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NewsNewsletters

The Stockout: Starbucks targeting GHG reduction early in its supply chain

Working with farming communities to remove greenhouse gases

Last week Starbucks expanded upon its previously stated goal to be a “resource-positive company,” with specific goals related to sourcing coffee beans, land use and production. What’s striking is how targeted the company’s greenhouse gas (GHG) reduction efforts are at the point of origin and the company’s willingness to share environmental best practices throughout the industry. In doing so, the company is targeting the largest sources of coffee greenhouse gases, which adds credibility. I believe that a range of CPG companies will be watching Starbucks for ideas about how to proceed with achieving their own ambitious sustainability targets. Unlike Starbucks, CPG companies that rely more heavily on changes in consumer behavior are having a more difficult time in lowering their environmental impacts. In other news, Clorox is investing under the assumption that consumers’ more frequent cleaning in a post-COVID world is here to stay.   

Starbucks is focusing on reducing GHG at points early in the coffee supply chain. As part of its initiative to become a “resource-positive company,” last week Starbucks announced its plan for carbon-neutral green coffee (raw, unroasted coffee beans) by 2030. In addition, Starbucks committed to reduce water usage in green coffee processing by 50% by 2030. In targeting steps that take place overseas and early in the coffee development process, the company is addressing the largest sources of coffee GHG first — those at the point of origin (also described as “the first 10 feet” or “from farm to port”) — before addressing other areas of the value chain, such as transportation, roasting or packaging. 

While some might suggest that it is appropriate to take a holistic approach to taking greenhouse gases out of the supply chain, Starbucks is attacking the crux of the issue first and offering to share best practices with competitors. I think that comes off as being a more credible approach to addressing the problem. In addition, working to improve conditions overseas and early in the supply chain is related to humanitarian issues (sustainable farming, fair trade practices, labor practices, etc.), which many view as more important than greenhouse gases and are related to broader ESG efforts. 

Starbucks’ plan to reduce greenhouse gases and water usage is multipronged. The concept is to give farmers tools to reduce fertilizer usage, which in turn reduces GHG. To reduce water usage, Starbucks is directly investing in new ecological wet mills for farms, investing to make the current water processing technology and machinery more efficient and developing water replenishment projects in farming communities. 

If other companies follow Starbucks’ lead, companies may focus their environmental efforts early in the supply chain. When supply chains are viewed through a lens of someone with a transportation background, some of the first things that come to mind for reducing greenhouse gases include logistical actions such as conversion from truckload to intermodal, utilizing all-water shipping routes to avoid land transportation and employing more efficient vehicles. But companies that produce and distribute consumables may take a far different and, perhaps more impactful, approach. Companies with carbon-neutral and similar goals may first want to go to the largest sources of greenhouse gas emissions. That will vary by industry, of course, but for consumables, ingredient substitution is likely to be key as well as assisting farmers and other supplies with their operations. The most clear example has been companies’ rush to substitute animal-based products (animals are the top GHG culprits for many products) for plant-based products, which is taking place across a wide range of consumer products. 

Conversion of truckloads into intermodal units can reduce shippers’ carbon footprint in addition to saving on freight cost (a 21% savings in contractual rates is shown below). But some shippers are targeting the removal of greenhouse gases earlier in their supply chains. 

The chart above shows the average percent discount on intermodal loads, as compared to truckload, on freight moves with identical origin-destination pairs. (FreightWaves SONAR) 

To learn more about FreightWaves SONAR, click here.

Also on the topic of CPG companies’ sustainability efforts, many consumers are not being as environmentally efficient with product usage as companies would like

The main takeaway for me in the piece Monday in the WSJ is that consumers’ environmentally friendly practices are, to a large extent, performative. The example that resonated with me is that consumers are willing to bring their own reusable grocery bags, but are not willing to take shorter showers or take showers at lower temperatures. The difference is that consumers are visible to others at the grocery store. Therefore, it may not be enough for CPG companies to develop products that are more environmentally friendly, but commercial success may depend upon whether consumers can be seen using certain (perceived to be) environmentally friendly products. The alternative view is that bringing your own shopping bags has less of an impact on your standard of living than taking cold showers. 

Clorox is investing like wipes are not about to go out of style. Another CPG-related article that I found interesting this week was about Clorox making investments with an expectation that consumer behavior established during the pandemic will persist. We have heard many publicly traded CPG companies make similar claims, particularly those that performed unusually well during the pandemic such as those that specialize in at-home food consumption. What makes Clorox stand out is the investments it is making under new CEO Linda Rendle. Highlights include a 30% increase to the company’s marketing budget, a greater push toward international growth, which currently only represents 15% of sales, and its newly established partnership with Uber.   

To receive The Stockout, CPG-focused newsletter, please click here.

Michael Baudendistel

Mike Baudendistel is an analyst and Market Expert at FreightWaves focusing on the railroad, intermodal and transportation equipment industries. Prior to joining FreightWaves, Baudendistel served as a senior sell-side equity research analyst covering the publicly traded railroads, suppliers that manufacture and lease railroad equipment, and suppliers that manufacture trucks, trailers, engines and other components. He has 14 years of experience following the freight transportation industry with experience that also touched the truckload, Jones Act barge and domestic logistics industries. He is a CFA Charterholder.

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