Starbucks Expands Global Effort to Protect Future of Coffee
Starbucks is venturing further into the coffee-growing business by purchasing farms in Guatemala and Costa Rica, as well as investing in other regions known for coffee production. The chain, which has owned a Costa Rican coffee farm since 2013, is now looking to have more control over its own beans.
Vertical integration, particularly into raw materials, has been popular for many years. Henry Ford, for example, even owned sheep farms to supply wool for car seat covers. However, it is unlikely that Starbucks baristas will be involved in this revival of vertical integration.
Globalization and free trade have led to a separation between suppliers and producers. Attempts at vertical integration have often failed and resulted in costly dismantling processes. Bowmar, one of the largest calculator makers in the 1970s, bought a plant to make its own integrated circuits but collapsed just a year later when prices fell. Similarly, DuPont acquired Conoco for its feedstock supply but eventually separated from the company.
Geopolitics may be driving a modern variant of vertical integration in certain sectors. For instance, Chinese tech conglomerate Alibaba has started developing advanced chips due to tensions with the US over semiconductor exports.
In addition to geopolitical factors, technical demands are also pushing big companies towards taking design back in-house. Apple began using homegrown chips instead of Intel chips last year because integrating hardware and software is crucial for their operations. Meta and Google are also investing more into custom silicon based on Arm CPUs due to advancements in generative AI technology.
While investor tolerance for vertical integration varies over time, Starbucks’ farms only account for a small portion of their overall coffee supply as they operate thousands of stores worldwide. These farms allow Starbucks to experiment while promoting responsible agriculture practices and empowering farmers.
Similarly, Ingka Group (the largest Ikea franchisee) owns vast forestland across multiple countries primarily focused on reforestation rather than integration into their retail products.
It’s important to recognize that farming is fundamentally different from retailing furniture or serving coffee; therefore maintaining separate operations is beneficial.
