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Chapter 1
INTRODUCTION
Background of the Study
Starbucks defines corporate social responsibility as conducting a business in
ways that produce social, environmental and economic benefits to the communities in
which they operate. In the end, it means being responsible to the stakeholders. There is
growing recognition of the need for corporate accountability. Consumers are demanding
more than product from their favorite brands. Employees are choosing to work for
companies with strong values. Shareholders are more inclined to invest in businesses
with outstanding corporate reputations. Quite simply, being socially responsible is not
only the right thing to do; it can also distinguish a company from its industry peers given
that there are positive returns for being a socially responsible company.
Starbucks is the leading retailer, roaster and brand of specialty coffee which took
the vision to create a values-driven coffee company inspired by passion, dedicated to
quality and guided by exceptionally strong principles. Starbucks aspires to be
recognized as much for their commitment to social responsibility as they are for the
quality of their coffee. They have focused their efforts on improving social and economic
conditions for coffee farmers, minimizing environmental impact, and making a positive
contribution in the communities where they do business; and providing a great work
environment for their partners.
Starbucks believes it makes sense to view their actions in terms of investments.
By investing in sustainable business practices and the origin countries that provide
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coffee, they encourage a continued high-quality supply. In the communities where they
do business, they also invest in local organizations to improve the quality of life at the
same time. And by investing in their partners, through competitive wage and benefit
structures, and opportunity for stock ownership, Starbucks has an edge in attracting and
retaining qualified, productive employeesand that helps reduce hiring, training and
other turnover costs. In the end, there is no conflict between doing good and doing well.
Starbucks' omnipresence attracts customers to their stores by providing high-
quality coffee as well as comfortable places that add to the spirit of each community.
The growth of Starbucks has created employment and business opportunities to
aspiring businessmen and women. Starbucks is led by strong values which have
caused the phenomenal growth for placing a great emphasis on creating a workplace
environment that engages, inspires and rewards.
Starbucks is one of the leading companies that offers not only the best coffee but
also implements strict social responsibility that upholds its heritage. The consumers
were delivered the highest level of service, the employees and partners were given
rewards, and the shareholders received a record of level performance.
The research aims to provide more information on how corporate social
responsibility increases the annual income of Starbucks Company.

Statement of the Problem
This paper explains how corporate social responsibility increases the annual
income of Starbucks Company by responding to the following questions:
1. What is the relationship between corporate social responsibility and
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generating higher income of Starbucks Corporation?
2. How can the roles of ethical sourcing, community involvement and
environmental stewardship be explained?
3. What are the retail strategies of Starbucks for profitable growth?

Significance of the Study
The research results could lead to people's awareness about ethical service that
they deserve to receive as consumers.
It could also encourage students and other innovators to observe social
responsibility once they put up their own businesses. The aspiring businessmen and
women will learn that success is not only measured through a companys profitability
but also its social intervention.

Scope and Delimitation
This paper discusses how corporate social responsibility increases the annual
income of Starbucks Company. Gathering of data will be done through analysis of
financial statements and fiscal reports. The study is expected to be done in the 12
th

week of the first semester A.Y. 2013-2014.





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Chapter II
THEORETICAL AND CONCEPTUAL FRAMEWORK
Review of Related Literature
Presented in this chapter is a review of related literature that supports the
relationship of corporate social responsibility and the increase in the annual income of
Starbucks Company. Included in the chapter are the goals in corporate social
responsibility, retail strategies, profitability ratio analysis, conceptual framework,
hypotheses, and definition of terms.
Corporate Social Responsibility
Starbucks performance on social responsibility was based on the goals they set
in 2008 in three areas: ethical sourcing, environmental stewardship, and community
involvement.
Ethical Sourcing
The company is committed to buying and serving high-quality coffee, tea and
cocoa that are responsibly grown and ethically traded. It honors this commitment
through its responsible coffee, tea, and cocoa purchasing practices, farmer support
centres, loan programs and forest conservation efforts. When it buys coffee this way, it
believes that it helps foster a better future for farmers and helps mitigate the impacts of
climate change for the planet (Global Responsibility Report, 2012).
Starbucks is also committed to social responsibility standards for the
merchandise, furniture and other items found in its stores. It had set strong standards
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for its suppliers and offers them assistance when corrections need to be made to their
business practices. Adherence to those standards informs the companys sourcing
decisions and ensures it is working with suppliers who share its commitment to ethical
sourcing. Its buyers work directly with suppliers, negotiating contracts for the products it
needs in its operations or sell to its customers (Responsibility Report, 2012).
Providing access to credit at reasonable terms is a critical aspect of Starbucks
farmer support model. Its goal is to invest in farmers and their communities by
increasing its farmer loans to $20 million by 2015.By investing in programs that provide
access to credit, the company is helping farmers manage risk and strengthen their
businesses. Looking forward, Starbucks is exploring innovative relationships to help the
company better leverage the loans in concert with its technical support, social
development investments and coffee purchases. The fund will also expand into the
Africa and Asia-Pacific farming regions (Global Responsibility Report, 2012).
Environmental Stewardship
In 2008, Starbucks set a goal to reduce electricity use by 25% in company-
owned stores by 2015. Since then, it has implemented a number of energy initiatives
and has seen electricity use decrease by a total of 6.5%. Despite these efforts,
electricity use in 2012 increased 1.1% compared to 2011, mainly due to record-breaking
temperatures in the U.S. that caused its stores air conditioners to run more than usual.
Last year was one focused on testing and validating new, effective energy
conservation solutions for its stores. In the next two years, it will be bringing those
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proven strategies to scale to meet its goals. One example: installing energy
management systems and hybrid water heaters to heat its water and cool its stores.
Water is a key ingredient in the companys beverages and a necessity for
operating its stores. It has identified a number of opportunities to use this precious
resource more wisely and have spent the last few years testing and validating these
solutions.
In 2008, it set a goal to reduce water consumption by 25% in company-owned
stores by 2015. Over the past four years, it has cut water consumption by 17.7%
through several measures, including the use of efficient fixtures, actively seeking out
and repairing stores with leaks and the elimination of a continuously running faucet that
rinsed its utensils.
In 2011, it began implementing an improved process for enhancing the quality
and consistency of its handcrafted beverages. While these changes required more
water, it was able to maintain the water conservation gains it had made over the past
four years by deploying new, more efficient water filtration systems in its stores. By the
second half of 2012, it began to see significant gains from this new technology, and it
hopes it will continue to track toward its 2015 goal (Global Responsibility Report, 2012).
Providing recycling in its stores and ensuring the recyclability of its cups is a
foremost priority for Starbucks and its customers. It has offered a cup with 10% post-
consumer recycled paper fiber since 2006. And it keeps working to decrease the
materials used in its packaging, find new ways to encourage reusables and implement
recycling solutions for its cups.
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In 2012, it introduced the EarthSleeve to Starbucks locations across the United
States and Canada. This new hot-cup sleeve requires fewer raw materials to make,
while increasing the amount of post-consumer content. These adjustments correlate to
a savings of nearly 100,000 trees a year and the company is working to roll out
EarthSleeve globally. (Global Responsibility Report, 2012).
Reusable cups are an important component of Starbucks overall waste reduction
strategy. Since 1985 it has rewarded its customers with a discount when they bring in
personal tumblers, and it has a goal to serve 5% of the beverages made in its stores in
tumblers and mugs brought in by its customers.
In 2012 customers brought their own tumblers into its stores 35.8 million times,
saving more than 1.6 million pounds of paper from landfills. Although customers brought
in their personal mugs 1.6 million more times in 2012 over the previous year, the
percentage of customers choosing reusable mugs remained flat from last year. In
previous years, the company calculated the percentage of customer tumbler use over
total transactions. In collecting data from its stores around the world and analyzing
customer behavior, it determined that a better measurement of this goal is to calculate
the percentage of times a personal cup/tumbler is used over its total beverage sales,
which is a more precise measure of the total beverages it sells (Global Responsibility
Report, 2012).
Community Involvement
Now, more than ever, communities are looking to the private sector to share
resources and create meaningful change. By mobilizing partners and the communities it
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serves, Starbucks is tapping into a passionate network of people eager to be a catalyst
for change in their local neighborhoods.
In 2012, it brought together its customers and partners, civic leaders and non-
profit organizations to contribute more than 613,000 hours of service around the world.
During Aprils Global Month of Service, volunteers made a significant impact in more
than 33 countries around the world with more than 2,100 community service projects
completed in just 30 days. (Global Responsibility Report, 2012).
As it engages in communities in the present, it is also planning for the future. The
company is helping develop the next generation of extraordinary leaders through its
Youth Action Grants. These investments help young people learn the skills required for
its changing global economy, such as business savvy, social conscience and
collaborative communication.
When Starbucks created the Youth Action program in 2008, it set an ambitious
goal of engaging 50,000 young people by 2015. For each of the past three years, it has
exceeded this goal. These youth leaders in turn mobilized more than 1.8 million hours of
community service in 2012 and created ripples of change in communities around the
world.
As Starbucks look to the future with our Youth Leadership grants, it hopes to help
the next generation of leaders to build successful and socially responsible businesses
and non-profit organizations (Global Responsibility Report, 2012).



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Table 1
Summary of Starbucks Scorecard


Above is a table showing the summary of Starbucks global responsibility goal
performance or scorecard (goals and progress).

Retail Strategies
Starbucks Company (2013) offers rewards using any registered Starbucks Card
which enables the customers to pay through Starbucks Card or mobile application
during their visit at participating stores. The customer gets a particular reward
depending on the number of stars which consists of three reward levels (para. 2).
Through this, customers are enticed to earn stars in exchange for a free drink or food.
With the use of Starbucks Card, the company increases its profit and at the same time
gains loyalty.
Starbucks has also expanded its menu by offering different beverages with a
variety of blends to better suit the tastes of its customers. It even offers drinks for kids
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that prove Starbucks is not only for adult coffee lovers. Aside from these, it has added
sandwiches, paninis, salads, and other wholesome foods to account for consumer
health and nutrition (Menu, 2013).
Profitability Ratio Analysis
Profitability is the net result of a number of policies and decisions. The ratios
examined thus far provide some information about the way the firm is operating, but the
profitability ratios in this section show the combined effects of liquidity management,
asset management, and debt management on operating results. Net profit margin = Net
profit / Sales measures the profit per dollar of sales (Besley& Brigham, 2013m).
Return on total assets (ROA) = Net Income / Total Assets provides an indication
of the return that the firm generates on its investment in assets; that is, the average
return that is generated on funds provided by all shareholders (both creditors and
stockholders). Return on equity (ROE) = Net Income / Common Equity, or the rate of
return on stockholders' investment, measures the return that the firm generates on the
funds provided only by common stockholders or the owners of the firm (Besley&
Brigham, 2013, p. 33).





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According to the National Association of Securities Dealers Automated Quotation
or NASDAQ (2013), the industry's averages for profitability ratios are as follows:
Table 2 Industry Average Ratios
Profitability Ratios Industry Average
Net profit margin (*TTM) 0.10
Return on Assets (TTM) 16.90
Return on Equity (TTM) 24.60
*Trailing twelve months
Above is a table showing NASDAQs industry average for profitability.
Conceptual Framework

Figure 1: Conceptual Framework
The cause or independent variable is corporate social responsibility and the
effect or dependent variable is increase in the annual income of Starbucks Company.
The inferred variable is consumer loyalty.


Corporate
social
responsibility
Consumer
loyalty
Increase in
annual income
of Starbucks
Company
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Hypotheses
The study tested the following hypothesis.
Corporate social responsibility does not help in generating higher income of
Starbucks Corporation.

Definition of Terms
1. Corporate social responsibility
Conceptual: A built-in, self-regulating mechanism whereby a business monitors and
ensures its active compliance with the spirit of the law, ethical standards, and
international norms.
Operational: Improving the relationship of Starbucks with its stakeholders and
environment.
2. Assets
Conceptual: Defined as resources controlled by the entity as a result of past
transactions or events and from which future economic benefits are expected to flow to
the entity.
Operational: Tangible or intangible asset owned by Starbucks Corporation
3. Income
Conceptual: The excess of the selling price of goods over their cost; to derive benefit.
Operational: The ability of Starbucks to generate profit out of goods and services less
costs.


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4. Expense
Conceptual: Decrease in economic benefit during the accounting period in the flow of
an outflow or decrease in asset or increase in liability that results in decrease in equity,
other than distribution to equity participants.
Operational: Costs incurred in the operation of the company.
5. Ethical sourcing
Conceptual: The intentional purchase of products and services that the customer
considers to be made ethically.
Operational: Coffee that is third-party verified or certified, either through C.A.F.E
Practices, Fairtrade or another externally audited system.
6. Partners
Conceptual: Contributes money or property to the funds of the partnership; shares
work, labor or industry to the business.
Operational: Employees of Starbucks.
7. Income statement
Conceptual: Formal financial statement showing the financial operating results of a
business enterprise on a given period of time.
Operational: Tool used to compare the income of Starbucks Corporation from the
current year to the previous year.
8. Rewards
Conceptual: Something given in return for good or evil done or received or for some
service attainment.
Operational: Given to loyal customers.
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9. Scorecard
Conceptual: A strategy performance management tool - a semi-standard structured
report, supported by design methods and automation tools, which can be used by
managers to keep track of the execution of activities by the staff within their control and
to monitor the consequences arising from these actions.
Operational: A tool that Starbucks uses to supervise the progress of their goals.
10. Industry average
Conceptual: An average of all stock data values in the same industry. Industry average
is used to compare a stock's valuation, growth, and profitability ratios to that of other
stocks in the same industry.
Operational: Used to compare the profitability of Starbucks with the standard ratio in
the same industry.









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Chapter III
METHODOLOGY
Research Designs
The study is a descriptive analysis of the relationship of corporate social
responsibility with income growth of Starbucks Company. The paper investigates how
Starbucks, through corporate social responsibility, maintains to be the leading company
in coffee industry. The research strategy provides a framework for designing a
systematic study that would address the studys goal, objectives and questions.
The descriptive analysis separates the different parts of Starbucks financial
statements and analyzes its connection with the companys corporate social
responsibility program.
Sources of Data
Data was taken from Starbucks Companys financial statements for the years
2010, 2011, and 2012. Through these financial statements, the researchers showed
how corporate social responsibility increases their profitability for 3 consecutive years.
Data Analysis Procedure
The data gathered were analyzed through profitability ratio analysis to provide
information about liquidity management, asset management, and debt management on
operating results. The following formulas were used for the ratio computation:
Net profit margin= Net Profit / Sales
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Return on total assets (ROA) = Net Income / Total Assets
Return on equity (ROE) = Net Income / Common Equity
The ratios were compared to NASDAQs industrial average ratios, thus, the
results will be standardized as to the profitability of Starbucks Company. The scorecard
was used in comparing the ratios with the progress of the companys goals.








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Chapter IV
PRESENTATION, ANALYSIS, AND INTERPRETATION OF DATA
This chapter presents the results of data collection and analyses. This chapter
also presents the interpretation of the analyzed data to answer the three research
questions and address the aim of this research.
Corporate Social Responsibility and Starbucks Profitability Growth
The first question this research sought to answer is: What is the relationship
between corporate social responsibility and generating higher income of Starbucks
Corporation?
Since consumers demand more than product from their favorite brands,
corporate social responsibility is one of the ways in which sales can increase to
generate higher income. Customers patronize products which are ethical and
accountable.
Method used:
To get the net profit margin, net income was divided by sales. In 2010, 945,600
divided by 10,707,400 is 0.09. The same is done with the succeeding years resulting to
0.11 and 0.11, respectively. If compared with the average industry for 2012 which is
0.10, the 0.11 result of Starbucks net profit margin is higher resulting to a high
comment.
To get return on assets, net income was divided by assets. In 2010, 945,600
divided by 7,360,400 is 0.19. The same is done with the following years resulting to 0.17
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in 2011 and 0.18 in 2012. In companion with the average industry for 2012 is 0.17, the
0.18 result of Starbucks return on assets is higher resulting to a high comment.
To compute for the return in equity, net income was divided by common equity. In
2010, 945,600 were divided by 3,674,700 resulting to 0.26. The same procedure is
done with 2011 and 2012, which is 0.28 and 0.29 respectively. If compared with the
average industry for 2012 which is 0.29, the 0.29 result of Starbucks return in equity is
higher than the average industry resulting to a high comment.
Table 2
Starbucks Scorecard and Goals for the year 2010 to 2012
The table above which is the Starbucks scorecard shows the progress of the goals it
has introduced on 2008. The percentage of each goal increases as the annual income
of Starbucks Corporation increases through the years. It is close in reaching its goals in
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investing in farmers and its communities which has 7% gap. Mobilizing its partners and
customers and engaging the youth to innovate and take action in their communities by
2015. It has reduced its consumptions which results to smaller amount of expense
resulting to a higher income. Starbucks Corporation is committed to corporate social
responsibility concerning the shareholders, employees, customers, and most especially
the environment. Through this significant progress in its goals, Starbucks is able to
generate higher income with the help of corporate social responsibility.
Table 2.1
Starbucks goals (social responsibility status) affecting expenses and parts of net
income.
Goal
2010 2011 2012

Sales
Ensure 100% of our coffee is ethically sourced by
2015
10,707,400 11,700,400 13,299,500
Invest in farmers and their communities by
increasing farmer loans to $20 million by 2015
Improve farmers' access to carbon markets,
helping them generate additional income while
protecting the environment

Cost of sales including occupancy costs
Mobilize our partners (employees) and customers
to contribute 1 million hours of community service
per year by 2015.
2,906,100 3,512,700 3,885,500 Engage a total of 50,000 young people to innovate
and take action in their communities by 2015
Develop comprehensive recycling solutions for our
paper and plastic cups by 2012
Other Operating Expense
Implement front-of-store recycling in our
company-owned stores by 2015
117,000 93,000 74,400
Serve 5 percent of beverages made in our stores in
personal tumblers by 2015

General and Administrative Expense
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Reduce energy consumption by 25% in our
company-owned stores by 2015
97,800 84,800 74,300
Purchase renewable energy equivalent to 100% of
the electricity used in our global company-owned
stores by 2015
Reduce water consumption by 25% in our
company-owned stores by 2015
The table above shows the goals engaged with social responsibility affecting the
Starbucks Companys expenses and other parts of the net income. The sales of
Starbucks was said to be affected by the goal which is ensuring 100% labeled coffee
that is ethically sourced. The cost of sales including occupancy cost that is intended to
be found under the Income Statement increased because of the increase in sales
when they mobilized the 1 million hours of service of their partners and employees. The
other operating expenses also under net income, decreased because of the
implementation of recycling of cups and reusing of tumblers. And lastly, the general and
administrative expenses of Starbucks also under the Income statement, decreased
water and electricity consumption. The general decrease in expense results to a higher
income since net sales less expenses is equal to net income.
Table 2.2
Summary of Starbucks Financial Ratios

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The table above shows the computation of Starbucks profitability ratio compared to the
values of NASDAQ Industry Average.

Ethical Sourcing, Environmental Stewardship, and Community Involvement
The second question the research sought to answer is: How can the roles of
ethical sourcing, community involvement and environmental stewardship be explained?
According to Starbucks' Global Responsibility Report (2012), the company is
committed to responsible coffee, tea, and cocoa purchasing practices, farmer support
centers, loan programs and forest conservation efforts.
Through responsible purchasing practices, high-quality products are produced
which make the company retain or improve its standard. Consumers want to experience
the best products with the fair price the industry has to offer.
In implementing farmer support centers and loan programs, the company helps
not only its workers but also itself in achieving high quality ingredients with low cost of
purchase.
Promoting environmental stewardship not only saves the Earth but is also a
means of cost-cutting. Through water and electric conservation, reducing plastic
consumption, and promoting the use of tumblers, the company reduces its expenses
and at the same time increases its revenue.
Starbucks engages in community service in different neighborhoods along with
its customers and partners, civic leaders, and non-profit organizations. With its service
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projects, it promotes its name around the world which can increase sales. Engaging the
youth in leadership programs can help them mold new leaders for their company that
can be future innovators.
Retail Strategies of Starbucks for Profitable Growth
The third question this research is sought to answer is: What are the retail
strategies of Starbucks for profitable growth?
Starbucks has offered deals not only enabling the customer to earn stars for
rewards but also convenience in terms of payment through Starbucks Card and
Starbucks Application for iPod, iPhone, iPad, Android and others where consumers can
pay for their order with the scanning of an encrypted bar code. Through this, customers
are enticed to purchase a cup of coffee more frequently to earn stars in exchange of a
free drink or food, as a result Starbucks will increase its total revenues.
Another way of enticing customers to visit their store is that they have expanded
their menu to serve not only the adults but also their children. They added sandwiches,
paninis, salads, and other promoting health of body foods to account for consumer
health and nutrition.
It has also presented Starbucks refreshers beverage for customers who needs a
pick-me-up after an exhausting activity. Consumers are enticed to buy it because of its
energizing option that contains vitamins, ginseng and natural sweeteners. Starbucks
has offered products that are parallel to the consumer needs.

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Chapter V
SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS
Summary
The researchers of the study aimed to show the importance of social
responsibility to Starbucks Company. The study aspired to give points on how
Starbucks Company increased their annual income not only through their products but
as well as through their service. It intended to give answer to the problem of the
research mainly showing the retail strategies of Starbucks Company and their goals in
the three areas: ethical sourcing, environmental stewardship, and community
involvement.
To support the study, the method used as a basis for the data gathered was
descriptive analysis. The financial statements were broken into parts to facilitate the
computation of the data gathered.
The profitability ratios indicate favorable figures compared to the industry
average that evidenced the profitable growth of Starbucks Company supported by the
financial data found in the financial statements for the years 2010-2012.
Conclusions
Based on the results of the study, the following conclusions were drawn.
As Starbucks completes the goals they set in 2008 with regard to corporate
social responsibility, it increases its annual income.
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Starbucks Company, lowering their usage of their electricity and water had
lessened their utility expense as well as helped maintain their goal which is
environmental stewardship.
The retail strategies have enriched and gained loyal customers for the past
years.
The earnings of Starbucks achieve to meet the industry ratio.

Recommendations
From the conclusions drawn, the researchers came up with the following
recommendations.
The researchers recommend that Starbucks should continue to extend the brand
beyond its retail stores. By signing contracts with other companies like Green Mountain
Coffee Roasters, Inc. and Courtesy Products, these strategic relationships will foster
further growth opportunities as well as the development of innovative store concepts to
serve the global traveler.
With its international opportunities by expanding its stores in China and India,
Starbucks can levy their financial results.
Improve operational efficiencies and make technology investments.
Strengthen their global responsibility strategies.


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REFERENCES
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ks/sbux/financial-ratios
Starbucks Company. (2012). 2012 Annual Report. Retrieved from
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Starbucks Company. (2001). 2001 Global Responsibility Report. Retrieved from
www.starbucks.com/assets/6ee14301a2364729abe59867fb913520.pdf
Starbucks Company. (2012). 2012 Global Responsibility Report. Retrieved from
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