contributions
to climate change and develop a strategy for reducing ourgreenhouse gas (GHG) emissions. We recognize that coffee
farming depends on a healthy environment and are therefore
concerned that the negative impacts of climate change on
coffee-growing regions could affect our business signiﬁcantlyin the long term.

Scientists predict that climate change will leadto more severe weather patterns, changes inprecipitation and other local climate conditions.
These changes could alter forests, crop yields andwater supplies, which will affect human health,animal life and many types of ecosystems, including
the tropical ecosystems where coffee is grown. For
more information, visit www.wri.org.

53

ENVIRONMENTIn doing our initial climate inventory, we limited theboundaries to major areas of our retail, coffee roasting, andadministrative operations and our distribution network. We
did not include our international retail operations or otherbusinesses, which we hope to capture in future assessments.

roasting plants to determine measures for reducing
emissions and conserving energy.
• Taking leadership – We will join the Climate Group,a U.K.-based organization working to build aninternational coalition of business and government
leaders who are committed to emissions reduction.

Using the GHG Protocol, we calculated our total GHG
emissions in 2003 to be 254,000 metric tons of carbon
dioxide (CO2) equivalents (see pie chart below). We believe
it’s our environmental responsibility to ﬁnd ways to reducethese emissions.

Sharing Information with Our Partners
To successfully minimize Starbucks environmental impact,
we need the participation and engagement of our partners.
Good communication is essential. Starbucks has several
targeted internal communication tools that are used toeducate our partners about Starbucks commitment andexplain how they can help. Speciﬁcally, we communicate
through our weekly Scoop operations bulletin that goesto our stores, plus our monthly Siren’s Tale newsletter,
which is distributed throughout our entire organization.
Starbucks also has a Partner Portal for disseminatinginternal information online. For major announcements on
our environmental programs, Starbucks executives use thecompany-wide voicemail system. In ﬁscal 2005, we willdevelop an environmental training module that will beincorporated into all new partner training.

Future Strategies for Emissions Reduction
In ﬁscal 2005, Starbucks plans to establish an emissionsreduction target and appropriate metrics to measure ourongoing performance. Given what we know from our initial
inventory, we are adopting the following initiatives:• Purchasing renewable energy – Starbucks will begin
purchasing 5% of our retail energy in North America
annually from renewable sources such as wind. We
estimate that this will cut our CO2 emissions by 2%.
• Addressing our transportation impacts – We will
work together with Business for Social Responsibility’s(BSR) Clean Cargo Group, a coalition of multinational
corporations developing environmental guidelines for
ocean transportation. We will use the Clean Cargo tool
to engage with our freight vendors on opportunities toreduce impacts from the transportation of our products.

Developing Innovative andFlexible Solutions toBring about Change• Focusing on our roasting plant operations – Anenvironmental team will be formed at each of our four

At Starbucks, we often ﬁnd that the best solutions emerge
through a collaborative process. There are many examples
that illustrate this, including the three that follow:

Transportation
21.4%• Environmentally friendly store design – Starbucks
partners have worked together to create sustainable
solutions related to the design and constructionof our stores. For instance, our partners speciﬁedenvironmentally friendly materials, such as Medex®
and MDF cellulose panels engineered with no added
formaldehyde, to be used by our qualiﬁed new store
casework suppliers. These materials were used forbuilding the cabinetry in more than 95% of our newly
constructed U.S. company-operated stores in ﬁscal
2004. And whenever possible, we ensure that space forrecycling is incorporated into the design of new stores.

Coffee roastingand natural gas
20.5%
Solid waste
5.6%
Travel4.9%
Company-owned vehicles
and aircraft
0.8%
Purchased electricity
46.8%

Starbucks Greenhouse Gas Emissions

54

ENVIRONMENTQ: “My wife and I were in one of your stores and heard the barista tell a customer thatthey did not recycle. I found this disturbing and hope it isn’t true of all your stores.”– Greg Smith, Starbucks customer
A: Local recycling programs vary from community tocommunity and from residential to business locations,especially in terms of what is recyclable. Many ofStarbucks company-operated stores throughout North
America participate in recycling programs, mostly
done behind the counter. There’s a 70% participation
rate among the Starbucks stores where we oversee
the waste and recycling services. However, the lackof outside storage space for recycling containers
is a challenge. In our stores where the landlords
manage the waste and recycling, participation issigniﬁcantly lower. In 2004, Starbucks contacted allof our landlords in North America and asked themto support our commitment to recycling. The early
response has been encouraging, but it’s too soon tosee any results.

• Sustainable wood furniture – We have been working
with our main hardwood seating supplier for a numberof years to purchase furniture made with sustainable
wood for our stores. In January 2004, our supplier
received chain-of-custody certiﬁcation from the Forest
Stewardship Council (FSC) that ensures the wood wepurchase originates from sustainably managed forests.
As a result, our major purchases of hardwood seating inﬁscal 2004 were FSC certiﬁed.
• Creative recycling – In nearly half of our North
American stores our partners did some spring cleaning
in 2004, sending unusable coffeemakers and espresso
machines to Recycle America Alliance. The same wasdone at our Kent, Washington, roasting plant. Overall,
Starbucks recycled nearly 114,000 pounds (51,710
kilograms) of electronic waste materials that would
have ended up in landﬁlls.

Starbucks extended our Earth Day celebration
for an entire month in 2004. We launcheda campaign in partnership with the EarthDay Network to promote environmental
responsibility among our partners andcustomers. Special messages were printed on
store posters, such as the one pictured above,and the sleeves for our cups to suggest ways thatpeople can help care for the environment.

55

ENVIRONMENT

begin reducing our impact in this area. We worked
with our cup and paper ﬁber suppliers, who recently
received ﬁrst-ever approval from the Food and Drug
Administration to incorporate 10% post-consumer
ﬁber into our paper cups. We announced our plans
to incorporate recycled content into food contact
packaging in November 2004. After testing in early
2005, we expect to roll out the new cups in our U.S
company-operated stores by the end of the year. We
believe this is a signiﬁcant step forward for an industry
that uses large amounts of paper packaging.

Recognizing That Fiscal
Responsibility Is Essential to
Our Environmental Future

Margaret Papadakis, senior packaging buyer who
represents Starbucks on the Sustainable Packaging
Coalition, meets with Ben Packard, Starbucks directorof environmental affairs.

An initial investment is often needed to establish anenvironmental measure. However, cost savings are often
achieved in the long run that offset the original investment.
Here are a couple of examples:

Striving to Buy, Sell and
Use Environmentally
Friendly Products• Commuter mug usage – For years Starbucks hasoffered customers a 10-cent discount if they have their
beverages served in their own mugs. The incentive
has generated a loyal base of commuter mug users.
Moreover, commuter mug usage cuts down on waste
and reduces our costs associated with paper cups
and waste removal. In ﬁscal 2004, customers usedcommuter mugs 15.1 million times, eliminating
655,000 pounds (297,103 kilograms) of paper wastefrom reaching landﬁlls. Despite our efforts to actively
promote commuter mug usage during our monthlong celebration of Earth Day, the percentage ofour customers using commuter mugs has declined.
Thoughtful evaluation is needed to determine our next
steps. (See graph on page 59.)

Our focus on buying and selling sustainably produced
coffees is the most obvious example of our commitment inthis area. For manufactured goods, Starbucks communicatesthe environmental standards we expect our suppliers to
adopt in our Supplier Code of Conduct. (See page 10 for
more information.) Beyond these priorities, Starbucks has
spearheaded other initiatives to use environmentally friendly
products, including:• Sustainable packaging – Starbucks has been a major
participant in the Sustainable Packaging Coalition, aworking group of packaging professionals. The group
has adopted sustainable principles, including the cradleto-cradle concept, for packaging design and systems.
Starbucks is committed to the feasible application ofthese principles in the development and procurementof new packaging materials. We hope to report ourprogress in ﬁscal 2005.

• Recycled coffee grounds – Coffee grounds accountfor approximately 37% of the waste by weight in ourstores. Nine years ago, a team of store partners came up
with a way to help reduce this waste and the associatedcosts by recycling used coffee grounds. Through our
popular program, Grounds for Your Garden, we
provide complimentary ﬁve-pound (2.27-kilogram)bags of used coffee grounds to customers and local
parks to add to their soil as nourishment.

• Paper cups – Serving millions of hot beverages inpaper cups has a considerable environmental impact.
We have struggled with this for many years and haveﬁnally come up with a small but signiﬁcant way to

56

ENVIRONMENTInstilling Environmental
Responsibility as a
Corporate Value

Recognizing that Starbucks is serious about environmental
responsibility, our partners express their own commitment.
For instance, 49 store managers across North America
served on Starbucks Green Team in ﬁscal 2004, thelargest team to date. The group regularly evaluates store
operations and makes recommendations to improve ourenvironmental performance. They exert their leadershipby communicating with fellow partners on importantenvironmental measures and inspiring them to volunteer
in local improvement projects.

Responsibility begins at the top. One doesn’t have to look
much further than Orin Smith, Starbucks president and ceo.
For years, Orin has passionately advocated the preservationof biodiversity, particularly in sensitive areas where coffee
is grown. He has been an enthusiastic supporter of ouralliance with Conservation International (CI) to promotesustainable coffee farming and is one of CI’s most dedicatedboard members.

On Earth Day 2004, more than 100 Starbucks partners participated in the Mayor’s Beautiﬁcation Program in Tampa Bay, Florida,
helping to restore a 500-foot section of the coastline and clean up the surrounding park. Starbucks provided a grant for a Tampa
Bay environmental education program and plans to support ongoing restoration efforts of the coastline through volunteerism.
GREEN BEAN AWARD
The efforts of four partners were recognized in 2004 with Starbucks Green Bean Award because of the positive impacts they
had on the environment and the company. Winners received cash awards and matching sums for them to donate to theirfavorite charities. Robert Squires was one of our 2004 winners.
Robert applied his knowledge of retail operations, having once been a Starbucks store manager, to a new challenge he faced:
how to streamline our payroll-reporting process for stores. As a manager in Partner Shared Services, Robert worked with ateam to create a database that enabled store managers to record payroll information electronically, rather than printing hardcopy documents and mailing them to the Starbucks Support Center in Seattle. The result is a user-friendly system, and theenvironmental beneﬁt is measured by less paper use – an estimated 3 million sheets per year.

57

ENVIRONMENTFROM FARMER TOCUSTOMER
Starbucks
Environmental Efforts
along Our Supply Chain

1. Farmers: Conservation
Through C.A.F.E. Practices and ourpartnership with Conservation International,
Starbucks is encouraging farmers to use
environmentally sound growing practices tohelp protect biodiversity.

2. Roasting: Environmental
Management
Emissions control technology is used tocontrol the smoke and odors from coffee
roasting at our plants. When new plants
are opened, the best available technology
is employed. Other efforts to minimize ourroasting plant impacts include reprocessing
lightbulbs to prevent mercury halide fromreaching landﬁlls and recycling coffee chaff,stretch wrap and corrugated cardboard.

Reporting Our Performance –Environmental Footprint Metrics

STARBUCKS RECEIVESENVIROSTARS AWARD

The original performance metrics we established as partof our Environmental Footprint assessment are listed
below. Our annual performance record is reﬂected in thecorresponding graphs and charts on the opposite page.

In September 2004, Starbucks was given theﬁrst-ever EnviroStars Recognized Leader
distinction, presented in Seattle by KingCounty Executive Ron Sims. The award• Coffee – The amount of sustainably produced andorganic coffee purchased. (See pages 21 and 26 forthis information.)recognizes Starbucks leadership commitment
to the environment and community building,balanced with proactive business strategies.

• Tea – The percentage of organic tea ingredientspurchased.

Measuring and Monitoring
Our Progress for Each Project• Paper – The percentage of post-consumer ﬁber andunbleached paper ﬁber contained in our annual
paper purchases.

More than four years ago, Starbucks strengthened theprocess for measuring and monitoring our environmental
initiatives. The ﬁrst step we took was in 2000 when wecompleted our Environmental Footprint assessment anddetermined our greatest impacts and opportunities for
improvement. Key metrics were established in a numberof areas deemed to be high-impact. Since 2001, we havereported our performance annually on these key metrics. In
ﬁscal 2004, we expanded our focus to include roasting andadministration, but have yet to establish additional metrics
for reporting. Starbucks will provide transparency on any
new performance metrics we develop in the future.

• Transportation of people – The percentage of partners
using alternative commuting options at the Starbucks
Support Center (administrative headquarters).
• Waste reduction – The percentage of customers
using commuter mugs, which reduces the number ofdisposable cups that are used and discarded.
• Recycling – The percentage of our North American
stores, where Starbucks controls waste and recycling,that participate in a recycling program.
• Energy consumption – The amount of gas andelectricity used per square foot in our North Americancompany-operated stores.

For a broader description of Starbucks Environmental
Footprint assessment and initiatives, please refer to our
Corporate Social Responsibility Fiscal 2003 Annual Report,
available online at www.starbucks.com/csrannualreport.

• Water consumption – The amount of water used
per square foot in our North American companyoperated stores.

58

ENVIRONMENT

3. Support: Packaging andPaper Purchases

4. Retail Stores: Design
and Operations

5. Customers: Reusing
and Recycling

Starbucks considers recyclability, reusability
and recycled content in our purchasing
decisions. We strive to reduce unnecessary
packaging and target a minimum of 30%
post-consumer ﬁber in all paper purchases,
excluding our hot cups.

Starbucks incorporates environmentallyfriendly measures in the design andconstruction of our stores, including
the use of sustainable wood products,
energy-efﬁcient lighting and reduced-ﬂow
water ﬁxtures. We also recycle milk jugs,
cardboard boxes and other waste products
where commercial recycling collection
services exist.

Starbucks offers a 10-cent discount tocustomers who bring in their own commutermugs. We also provide complimentary ﬁvepound (2.27-kilogram) bags of used coffee
grounds to customers, parks, schools andnurseries as a nitrogen-rich garden nutrient.

59.1

53.6

92.8

56.7

58.1

48.1

Percentage

Percentage

Fiscal year

2002

2003

2004

Percentage

28.2

Fiscal year

Organic Tea Ingredients Purchased – Tazo

26.1

2002

48.8

26.0

2003

2004

Fiscal year

48.5

2002

With
th hot cups

Without hot cups
1.7

2003

2004

64

61

Percentage ofstoresFiscal year

2002

2003

2004

5.30

2004

**Based on data from 2,460 stores.

2004

27.1
(103)‡
20.3(77)

Kilowatt hours
per square foot

Gas

29.1
(110)

6.62†

0.05

2003

2003

Store Recycling

5.84

Therms per
square foot

2002

2002

*Based on data from 1,939 stores.

0.06**

Fiscal year

Fiscal year

Commuter Mug Usage

Partners Participating in Transportation Options Program

0.05

Without hot cups
70*

1.6

Percentage

2002

2004

With hot cups

1.4

Fiscal year

2003

48.1

Paper: Unbleached Paper Fiber
Fibe

26

Percentage

86.3

Paper: Post-Consumer Fiber

28
26

88.9

46.5

Gallons (liters)
per square footFiscal year

2002

2003

Electricity

2004†Based on data from 4,137 stores.

59

ENVIRONMENT

Fiscal year

2002

2003

Water

2004

‡Based on data from 1,927 stores.

Starbucks partners from Everett, Washington, spruced up Howarth Park on Earth Day 2004.

Encouraging All Partners toShare in Our Mission

about how they can promote a healthy environment byenjoying their beverages in a reusable mug rather than adisposable cup.

Starbucks encourages both partners and customers to sharein our mission. By working together we can improve thequality of our environment – a beneﬁt to everyone. A coupleof ways we engage our partners and customers are throughparticipation in Earth Day and Earthwatch Expeditions.

Increasing volunteerism at Earth Day events was anothergoal of the campaign. Overall, nearly 14,000 partners,
their friends, families and customers, spent more than
29,000 hours volunteering for 111 projects, doubling ourefforts from the year before. Starbucks matched the hours
volunteered with cash contributions of more than $109,000
to the environmental organizations involved.

Earth Day
For the past three years, Starbucks has supported EarthDay Network (EDN), a resource for people who want tolearn more about environmental responsibility and wish
to volunteer in our communities. In 2004, we dedicateda month to an environmental awareness campaign in our
North American stores. Using our insulating cup sleeves,
we featured ﬁve simple things individuals can do to help
the environment. The tips printed on the cup sleeves weredeveloped in collaboration with EDN and included suchthings as factoring in fuel efﬁciency when shopping for a
new car and using low-ﬂow showerheads. (For information
on EDN, go to www.earthday.org.)

In addition, our partners selected and forged new
relationships with 36 local environmental organizations.
Starbucks also donated more than $86,000 to thesenonproﬁt groups across North America in support of theirpositive contributions to our communities.

To encourage our partners to personally make a difference,
we sent a commemorative tumbler mug to all partners inour stores in the United States and Canada with a message

60

ENVIRONMENTChallenges and Opportunities

Earthwatch Expeditions
Starbucks aligned with the Earthwatch Institute to sponsor
10 customers and ﬁve partners on two-week Earthwatch
research expeditions. The customers, selected by a random
drawing, traveled to a region of Costa Rica where less than
10% of the original rain forest remains. They worked closelywith scientists and members of a coffee cooperative on aforest restoration project. Starbucks partners headed todifferent parts of the world and assisted researchers in Belize,
Kenya and Hungary.

Starbucks has initiated and implemented various energyand water-conservation measures over the years, but wehaven’t seen as much improvement as we would like. In fact,
during this past year our performance declined, indicating
higher average energy and water use per square foot of retailspace. While we don’t have concrete answers as to why thisis happening, we suspect it may be related to the increasing
number of customers we serve at each store. In addition,some of our stores are now open 24 hours. After conducting
our climate inventory, we recognize that energy usage is thelargest contributor of CO2 emissions, thus we will continue
to focus on conservation measures in our retail stores.
Finally, our greatest challenge is the lack of companywide metrics and data collection systems that would
allow us to fully measure our store performance. Thisis partly due to the large number of licensed Starbucks
operations in the United States and in our international
markets, which are not currently measured. We also haven’t
expanded our metrics to account for how Tazo, Seattle’s
Best Coffee and Torrefazione Italia contribute to ourenvironmental footprint.

Dr. Karen Holl of the Earthwatch Institute leads a research
project to restore the Costa Rican rain forest. She wasjoined by a group of Starbucks customers who wereselected by a random drawing to participate in a two-week
Earthwatch Expedition. Together, they planted 1,200 trees.

Q: “As a store partner, I’m concerned about how much paper is used to print the
weekly ‘Scoop’ bulletin and mail it to every store. Can’t we just read it online?”– Andrea Upton, Starbucks partner
A: At the time this question was received, Starbucks
was beginning to test electronic distribution of The
Scoop, our operational newsletter for store partners.
The multipage Scoop has traditionally been printed
double-sided and delivered to stores. We explained
to Andrea that even with electronic distribution,
stores will still need to print and post one copy of
The Scoop to ensure all partners read it. While thisapproach will not decrease our paper usage, we
believe an environmental beneﬁt will be gained byeliminating the need to transport hard copies toeach store. In the coming year, we will review ourtest and determine whether electronic distributionof The Scoop and other operational communications
geared for store partners can effectively replace
hard-copy distribution.

61

ENVIRONMENTWhy would someone want
to work for Starbucks?

62

WORKPLACEWORKPLACE

If you ask our partners what’s so great
about Starbucks, they’ll probably mention
their co-workers.
Having the chance to join an enthusiastic team is the top
reason our partners give for working at Starbucks. Feelingvalued is also cited, followed by the comprehensive healthbeneﬁts Starbucks offers. We’re particularly proud to offer thesame health beneﬁts that eligible full-time partners receive to
eligible part-time workers, an increasingly rare beneﬁt in today’s
climate of escalating healthcare costs. We know that to keep
our nearly 97,000 partners engaged and satisﬁed, we must
continually maintain and enhance our great workplace culture.

63

Starbucks Employment Profile – Fiscal 2004
Number of U.S. partners

82,000

Number of international partners (includes retail partners in Canada, United Kingdom, Australia,
Thailand and Singapore and regional support partners in Europe and Asia Pacific)

14,700Net jobs created (Starbucks partners) in fiscal 2004

16,200Total wages and benefits paid to U.S. partners (includes salaries, bonuses, vacation, payroll taxes,
healthcare benefits, workers’ compensation, 401(k) contributions and weekly coffee markouts)$1.6 billion

Progress Report on 2004 Goals – Workplace
Goals
To expand training and development opportunities so partners can improve their skills and capabilities and deepen theircoffee knowledge.
To develop systems that allow partners to pursue their own personal development and career movement.
To introduce a tuition-reimbursement program.
To involve partners on matters regarding their personal health so that we can better control healthcare costs.
To introduce new tools for increasing two-way communication with partners.
To maintain formal and informal recognition processes that express our appreciation for the efforts of our partners.
To improve our interviewing process to help us select customer-focused partners.
To administer a Partner View Survey in October 2004.
To implement a global strategic diversity plan to increase diversity in our workforce.
key:achievedmaking progress

did not achieve

64

WORKPLACECREATING A GREAT WORK ENVIRONMENTS

tarbucks leaders often talk about the “old days,”referring to 1990. The company was short on cash
but long on passion. Our leaders had a vision forStarbucks, believing the company might one day have 500
stores. Starbucks surpassed that mark in 1995 and went on
to exceed 8,500 locations by the end of ﬁscal 2004.
Along the way, we have hired tens of thousands of people
and introduced them to our workplace culture, which isbased on treating each other with respect and dignity. This
was the type of work environment our leaders meant tocultivate when they established it as a Guiding Principle
for Starbucks.
Starbucks has translated our Guiding Principle of treatingeach other with respect and dignity into actions that makeour partners feel valued, such as:“The word is out about Starbucks.
People know it’s a good place to work.”• Offering comprehensive beneﬁts– Aisha Cornick, assistant store manager,
Harlem, New York City

• Embracing diversity• Offering training and career-development
opportunities• Improving two-way communication channels• Maintaining recognition programs• Respecting partner rights and ensuring a
supportive workplace• Focusing on health and safety precautions

65

WORKPLACE

Starbucks Benefits
Partner benefits

Program descriptions
and coverage

Eligibility

Comprehensive healthcare benefits(U.S. and Canada)

Benefits include medical, dental, vision,prescription drugs and alternative healthcoverage. In the U.S., Starbucks paid 77%of health-coverage costs for partners and 55%
for dependents. In Canada, 74% of costs were
paid for partners and 51% for dependents.

Full- and part-time partners who are paid aminimum of 240 hours per calendar quarter andtheir eligible dependents, including spouses,
domestic partners and children. In fiscal 2004,
66% of U.S partners and 67% of Canadianpartners were eligible for these benefits.

Bean Stock – Starbucks stock option plan
(U.S., Canada, U.K., Hong Kong,
the Netherlands, Switzerland)

The Board of Directors determines annual
stock option grants based on company
performance – up to 14% of our partners’
eligible base wages. Every partner through thedirector level receives the same percentage of
his or her fiscal-year wages. For fiscal 2004
performance, the basis for stock option grants
was 14%.

Full- and part-time partners up through thedirector level who have been employed byStarbucks as of April 1; been paid for at least
500 hours from the first of the fiscal year
through March 31 or from April 1 through theend of the fiscal year; and are employed at
the time the grant packets are distributed thefollowing January. More than 47,000 partners
in the U.S. and Canada qualified for Bean Stockfor fiscal 2004 performance.

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

Partners can purchase company stock at
discounted prices on a quarterly basis (U.S.
and Canada) or a semiannual basis (U.K.).

Partners who have worked as a regular partnerat least 90 days for Starbucks and have been paid
an average of 20 hours a week during the threemonths preceding the quarterly offering. No
hours requirement in the U.K.

Future Roast – Starbucks 401(k) Plan (U.S.),RRSP – Registered Retirement Savings Plan
(Canada)Starbucks matches between 25% and 150%
(based on length of service from most recent
date of hire) on the first 4% of pay that partners
contribute to the U.S. 401(k) Plan. Eligible
Canadian partners receive a 25% match on thefirst 4% of pay that they contribute to the RRSP.

Full- and part-time partners with one year ofservice are eligible. In the U.S., partners age
30 or older may participate immediately.

Partner Beneﬁts

Fostering Diversity
and Inclusion

After receiving feedback from our partners last year, Starbucks
introduced a tuition-reimbursement program as a new U.S.
partner beneﬁt in August 2004. One year of continuous
service and eligibility for beneﬁts are required before partners
can apply for tuition reimbursement and receive up to $1,000
per calendar year. In the two months the program was active
in ﬁscal 2004, 807 partners were approved for this beneﬁt. In
2005, we plan to extend this program to partners in Canada
and explore how similar programs may enhance the partner
experience in other countries. Some of the other beneﬁts
offered by Starbucks are listed above.

We are all individuals – different in many ways yet often
remarkably similar. Our goal is to make everyone feelincluded and valued. This starts at the top. “Embrace
diversity as an essential component in the way we dobusiness” is one of our Guiding Principles. Starbucks leaders
are expected to uphold our values and set strong examples
for our partners.
At Starbucks, the term “diversity” includes factors suchas age, race, gender, sexual orientation, national origin,physical and mental attributes, education, skills, experiences
and ideas. When we apply our collective mixture ofdifferences and similarities in the pursuit of business goals,
then great things happen.

In support of our Guiding Principle to “embrace diversity
as an essential component in the way we do business,” our
U.S. 401(k) retirement plan, Future Roast, was enhanced
in 2004 with the addition of a new fund managed by aminority-owned investment ﬁrm.

66

WORKPLACE

Our customers, communities, suppliers and partners are all diverse.
We believe diversity is to be embraced.

We believe that the changing demographics in the UnitedStates will one day make today’s term “minority” irrelevant.
By 2008, 70% of new entrants into the U.S. workforce will
be women and people of color.*

Diversity in Our Workplace
Starbucks U.S. workforce

Fiscal 2004

Total

Our major accomplishments in 2004 included the following:

Women....................................................................

63%

People of color.........................................................

24%

Executives (vice presidents and above)• Increased diversity in our hiring pools, which resulted
in an increase in the percentage of people of color at theexecutive level.
• Created Starbucks Global Diversity Strategy Team,
led by our ceo.

Women....................................................................

31%

People of color.........................................................

13%

Diversity Learning• Developed a global strategic LEAD model fordiversity that is focused on four key areas:

The importance of inclusion is emphasized in the training
and development courses for our store and ﬁeld partners.
Our Diversity Learning Journey workshop, geared forpartners at the Starbucks Support Center and our roasting
plants, promotes the value of diversity in all aspects of ourbusiness. Partners at the director level and above receive
additional training on the business case for diversity. In ﬁscal
2004, the number of partners attending diversity workshops
did not meet our expectations. In ﬁscal 2005, we plan toenhance our diversity training with a focus on multicultural
customers and customers with disabilities.

L – Leadership competency and accountability
E – Environment that fosters learning and inclusive,
safe, high-performing teams
A – Acquisition of talent, customers and suppliers
D – Delivering and communicating results througha diversity and inclusion scorecard andenterprise-wide performance metrics• Strengthened relationships with the Urban League,
National Association for the Advancement of Colored
People (NAACP) and the National Council of La Razato reach a more diverse pool of job candidates.

Policies and Protection
Starbucks has policies in place that provide equal
employment opportunities and strictly prohibit
discrimination or harassment 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. In
addition to following standard avenues, partners whobelieve they have been discriminated against or believe
they have witnessed any form of discrimination orharassment can submit an anonymous report throughour Business Conduct Helpline, 800-611-7792.

In ﬁscal 2005, we plan to test a company-wide diversity
and inclusion scorecard that will help us develop metrics
and establish long-term goals. We will also make diversity
training an integrated element of our overall executive
development process.

*Source: Catalyst – compiled from U.S. Bureau of Labor Statistics, Projection
from Current Population Survey, 1988–1998

67

WORKPLACE

Partners from the Starbucks Support Center in Seattle participate in a coffee tasting, one of the steps to becoming certiﬁed
as a Coffee Master. From left to right: Kirsten Lemke, Elizabeth King, Joy Mirabueno and Isabel Ortmeier.

Partner Training
and Career Development

which emphasizes trust, collaboration, people
development and ethics.
• CareerPower™ and CareerPower™ for Coaches
workshop – A workshop designed to provide partners
and their managers with an opportunity to reﬂect on
their personal values, career dreams and development
through continuous coaching and feedback. In ﬁscal
2004, more than 200 partners at Starbucks Support
Center in Seattle attended the workshop.

In response to feedback through our 2003 Partner View
Survey, we expanded training and career-development
offerings last year while keeping existing programs in place.
In our Corporate Social Responsibility Fiscal 2003 Annual
Report, we provided a detailed overview of our training forretail and non-retail partners (visit www.starbucks.com/
csrannualreport).

Training for Retail Partners

Some examples of new programs initiated in 2004:

To become experts in the preparation and delivery of
our products, Starbucks baristas are given comprehensive
training, beginning with their ﬁrst day on the job. If apartner moves into another retail position, he or she receives
additional training, beyond what they received as a barista,
to ensure their continual job success. Our retail partners
received an estimated 2.9 million hours of training in ﬁscal
2004. (See table on opposite page.)• Coffee Masters program – All partners are encouraged
to deepen their coffee knowledge and expertise throughthis multilevel training program. By the end of ﬁscal
2004, more than 7,000 partners had completed some of
the workshops or the entire program.
• Servant Leadership workshop – Approximately 6,200
partners attended this leadership training workshop,

68

WORKPLACE

Retail Partner Training
Position

Number of training hours

Barista

35 hours conducted over eight shifts, plus one-hour certification

Shift supervisor

In addition to barista training, 32 hours conducted over eight shifts, plus one-hour certification

Assistant store manager/store manager

320 hours of training over eight weeks

District manager trainee

200 hours of training over four months

The CUP Fund

Recognizing Our Partners

We also encourage our partners to participate in the CUP(Caring Unites Partners) Fund, an emergency assistanceprogram that is funded exclusively by partners for the
beneﬁt of their co-workers. Last year the CUP Fundexperienced its fastest rate of growth yet, assisting twice
as many partners in ﬁscal 2004 than in the previous
year. Speciﬁcally, 654 partners received ﬁnancial relief
totaling $529,000 from nearly 23,000 fellow partners who
voluntarily contributed to the program.

Starbucks success reﬂects the quality, passion andinitiative of our partners. In recognition of our partners’
contributions, we have 19 awards programs to acknowledge
all levels of achievement. These range from frequent awards(an estimated 60,000 of these are presented annually) tohigh-level awards that include cash rewards. Annually, 500
partners receive high-level awards that range from Managerof the Quarter for store manager leadership, to Green ApronAwards for outstanding customer service, to Green BeanAwards for exceptional support of Starbucks Environmental
Mission Statement.
Respecting Partner Rights and Ensuring a
Supportive Workplace
The pervasive theme at Starbucks is respect. Out of respect,
Starbucks believes our partners should have a workplaceenvironment that is free of discrimination and harassment
and is in accordance with all labor laws. We are committed
to upholding these values.
Starbucks recognizes our partners’ right to unionize. In
ﬁscal 2004, trade unions represented one-eighth of 1%
of our partners. Most union-represented partners are in
Canada and a few are in one U.S. roasting plant.

FORTUNE 100 BEST COMPANIES TO WORK FOR
Starbucks was named one of the “100 Best Companies
to Work For” in 2004 by FORTUNE. It is the sixth time
Starbucks has made the prestigious list. In 2004, Starbucks
was ranked 34, compared to 47 in 2003.

Starbucks follows all laws regarding the employment ofminors. The current minimum age of employment at
Starbucks is 16 (it may be higher in some locations).

69

WORKPLACE

Q: “There’s been some recent talk that Starbucks is beginning to have some nasty
conﬂicts with its partners who want to be represented by a union. One of my friends
won’t go to a Starbucks because of this. As a shareholder, I think Starbucks should
acknowledge it rather than ignore the problem.”– Guy Allen, Starbucks customer and shareholder
A: Starbucks respects our partners’ right to unionize
if they so choose, and it is in this context that wewould like to provide the facts about the situation
Guy Allen referenced. In May 2004, we were notiﬁedby the National Labor Relations Board (NLRB) thata union believed they had sufﬁcient interest frompartners in one of our stores to represent them. As aresult, the NLRB scheduled an independent election
to determine whether this was what the majorityof partners in that store desired. On the day before

the election was to take place, the union voluntarily
withdrew its petition, and the election did not takeplace. We believe that the union realized that the
majority of partners who were eligible to vote were
not in support of union representation.
In addition, the 13 partners in one of our U.S.
roasting plants who are currently represented by aunion have indicated to that union, and to us, thatthey no longer want to be represented by the union.

Listening to Our Partners• Mission Review – Through our Mission Review
program, our partners tell us when their on-thejob experiences are inconsistent with our Guiding
Principles. The Mission Review team ensures that thecomments or questions sent in by partners are quickly
responded to and that Starbucks leaders are informedof the issues raised. In ﬁscal 2004, our Mission Review
team recorded more than 3,500 contacts from partners
on topics that ran the gamut from store equipment toenvironmental responsibility. (See example on page 61.)

Surveys provide a great opportunity for our partners
to tell us what’s on their minds, including their levelsof satisfaction and engagement. In 2003, 82% of ourpartners stated that they were satisﬁed or very satisﬁed with
Starbucks, and 73% reported a high level of engagement.
We didn’t conduct this type of research during ﬁscal 2004,
but instead launched an extensive survey in October atthe beginning of our 2005 ﬁscal year. These results will bereported next year.

• Business Conduct Helpline – The Helpline is acomponent of our Business Conduct and Corporate
Compliance program. Partners can access it 24 hours
a day and speak to a non-company, third-party agent
without fear of retaliation. Partners may call the
Helpline anonymously, and all information is treatedin a conﬁdential manner. The concerns reported areinvestigated and resolved in a manner consistent with
Starbucks Mission Statement and Guiding Principles.

Last year, we recognized there may be more effective ways
to communicate with our partners about their healthcare
coverage and other beneﬁts. We launched Thrive, acomprehensive internal wellness program, to educate
partners about decisions they can make to live healthierlives and better manage healthcare costs. We also created
My Brew, a new publication about the beneﬁts and rewardsof being a partner.
Our Mission Review program and the Business Conduct
Helpline are two channels that partners can access to ask
questions or raise concerns.

70

WORKPLACEHealth and Safety
Our top priority is ensuring a safe and healthy environment
for our partners and customers. Safety programs for
Starbucks stores and roasting plants are designed to meetor exceed the most stringent regulatory standards in thejurisdictions where we do business.
In ﬁscal 2004, a major focus was the prevention of slips andfalls in the workplace. We worked with an innovative vendor
to design new ﬂoor mats for our stores and tested several
solutions that incorporated anti-slip and anti-trip elements
into the design. We began installing the improved matsin September 2004, a process that will continue throughﬁscal 2005.
We also rolled out new digital coffee-brewing machines
in ﬁscal 2004 that incorporate improvements to reducethe most common cause of injury to our partners, brewerrelated burns. Early results indicate that the number ofthese burns has been signiﬁcantly reduced.

After receiving special training, our baristas become experts
in the handcrafting of Starbucks many coffee beverages.

1
9.00

8.23

8.02

7.56

0.8
0.61
0.6

0.59

0.51

7.00
0.4
0.2
5.00

0

Fiscal year

2002*

2003*

Fiscal year

2004

2002*

2003*

2004

Interstate Experience Modification Factor**

Injury Rate per 200,000 Hours Worked – Starbucks Retail Stores*Data have been retroactively adjusted to reﬂect new claims that were ﬁled
after the ﬁscal year ended.

**The Interstate Experience Modiﬁcation Factor is an assigned rate thatcompares the number and cost of a company’s workers’ compensation claims
with those of peer companies in their industry. A rating of 1.0 represents
average performance for the industry. Starbucks ratings are less than 1.0 andtherefore better than the industry average.

71

WORKPLACE

Independent Veriﬁer’s Report

To the Stakeholders of Starbucks Coffee Company:
Starbucks Coffee Company (Starbucks) engaged Moss Adams LLP, a certiﬁed public accounting ﬁrm, to provide
external assurance and verify the contents of its Corporate Social Responsibility Annual Report (Report) for theﬁscal year ended October 3, 2004. As the independent veriﬁer, we have maintained objectivity in our review of
the Report, in accordance with the Code of Professional Conduct of the American Institute of Certiﬁed Public
Accountants. Those standards require us to maintain an independent position, one that is not affected byinﬂuences and is free from conﬂicts of interest.
Starbucks management and personnel prepared the Report and compiled the underlying data and are responsiblefor its content. Our responsibility was to review the Report and obtain reasonable assurance about whether
Starbucks corporate social responsibility policies as stated therein have been implemented; and that statements,
assertions and the data reported are supported by documentation, internal processes or information provided bythird parties.
Currently, there are no statutory requirements or generally accepted veriﬁcation standards in the United Statesof America or internationally that relate to the preparation, presentation and veriﬁcation of corporate social
responsibility reports. Therefore, we developed an approach to verify the contents of the Report based on emerging
practices, the guidelines of the Global Reporting Initiative, and our own professional expertise and experience. Our
approach included conducting interviews with Starbucks executives and managers; performing on-site reviews todetermine how the corporate social responsibility policies have been implemented and reported upon; selecting
internally prepared documents for review; testing select data to support assertions; and conﬁrming with external
parties certain statements, assertions and data disclosed in the Report. We planned and carried out our work to
obtain reasonable, rather than absolute, assurance on the reliability of the information stated in the Report. We
believe our methodology provides a reasonable basis for our conclusion.
Based on the external veriﬁcation process performed, we verify the following:• The corporate social responsibility policies and activities of Starbucks as described in the Report are fairly
presented and are consistent with the actual policies implemented and acted upon by Starbucks management
and personnel during the ﬁscal year ended October 3, 2004.
• Statements, assertions and data disclosed in the Report are reasonably supported by documentation, internal
processes and activities, and information provided by external parties.

Moss Adams LLP
Seattle, Washington
January 25, 2005

72

Feedback and Further Information:
Is Starbucks Responsible?

Throughout this report, we present information about Starbuckssocial, environmental and economic impacts on the communities
in which we do business. And we answer questions from key stakeholders
that we hope will give you a new perspective on how we’re addressing
some of our challenges. We’ve made every attempt to provide a balanced
view of our business and our CSR initiatives. In the spirit of open
dialogue, we invite you to tell us how we’re doing. You can provide
feedback through our online survey at www.starbucks.com/csrsurvey orby contacting us at:

Starbucks Coffee Company
Customer Relations
PO Box 3717
Seattle, WA 98124-8891 USA
Phone: 800-23-LATTE (800-235-2883)
Email: info@starbucks.com

To receive a printed copy of this report, please call the number listed
above. The report is also available online at www.starbucks.com/csr.
For additional information about Starbucks, visit Starbucks.com.

This report was printed by a certiﬁed minority-owned businesson 100% post-consumer recycled ﬁber that is certiﬁed by the
Forest Stewardship Council.

Credits

Photographers

Report preparation:
Starbucks Corporate Social
Responsibility Department

Barbara Schmid Adamczyk
Ralph Alswang
Amy Anderson
Kate Baldwin
Aaron Cieri
Steve Dubinsky
Alison Edwards
Liz Gorman
Olaf Hammelburg
Mark Holthusen

Editor:Liz Gorman Communications
Executive sponsor:
Sandra Taylor, senior vice president,
Corporate Social Responsibility

Ted Howes
Boris Iochev
Barbara Kinney
Sam Knight
Chad Leverenz
Enrique Edelmann López
Dennis Macray
Scott McMartin
Duncan McNicol
Matt Peloza

Katie Phipps
Colm Pierce
Fernando Quintanal
Stuart Ramson
Jarrett Reich
Haile A. Retta
Thomas Reynolds
Richard Steinmetz
Peter Torrebiarte© 2005 Starbucks Coffee Company. All rights reserved. Printed in the USA. CSR-131 SKU 191422