“Challenging Commodity Chains with Brand Politics: The Ethiopian Coffee Sector vs. Starbucks”
Presented by Douglas B. Holt, Professor of Marketing, University of Oxford
Douglas B. Holt, Professor of Marketing at the University of Oxford, presented “Challenging Commodity Chains with Brand Politics: The Ethiopian Coffee Sector vs. Starbucks” to CFAT faculty, students, and associate on December 8, 2009. He is also a CFAT Associate and splits his time between England and Colorado.
Dr. Holt’s academic research focuses on the sociology of consumption, including research on consumer culture, social class, and gender. In his management research, Dr. Holt has developed a socio-cultural approach to branding (How Brands Become Icons: The Principles of Cultural Branding Harvard Business School Press, 2004), and innovation (Cultural Strategy: How Innovative Ideologies Build Extraordinary Brands, Oxford University Press, forthcoming). He is the editor of the Journal of Consumer Culture, and co-edited The Consumer Society Reader (with Juliet Schor).
Dr. Holt’s seminar discussed the irony that Starbucks, a company whose promotional literature is entitled “Coffee That Cares,” decided to oppose very poor Ethiopian small farmers who were doing what development professionals have asked them to do: innovate ways to increase their incomes via the market and international trade.
In 2007, Ethiopia’s coffee coalition attempted to secure US trademarks on two of Ethiopia’s most valuable coffee brands—Sidamo and Harrar. By owning the trademarks, Ethiopia hoped to increase profits on these brands and raise the incomes of the estimated 6 million Ethiopians who are dependent on the fine coffee trade. Those efforts, however, were blocked in the United States by Starbucks.
If coffee traded as free marketers predict, one would expect that as the perceived value of Ethiopian coffee brands increased, so too would the incomes of Ethiopian farmers. Unfortunately, few markets actually operate in this text book fashion. In the specialty coffee industry this is because a handful of companies like Starbucks have extraordinary market power and are able to use this power to control the value chain.
Although the value of Ethiopian coffees has risen tremendously, little is getting passed back to the producers. Because Ethiopian brands are traded under the Starbucks trademark, Starbucks controls the transaction with customers and reaps the economic benefits. On the Black Apron line, Starbucks earns $24.00/lb. or more, with gross margins that likely exceed $20.00. Back in Ethiopia, the farmers who supplied their premier land, distinctive plants, cultivation techniques, and hard labor earned less than a dollar. It should not be a surprise that Ethiopians are looking for a means to gain more leverage in the market so that their farmers can earn more for their coffee.
What distinguishes Starbucks products from others is its powerful brand symbolism. Ethiopian coffee growers serve as particularly effective symbolic material for Starbucks. As the birthplace of coffee, Ethiopia offers the most authentic coffee experience in a marketplace dominated by mass-marketed brands.
In the seminar, Dr. Holt presented the case that Starbucks must back its brand as “Coffee that Cares” or risk losing credibility with its conscious consumer base. In the Ethiopian case, it was forced to do just that. Starbucks dropped its opposition to the trademarking of the Ethiopian fine coffee brands after several months of international pressure by mostly European-based NGOs and consumers.