Starbucks: Backtracking on Barista Spend Management, But What About Those Beans? (Part 2)

Even though it appears that some of Starbucks "lean" production techniques may have led to reduced customer perception of quality, I'd argue that the fundamental issue with the coffee giant's supply chain today goes all the way back to the suppliers themselves -- and what Starbucks is buying. I did some digging in the beans on the topic and found that Starbucks intentionally buys coffee based on its own rating of "overall flavor" rather than official grades (more on this in a minute). Starbucks most likely does this to save money and ensure the scale of its sourcing requirements. Consider the coffee grading systems in Kenya, for example, which suggests four grades above the "C" grade.

AA beans, according to one source, "are of good size formation and density and fetch high premium prices." AB beans are "the most common grade after milling." P grades are peaberry beans (try them at Trader Joe's if you're interested -- we like them in the office here). TT beans "consist of lighter beans isolated from main grades AA and AB." And C beans are "thin small beans which do not qualify in grades AA and AB." Moreover, they are the "second largest quantity produced from a milling lot."

Even though Starbucks is buying on "flavor" -- or so they claim -- their own press releases suggest they're dipping in "C" bean territory. Consider the following earnings-related announcement that suggests that thanks to Starbucks, "deep expertise in managing the fluctuations of green coffee prices in the 'C' market," they "have also maintained the highest ethical sourcing standards in the industry, with positive results." Positive results? Perhaps for shareholders and farmers, but not coffee snobs, despite Starbuck's ability to manage costs. To wit, "despite recent spikes in the "C" market" Starbucks reaffirmed guidance earlier this year in part based on its ability to "effectively mitigate a portion of the relative short-term fluctuations inherent in today's coffee market."

In other words, Starbucks is buying what it self-describes in its earnings forecasts as C-grade beans. So all the retraining and leaning out of the in-store production process will do little to improve quality unless they address the underlying issue to begin with. Personally, I think Starbucks, like our local coffee shop Intelligentsia, should do a better job of segmenting customers and allowing them the option of paying a premium for a better mug of joe based on the underlying bean quality. That, and they should bring back the Clover machines which they quietly eliminated from the market to squash the competition from having vastly superior brews.

Jason Busch

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