KARL MOORE: This is Karl Moore of the Desautels Faculty of Management at McGill University, Talking Management for The Globe and Mail. Today, I am delighted to speak to Don Schroeder, who is the CEO of one of Canada's great iconic brands, Tim Hortons.
Good afternoon, Don.
DON SCHROEDER: Good afternoon.
KM: Don, one thing that people are thinking about is fair-trade coffee. A lot of consumers want to go and buy that. What is your view of Fair Trade and how has Tim Hortons taken a different perspective on that?
DS: Fair trade has been around for a long time and we get a lot of inquiries from customers asking, "Why don't you sell fair trade coffee?" We looked at it and we came to the conclusion that, although the goals of fair trade are commendable, it really hasn't worked the way everyone had hoped over the years.
So we developed our own sustainable coffee program and coffee partnership program and what we have done is go and work directly with the farmers in the countries where we access our coffee, and we have been actively involved with them and helping them at the grassroots level, but very much hands on. We don't believe in writing cheques and walking away; [rather] we have developed a plan where we go in and our goal is to help the farmers grow more coffee, grow better coffee, and then help them to get in the market at the best time, for the best price, even if they don't sell it to Tim Hortons. They could sell it to Starbucks, they could sell it to whomever, but it's all about educating them about the coffee business; that every pound of coffee has a market and that you are entitled to a premium if you grow better coffee.
So, long term, it is in everyone's best interest that these small coffee farmers be successful and want to stay on the farm. In 2000, a lot of those farmers, when the price of coffee reached record-low levels, were abandoning the farms and they were going into the city looking for alternate ways of supporting their family. So projects like this are designed to keep them on the farm, to help them improve their lot in life for them and for their families and I think our coffee project is doing that. One of the key tests of that is when I went back, two years into the program, talking to the president of the co-op and asked them: "What do they see as the real benefit so far in this program?" and he said they are becoming businessmen. I think that says that it is sustainable, that they will be able to continue on, even after our term of support in the project expires - they will be on their own but they will have those skills to continue on.
KM: So you think the coffee you sell at Tim Hortons is as ethical as the coffee that we might buy as fair trade coffee?
DS: Oh, absolutely. We work with our coffee suppliers very much in terms of what we expect in terms of the sourcing, and so on. At this stage, the amount of coffee that is available to us through the project areas is very small but in terms of the benefits to the farmers, it's there, whether they sell it to us or to someone else. My long-term goal with it would be that this type of initiative not be a Tim Hortons initiative but it becomes an industry initiative and that we could thereby touch a lot more of these farmers who really do need our assistance.
KM: This has been Karl Moore of the Desautels Faculty of Management at McGill University, talking management for The Globe and Mail.
AFTERTHOUGHT: I recently asked a McGill MBA student to reflect with me on the interview with Don Schroeder as part of a course they are taking on the role of the CEO. Téo Blackburn joined me this week.
When it came time to tackle the issue of fair trade - which, let's face it, no coffee giant can avoid - Tim Hortons reached down and out. Distinguished by a unique franchise model that sees significant corporate start-up investment in a franchisee and active sustained support throughout its operation, Tim Hortons has long relied on economic incentives to drive community and business development via its intermediaries. Thus, to our minds, the Tim Hortons' Coffee Partnership redefines the "community" in which Tim Hortons is active, and is simply a logical and consistent extension of the incentives-based dynamic of Tim Hortons franchise model, up the supply chain.
Working with local coffee-growers' organizations, Tim Hortons provides resources to small farmers in Brazil, Colombia and Guatemala aimed at helping them become better business men and women. The partnership is twofold: providing training and financial resources to small farmers and support to local coffee-growers' organizations that co-operate with export companies to ensure stable and lucrative trade for coffee-growers. Success is measured in higher yields and better-quality coffee, which result in higher prices for farmers. Farmers benefiting from the Coffee Partnership are free to sell to any buyer, including Tim Hortons' direct competitors. This part we particularly liked; the freedom to sell anywhere they wanted.
Is the result, as CEO Don Schroeder suggests, just as good as certified fair trade? Fair trade is a market-based approach aimed at creating better trading conditions for agricultural producers in developing countries in which the trade of major crops - coffee, tea, cocoa, sugar, bananas - is characterized by a gross inequality of bargaining power. The Coffee Partnership leverages the same market forces as fair trade: higher prices paid directly to marginalized producers are deemed to trickle down into their communities and promote community development. Provided that tangibly higher prices result, the Tim Hortons approach has the added potential to decrease coffee growers' reliance on the often volatile coffee industry by providing them with transferable skills. Frankly, we like their approach but would need to hear from firms that have adopted the fair trade approach. Tim Hortons approach seems a good fit with their business approach. Perhaps it is a matter of "Horses for Courses" - that is, different approaches for different firms, depending on their particular strengths and corporate culture.