cHAPTER 4 • SOcIAL ANd cuLTuRAL ENVIRONMENTS 129

Rogers’s classic study on the diffusion of innovation helps explain how products are adopted over time by different adopter categories. The adoption process that consumers go through can be divided into a multistage hierarchy of effects. Rogers’s findings concerning the characteris- tics of innovations can also help marketers successfully launch new products in global markets. Research has suggested that Asian adopter categories differ from those found in the Western model. An awareness of environmental sensitivity can help marketers determine whether con- sumer and industry products must be adapted to the needs of different markets.

Discussion Questions 4-1. What are some of the elements that make up culture? How do these find expression in

your native culture? 4-2. What is the difference between a low-context culture and a high-context culture? Name

a country that is an example of each type and offer evidence for your answer. 4-3. How can Hofstede’s cultural typologies help Western marketers better understand Asian

culture? 4-4. Briefly explain the social research of Everett Rogers on the topics of diffusion of

innovation, characteristics of innovations, and adopter categories. How does the adoption process in Asia differ from the traditional Western model?

CASE 4-1 Continued (refer to page 107)

Coffee Culture Around the World

Coffee’s Global Supply Chain Coffee has become a key export commodity for developing nations located along the equator. The two top coffee-growing countries, Brazil and Vietnam, produce about half of the world’s supply of beans. Rounding out the top five producers are Colombia, Indone- sia, and Ethiopia.

Ethiopia is Africa’s biggest coffee producer and coffee is its number 1 export; domestic demand for this beverage is also strong. Uganda is another important producer, but Uganda is a nation of tea drinkers, so most of its coffee is exported. Governments in Uganda, Ethiopia, and other Africa nations impose strict penalties on farmers who ignore guidelines for producing quality beans.

There are approximately 100 different species of coffee trees. Cof- fee is somewhat unique in that large-scale industrial farm production is not possible. Coffee trees grow best on mountains at low altitudes with exposure to full sun as well as shade. The trees begin flowering following seasonal rainfall. Each flower, in turn, yields a fruit known as a “cherry” that turns red when it is ripe; each cherry contains two seeds. Picking is a highly labor-intensive activity. “Green coffee” is the term for coffee seeds that have been extracted from the cherry but not yet roasted.

The two most important coffee bean varieties are Arabica and robusta. Coffee made from Arabica beans has a sweeter, less bitter taste. By contrast, the robusta bean yields coffee that is less aromatic but higher in caffeine. Vietnam is the leading exporter of robusta coffee.

Green, unroasted coffee beans are commodities traded on the London and New York futures markets; Volcafe Group ( Switzerland), Olam International (Singapore), and Neumann Kaffee Gruppe (Ger- many) are large trading houses that buy a significant amount of the world’s coffee bean crop. Kraft, J. M. Smucker, Nestlé, JAB, and other

consumer-goods giants also buy and roast beans. Some roasters are key suppliers to the grocery industry, where consumers purchase the greatest percentage of coffee.

Until recently, specialty coffees such as those marketed by Starbucks were regarded as niche products; they accounted for only a small percentage of the world’s supply of coffee beans. However, in the last few years, global demand for specialty coffee has risen dramati- cally as more consumers have become willing and able to splurge on their daily caffeine fix. In the United States, today specialty coffee now accounts for 50 percent of the country’s total coffee consumption.

Many coffee aficionados find coffee’s diverse and exotic geographic roots to be intriguing. Fans of the bean are also attracted by the notion that discerning palates can identify specific flavor nuances and aromas—for example, caramel, cinnamon, citrus, or cocoa—that distinguish beans cultivated in the varied soils and microclimates of different growing regions. Narratives about a particular coffee’s origin lend an element of authenticity that is appealing to many coffee drink- ers. In short, the coffee industry’s global supply chain can be an impor- tant marketing tool—providing it is ethical.

Fair Treatment for Producers Two important issues in the industry are equitable compensation for the small-hold farmers who grow coffee beans and sustainable agricultural practices. In the developed world, specialty coffee drinks made from beans grown at higher altitudes can sell for the equivalent of several dollars per cup; discerning consumers often pay $15 or more for a pound of whole beans to grind at home. And yet, little of the value that is added to the final product—be it a pound of whole beans or a specialty drink—finds its way back to the farmers. In fact, economist Jeffrey Sachs has calculated that, for every $3 to $4 cup coffee sold in

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a metropolitan area such as London or New York, the farmer receives only about $.05. For these reasons, many small-scale farmers live in poverty and struggle to support their families.

The fair-trade coffee movement is gaining momentum among socially conscious consumers. It has been spearheaded by organizations such as the Rainforest Alliance, which works with big corporations to monitor environmental and working conditions in developing countries. The Rainforest Alliance was a pioneer in certifying lumber sourced from forests in the tropics, and it now certifies billions of dollars’ worth of coffee beans each year.

Fairtrade International (FLO; www.fairtrade.net), a certification authority based in Bonn, Germany, represents more than 1 million farmers and workers. FLO licenses its trademark to organizations such as the United Kingdom’s Fairtrade Foundation (www.fairtrade.org.uk). The Fairtrade label on a bag or can of coffee indicates that growers were paid a fair price for their crops. Fair Trade USA is a fair-trade certification organization in the United States (www.fairtradeusa.org).

Celebrities are also taking up the fair-trade cause. For example, actor Hugh Jackman recently appeared in a documentary film, Dukale’s Dream, that highlighted the plight of small coffee farmers in Ethiopia and explained the benefits of fair-trade coffee. South Sudan, Africa’s newest country, is another case in point. Although their homeland was ravaged by war, coffee producers in this country were able to export beans to France in 2015.

Coffee as Daily Cultural Ritual: Italy As noted at the beginning of the chapter, the coffee culture in Italy dates back centuries. It’s been said that for Italians, drinking coffee is as routine as breathing. Generations of Italians have started their day by ordering un caffè (or cappuccino, caffé latte, or latte macchiato) at their local espresso bar. Often consumed while standing, each small cup typically contains a shot of potent brew to which patrons frequently add a packet of sugar (or two).

At home, Italians can brew their daily fix in a stovetop espresso maker that was invented in 1933 by Alfonso Bialetti. Called a moka, the gadget creates a vacuum that pulls hot water over coffee grounds. The moka is just one cultural artifact from Italy’s long, proud tradition of innovations in the coffee industry.

For example, in 1884, an Italian entrepreneur named Angelo Moriondo received a patent for “steam machinery” that could be used for the “instantaneous” production of coffee-based beverages. By the early twentieth century, other inventors had improved on Moriondo’s technology, and production of espresso machines began in Milan.

In the late 1940s another entrepreneur, Achille Gaggia, developed a lever-operated, steamless commercial espresso maker that forced boiling water through coffee grounds at high pressure. The resulting brew was less bitter and had a foamy “crema” that is now synonymous with espresso.

Italy’s number 1 coffee brand is Lavazza; its annual sales are approximately $1.5 billon. Luigi Lavazza S.p.A. was founded in 1895 and today is run by fourth-generation family members. Emilio Lavazza, known as the “King of Coffee,” developed vacuum-sealed bags that allowed for export of his company’s coffee.

Illycafé is another top Italian coffee roaster that is still family owned and operated. This company is based in Trieste, the port city on the Adriatic Sea that was coffee’s first point of entry into Europe. Founder Francesco Illy perfected a process for vacuum sealing roasted beans in a steel can to preserve freshness and flavor; this innovation helped create the market for roasted beans.

Francesco Illy also is credited with inventing the first automatic espresso maker. His machine, dubbed the Illetta, used compressed air

instead of steam to force water over the grounds. This process allowed for a water temperature below the boiling point; the result was a less- bitter brew. In fact, Illy’s description of espresso shows what makes this method of preparing coffee unique:

A jet of hot water at 88°–93°C (190°–200°F) passes under a pressure of nine or more atmospheres through a seven-gram (.25 oz) cake-like layer of ground and tamped coffee. Done right, the result is a concentrate of not more than 30 ml (one oz) of pure sensorial pleasure.

Attention to aesthetics is integral to the Illy’s brand’s DNA. Each can features the company logo, which was created by American pop artist James Rosenquist. The company also took a page from the Swatch playbook by commissioning artists, designers, and filmmakers to cre- ate the colorful designs that adorn Illy’s white porcelain espresso cups. And, to ensure that Illy coffee is prepared properly, the company has established multiple branches of its Università del Caffè to help educate producers and members of the hospitality industry.

In Italy, deeply embedded traditions change slowly, if at all. Many Italians scoff at “American-style coffee,” which is typically brewed by dripping hot water through a paper filter containing coffee grounds (hence the term “filtered coffee”). Flavored coffee is frowned on. In addition, most Italians disapprove of the idea of walking down the street holding a hot-beverage cup emblazoned with a company logo. As a marketing manager for Nescafé in Italy said recently, “‘On-the-go’ is just not in the culture of this country.” Another competitor singled out Starbucks for repackaging Italian café culture and focusing more on image than the coffee itself.

Despite such perceptions, in 2016, Starbucks announced plans to open its first Italian shop. Its flagship store is just a short walk from the Duomo, one of Milan’s most famous landmarks (see Exhibit 4-11). Although proprietors of local cafés worry about competing with the global giant, many Italians are looking forward to Starbucks’ arrival. What’s the appeal? For one thing, Frappuccino! Italians love their gelato, but Starbucks is famous for its “ice cream that you can drink.”

Meanwhile, local entrepreneurs have identified an opportunity related to the coffee culture. Amidst the economic turndown as well as complaints that quality in traditional cafés is slipping, new coffee shops such as Arnold Coffee and 12Oz. have opened in Milan and other Italian cities. To the dismay of some purists, the newcomers sell sweetened and flavored coffee drinks. Paper cups are available for take-out.

Coffee’s “Two Waves” in America Compared to the rest of the world, America’s love affair with coffee is a relatively recent phenomenon. Even so, by the nineteenth century, coffee had become a mass-consumption consumer staple in the United States. Some observers have termed this coffee’s “first wave.”

In the mid-twentieth century, in coffee’s “second wave,” coffee shops appeared and later became integral to the plot lines of popular American TV shows such as Seinfeld. These trends led to a general rec- ognition of coffee’s role as a facilitator of social bonding as well as some- thing comforting to savor in solitude. Edward Hopper’s 1942 famous oil painting Nighthawk captures the era perfectly. Meanwhile, supermarket sales of popular brands of ground coffee such as Hill’s Brothers, Folgers, and Maxwell House were supported by heavy television advertising, catchy slogans such as “Good to the last drop” and “The best part of waking up is Folgers in your cup,” and extensive couponing.

The second wave crested toward the end of the twentieth cen- tury, when Seattle, Washington–based Starbucks emerged on the

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scene. From its humble origins in the Pacific Northwest, Starbucks has extended its empire of cafés around the world and become the leading global premium coffee brand. In many countries, Starbucks competes with McCafé stores operated by global fast-food giant McDonald’s. Increasingly, however, competitors include local coffee shop chains such as Phuc Long in Vietnam and Coffee Toffee in Indonesia.

The Coffee Capsule Revolution One of the biggest industry trends in recent years has been the grow- ing popularity of single-serving coffee capsules. Nestlé, long the global leader in instant coffee with its Nescafé brand, pioneered the single serving or “pre-portioned” category with Nespresso-brand coffee mak- ers and pods. Today, thanks in part to actor George Clooney’s role as brand ambassador, Nestlé claims an approximately 13 percent share of the $13 billion global market for coffee pods. Nestlé is the industry leader in Europe, where its machines and capsules are sold via the Internet and at dedicated Nespresso stores (see Exhibit 4-12).

Created with the help of the Rainforest Alliance, Nespresso’s Triple A sustainability program ensures that some 75,000 farmers in South Sudan, Ethiopia, and Kenya are paid a significant premium above benchmark prices for growing high-quality beans. Nespresso also works with another nonprofit organization, Technoserve, to provide education and training for tens of thousands of small-scale coffee bean producers.

In 2016, Nespresso became the first brand to start exporting cof- fee produced in Cuba to the United States following a 59-year trade embargo. The announcement came after the U.S. State Department added coffee grown by Cuban entrepreneurs to a list of products that could be legally sent to the United States. Because Cuba produces only a small quantity of beans—100,000 sixty-kilogram bags in 2015— Cuban Nespresso Grand Cru and Cafecita de Cuba will be marketed as limited-edition production lots.

Meanwhile, Nestlé’s coffee business faces competition from JAB Holding Company. The German firm has spent tens of billions of dollars in recent years to acquire a variety of coffee-related businesses, includ- ing the Keurig Green Mountain brand and the Krispy Kreme doughnut and coffeehouse chain. Recently, JAB’s Peet’s Coffee and Tea subsidiary

Exhibit 4-11 Starbucks' first Italian location is a Reserve Roastery in Milan's historic Palazzo Delle Poste (Post Office). Source: Brandi/Fotogramma/Ropi/ZUMA Press/Newscom.

bought Stumptown Coffee and Intelligentsia Coffee, two U.S.-based specialty roasters. In the United States, where roughly one-third of adults drink specialty coffee, Keurig dominates the pre-portioned mar- ket. Its K-Cup machines and capsules are widely distributed by a variety of retailers.

The “Third Wave”: Coffee Culture Moves Upmarket The second decade of the twenty-first century ushered in coffee’s “third wave,” as consumers began to view coffee as an artisanal prod- uct that could be studied and appreciated like fine wine. Spotting an opportunity, new companies such as Blue Bottle Coffee started taking specialty coffee even farther up the premium scale than Starbucks had done. Industry observers are offering a variety of analogies to describe the trend; for example, it’s been said that artisanal brands such as Blue Bottle are to Starbucks as Shake Shack (the premium hamburger chain) is to McDonald’s.

One point of difference for Blue Bottle: The beans used in its cof- fee drinks are roasted only 48 hours or less before being ground and brewed. By contrast, most coffee shops—including Starbucks—use beans that have been roasted weeks earlier and shipped in vacuum- packed bags. Another difference: One of the growth drivers for pre- mium brands such as Stumptown is the wholesale market. Put simply, some of Stumptown’s coffee is purchased by other cafés that use it in their brews and also act as retail distribution channels for beans. James Freeman, Blue Bottle’s founder, has opted instead to focus on beverage quality in the company’s own stores.

Blue Bottle attracted the attention of Nestlé; the Swiss food giant is the leader in the in-home coffee segment, but lacked a presence in the fast-growing out-of-home market. In 2017, Nestlé spent $700 million to acquire a majority stake in Blue Bottle.

Important coffee-growing regions are also participating in coffee’s third wave. Guatemala has typically been ranked as one of the world’s top-ranked coffee producers, with coffee from the Huehuetenango region being especially prized by connoisseurs. Until recently, most of Guatemala’s coffee was exported. A growing number of cafés in that country are now specializing in coffee, and the baristas who work there are spearheading coffee’s third wave. Raúl Rodas, the 2012 world barista

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Exhibit 4-12 Nespresso boutiques are designed to convey a sense of premium quality, as well as the brand's commitment to customer service and sustainability through the recycling of empty coffee capsules. Source: Jpstock/Shutterstock.

champion, is a distributor and café owner in Guatemala City. He has embarked on a personal mission to convince more Guatemalans to join the third wave. He says, “How do you convince somebody who has always bought coffee in a supermarket to join the ranks of specialty coffee con- sumers? The more we spread the culture, the larger the market will be.”

Starbucks Extends the Brand Not to be outdone, Starbucks is also preparing to ride coffee’s third wave with a new venture called Starbucks Reserve and Starbucks Reserve Roastery and Tasting Room. Growth in mass-market coffee consumption in the United States has been slowing, a sign that it is entering the mature phase of the product life cycle.

For several years, Starbucks had been selling limited quantities of seasonal Reserve beans that were much more expensive than the com- pany’s regular offerings. Why does, say, a pound of Aged Sumatra beans cost $29.95 while “regular” Sumatra costs $12.95? Known as “single- origin coffees,” the Reserve beans typically are sourced from small farms with limited production capacity. Some produce as few as 60 bags of green coffee beans each year. To ensure a reliable source of Reserve beans, Starbucks is cultivating relationships with small-scale farmers. The company even bought Hacienda Alsacia, a coffee producer in Costa Rica.

Starbucks founder and former CEO Howard Schultz is determined to appeal to the upscale segment of coffee aficionados. These are people who geek out over geographic and agricultural details, who can appreciate the nuances of such so-called microlots, and who are willing to pay $7 or more for a freshly brewed cup.

To drive the company toward this goal, Schultz bought a 15,000-square-foot building near the first Starbucks in Seattle and trans- formed it into a “theater of coffee.” Liz Muller, creative vice president for global design at Starbucks, says the goal of the Reserve Roastery and Tasting Room is to “create a space to reinvent retail for the 21st cen- tury.” Patrons can choose from a variety of brewing methods, including Melitta pour over, siphon, and French press. Beans are roasted on site.

A variation on the Reserve Roastery is Starbucks Reserve, another new store concept staffed by some of Starbucks’ most skilled baristas. The first Starbucks Reserve store in Europe opened in 2015 in London’s West End. The comfortable leather seats and array of brewing equip- ment—including a $10,000 technological marvel known as the Clover that is used to brew a single cup—prompted The Guardian newspaper

to call the store “a cross between a private club and a chemistry lab.” Beans are roasted elsewhere and shipped in.

In December 2017, Starbucks opened its second Reserve Roast- ery and Tasting Room, this time in Shanghai. Billed as “the world’s largest Starbucks,” the new café joins the other 600 Starbucks stores in Shanghai—the most in any major city anywhere. Visitors can use their smartphones to enjoy an augmented reality (AR) tour and unlock badges. And, in a nod to local preferences, tea curators in the Teavana Bar will serve specialty tea drinks.

Discussion Questions 4-5. Based on the reporting in the case and your own experience,

how does “coffee culture” vary around the world? 4-6. Do you think Starbucks will succeed in Italy? 4-7. Why do entrepreneurs in many parts of the world open

coffee shops? 4-8. What accounts for the popularity of coffee pods and

capsules marketed by Nestlé, Keurig, and other companies? 4-9. If you are a coffee drinker, are you participating in coffee’s

“third wave”? Why or why not?

Sources: Tom Hancock, “Starbucks Opts for Super-Sized in China,” Financial Times (December 6, 2017), p. 14; Mark Riddaway, “Edible Histories: Coffee” Market Life 34 (Fall 2017), pp. 28–29; Arash Massoudi, “Nestlé Aims to Bottle Appeal of Artisan Coffee,” Financial Times (September 30–October 1, 2017), p. 17; Elisabeth Malkin, “Hot New Thing in Land of Coffee? It’s Coffee,” The New York Times (July 26, 2017), p. A4; Stephanie Strom, “Coffee from California (Yes, Really),” The New York Times (May 27, 2017), pp. B1, B2; Emiko Terazono, “Coffee Trade Goes into Battle Mode,” Financial Times (October 22–23, 2016), p. 13; Alexandra Wexler, “The World’s Most Dangerous Cup of Coffee,” The Wall Street Journal (October 15–16, 2016), pp. A1, A8; Nicholas Bariyo and Katherine Dunn, “Uganda Cracks down on Coffee,” The Wall Street Journal (July 11, 2016), p. C3; Gavin Bowring, “Local Chains Take on Coffee Giants,” Financial Times FT Reports—Tomorrow’s Global Business, Part Two: Emerging Economies (June 21, 2016), p. 4; Avantika Chilkoti, “Indonesia’s Aspiring Coffee Kings,” Financial Times (June 7, 2016), p. 7; Katherine Dunn, “Ethiopians, Government in Coffee Tug of War,” The Wall Street Journal (May 6, 2016), p. C3; Alexandra Wexler, “Starbucks Opens First Africa Store,” The Wall Street Journal (April 22, 2016), p. B6; Manuela Mesco, “Espresso Shot: Italians Warm to U.S.-Style Coffee,” The Wall Street Journal (March 6, 2016), pp. A1, A10; Patrick Ryan, “Q&A: Jackman Launches ‘Dream’ Coffee Brand,” USA Today (June 5, 2015), p. 1B; Stephanie Strom, “With Market Saturated, Starbucks Looks Upscale,” The New York Times (December 5, 2014), pp. B1, B4; Nicole LaPorte, “Coffee’s Economics, Rewritten by Farmers,” The New York Times (March 17, 2013), pp. B1, B3; Robin Kwong, “Taiwan’s Coffee Chain Challenger,” Financial Times (August 31, 2011), p. 10.

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