From bean to cup:Building competitive advantage
through sustainable standards
A multiple-case study of the Swedish coffee industry
Emilia Eka and Ioana Caraman
Stockholm Business School
Bachelo Deg ee The i 15 HE Credits Subject: Business Administration Spring semester 2020
Supervisor: Christoph Baldauf
Abstract
Purpose: The purpose of this thesis is to understand and assess the way companies integrate sustainability into their strategy and build competitive advantages in the form of certification standards application, in the Swedish coffee industry.
Methodology: This thesis is based on a qualitative research method, where data from six organizational actors in the coffee industry are empirically analysed, using semi-
structured interviews, from a case study approach.
Findings: The empirical findings show that implementing sustainable standards leads to new opportunities and innovations which translate into competitive advantages. These advantages are portrayed, for instance, through risk mitigation, cost reduction and new consumer markets. However, our analysis also revealed a distrust relationship between small enterprises and international certifications.
Research Limitations: There are several limitations with this study that are important to
; a , a , , a a a ,
hence subjective.
Contributions: Our findings indicate that companies should focus on applying and adopting sustainable standards into their business strategies in order to remain relevant on the market and gain a competitive advantage over their industry peers. For further
research, we suggest that the concept of circular economy, the implications of
a a a a a a a .
Keywords: Coffee Industry, Sustainability Standards, Corporate Social Responsibility, Private Sector Organizations, Competitive Advantage
Paper Type: Ba T
Acknowledgments
We would like to express our gratitude to our supervisor, Christoph Baldauf, for the help and guidance we have received throughout the process of writing this paper on
sustainability within the coffee industry.
Secondly, we would also like to extend our gratitude and appreciation to the individuals that took the time to offer their knowledge and experience, which were of significant importance to this paper. Thank you for letting us interview you, this paper
would not have been completed without your enormous help and worthy experience.
Lastly, we would like to thank our friends and family for their constant support and encouragement for pursuing this degree. Without them, this thesis could not have
been successfully conducted in time.
Thank you very much for your support and engagement!
Emilia Eka and Ioana Caraman Stockholm, 1st June 2020
Table of Contents
Chapter 1 Introduction………7
1.1. Research Problem ... 9
1.2. Research Question and Purpose ... 9
Chapter 2 Literature Review ...11
2.1. Sustainability within the Coffee Industry...11
2.1.1 Sustainability as a concept ... 11
2.2 Certifications and Requirements ... 12
2.2.1 Positive and negative impact of certifications... 13
2.3. Competitive Advantages………...……….……...14
2.3.1 What is driving sustainability? ... 15
2.3.2 Barriers when implementing a a ... 16
2.3.3 P a a . .17 2.3.4 S a a a a a a a .18 2.4. Summary of Literature Review ... 19
Chapter 3 Methodology…………..………...……….21
3.1. Research Approach ... 21
3.2. Research Setting ... 22
3.3. Data Collection ... 24
3.4. Approach for Data Analysis ... 25
3.5. Source criticism and Research Ethics ... 26
Chapter 4 Empirical Findings and Analysis...28
4.1. Sustainability within the Coffee Industry ... 28
4.1.1 Sustainability as a concept ... 28
4.1.2 Sustainability in practice ... 30
4.2. Certifications and Requirements ... 31
4.2.1 Positive and negative impact of certifications ... 31
4.3. Competitive Advantages ... 33
4.3.1 Drivers and barriers ... 33
4.3.2 Power balances... 34
4.3.3 Sustainability as a competitive advantage ... 35
Chapter 5 Discussion and Critical Reflection ... 36
5.1. Summary ... 38
Chapter 6 Conclusions... 40
Chapter 7 Limitations ... 43
References ... 44
Appendices Appendix A Case Study Company Presentation... 49
Appendix B Interview Questions ... 51
Appendix C Data collected ... 53
List of Tables
Table 1: S R a C a S a a ...13
Table 2: S a D a Ba S C a ...17
Table 3: L C a Pa a S ... ...23
List of Figures Figure 1: T 17 S a a D ... ...8
Figure 2: The Three Dimensions of Sustainability ...11
Figure 3: C a F a ...20
Figure 4: Mobilizing the Three Dimensions of Sustainability .... ...42
List of Abbreviations
C.A.F.E - Coffee and Farmer Equity CSR - Corporate Social Responsibility GRI Global Reporting Initiative
IISD International Institute for Sustainable Development NGOs - Non-Governmental Organizations
SRP - Socially Responsible Purchasing VOCSI - Voluntary Coffee Standard Index R&D Research and Development
Chapter 1 Introduction
This chapter describes the increasing importance of companies to implement corporate social responsibility in their business strategy but also presents the critique against such standards. Furthermore, it presents the research problem and aim of this thesis, the research question, and a short description of the contents and
thesis' structure.
In today's rapidly changing environments, the growing attention to the socio- environmental impact of the consumers is bringing corporate strategies and cultures to address sustainability issues and implement sustainability into their businesses (Charter and Peattie, 2006). Management may have different strategies to accomplish their sustainability goals. However, in the end, it comes down to conducting a sustainable supply chain. One part of being sustainable is the process of identifying, analyzing, and incorporating production and sustainability standards. This process is also known as socially responsible purchasing, corporate social responsibility, or sustainable development (Moisander, 2007). These terms, although different in meaning, share common goals and objectives in corporate strategy: social responsibility and ethics.
Sustainability is, however, a broad and sometimes hard topic to grasp due to its multiple definitions and different areas (Voinov et al., 1994). The United Nations defined sustainability, in 1987, as meeting the needs of the present without compromising the ability of future generations to meet their own needs (United Nations, n.d.). According to Bertels et al. (2010), sustainability in the context of a business is managing the triple bottom line, i.e., taking into consideration financial, social, and environmental risks, obligations and opportunities in decision-making (p. 74) as well as adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today (IISD, 2001, p. 1).
Furthermore, the United Nations have set 17 sustainability development goals that work as a guideline for companies wishing to implement sustainability. These goals focus on the global challenges the world is facing, including inequality, poverty, climate
change, environmental degradation, peace, and justice. In this paper, we are drawing special attention to the 11th, 12th, and 13th points of the development goals, as can be seen from the picture below (United Nations, 2018). Those development goals raise attention on the environmental, social, and economic responsibility that companies need to partake in so that they can remain competitive in the marketplace.
Figure 1: The 17 Sustainability Developments Source: United Nations, n.d.
This competitive advantage is, according to Fraj-Andrés et al. (2009) and York (2009), steaming from, but not only subjected to:
Risk reduction legal, environmental and social risks from consumers, shareholder or governmental institutions
Reduced operating, producing and retailing expenses due to waste and food reduction and regulated consumption of natural resources
Profit gain and market exposure consumers choosing environmental and ethical conscious companies over the competitors
Innovation sustainability is pushing companies to rethink their business strategies in order to be more environmentally conscious. As a result, the company that succeeds in doing so will gain a competitive advantage.
Therefore, the choice of businesses becoming sustainable becomes self-evident in terms of business performance and social responsibility.
In this paper, we investigate the impact of sustainability in the coffee industry.
Due to the competitive advantages mentioned above, many businesses in the coffee sector prioritize the implementation of sustainability and actively work in combating environmental and social issues. Furthermore, as the coffee industry spans over multiple countries and involves the use of natural resources, it is necessary to research and observe which steps companies are taking in order to become more sustainable and reduce their ecological footprint.
1.1 Research Problem
There is extensive research available on the global coffee roasters and their attempt at reducing their ecological footprint and, in this way, gaining a competitive advantage. Minton et al. (2012) and Sarkar (2012) further note that an increase in competitiveness between companies is expected due to companies striving to strengthen their brand image, in the eyes of customers and shareholders, by adopting sustainable practices.
However, lately, the focus is shifting towards the retail outlets and less on the supply chain. This is due to retailers now playing a crucial role in adapting and changing the sustainable demands for all players involved in the supply chain. There are several drivers and barriers that companies must face while implementing socially responsible purchasing, which affects the logistics of a business (Vassallo et al., 2008).
Moreover, even though roasters continue to own most market shares, more retailers such as McDonald's and Starbucks are adopting voluntarily sustainable
production standards, also known as VOCSI. They choose to partner only with certified, including, but not only, Fairtrade, Utz Certified, and Rainforest Alliance distributors and producers (Rochman, 2017 and Elder et al., 2013). Despite that, previous research also draws attention to companies adopting sustainable practices due to external pressures only. For example, external pressures from NGOs, governmental institutions, or customers' expectations (Raynolds et al., 2007 Goodman, 2004; Cabeza-Cutes, 1996).
While these can be triggering factors for making sustainable changes, we argue that sustainability is a strategic tool, used in the decision-making stage of achieving a company's business goals (Elder, 2013; Yang et at., 2013; Fuchs et al., 2009).
At the same time, there is also a critique of how sustainability standards are used by enterprises, for-profit gain, and market exposure. Certifications are, in the eyes of the customers, an assurance that a company is consciously driving its logistics. However, this may make some companies use this opportunity as a marketing scheme and label their products as ecological as a way of profit gain; not because they are interested in social and ethical issues (Bray and Neilson, 2017). Nevertheless, previous research draws that based on the findings, the advantages of implementing and adopting certifications outweigh the disadvantages mentioned above (Bray and Neilson, 2017 and Guthman 2007).
1.2 Research Question and Purpose
The thesis aims to analyze how Swedish companies are building a competitive advantage and business willingness to engage customers, distributors, and manufacturers in proactively implementing sustainability when purchasing or retailing coffee. The implementation of sustainability would benefit both customers, students, and companies that are willing to adopt and invest in sustainable practices. Alternatively, it would benefit those who are generally interested in how production and sustainability measures are shifting in rapidly changing business environments.
The research question is answered through a phenomenological research method, consisting of a multiple-case study on six actors, within the coffee sector, that are
sourcing their coffee from sustainable suppliers and are involved in the production process - ranging from small private-owned companies to medium-sized and up to global retailers of coffee. Phenomenology is a qualitative research approach that seeks to
describe and understand how a phenomenon, i.e., in our case the implementation of sustainability standards, has been experienced by different people (companies), and in what ways do those experience differ or connect (Neubauer et al., 2019 and Barnard et al., 1999). Thus, it is in the subjective experiences of humans that the philosophy of this approach lies.
Previous research focuses on the theorization of the concept and the drivers and barriers faced by the companies at hand. However, the reasons as to why a corporation chooses to partake in corporate social responsibility and how companies build a competitive advantage needs to be studied further. Our research is based on qualitative measurements, in forms of semi-structured interviews with companies chosen
beforehand. This method of data collection is the most appropriate, as previous literature lacks the actor's subjective experiences in describing phenomena. In this way, we want to show how companies can get an advantage by paying attention to sustainability.
Thus, the purpose of this study is to research how companies are building competitive advantages through adopting sustainability standards. The focus lies on Swedish companies, within the coffee industry, which are known for their engagement in sustainability and environment-related issues. Based on the above problematization, the following research question will try to fill the research gap found in previous literature:
How do Swedish retailers build a competitive advantage through improving sustainability standards in the coffee industry?
Moreover, the structure of the thesis is as follows, after Chapter 1, where the introduction and the research question are presented, Chapter 2 includes a literature review, which explains the theories that the thesis is based on and used for the empirical analysis. Chapter 3 addresses the research design and method, whereas Chapter 4
presents the empirical findings and analysis that support the research question. Chapter 5 consists of a discussion and critical reflection upon the findings and its correlation to the literature. Chapter 6 concludes upon the purpose of the study and the analyzed data.
Chapter 7 acknowledges the limitations of the study and the need for future research.
Chapter 2 Literature Review
In this chapter, the fundamental theories used for the study are presented. The literature review provides a summary of the theories that will be used to answer the research
question at hand.
2.1 Sustainability within the Coffee Industry
2.1.1 Sustainability as a concept
Sustainability, as a concept, has its origin in the Brundtland Report of 1987. That document was concerned with the tension between the aspirations of humankind, towards a better life, on the one hand, and the limitations imposed by nature, on the other hand.
Over time, the concept has been re-interpreted as encompassing three dimensions, namely social, economic, and environmental (Kuhlman and Farrington, 2010, p. 3436).
Schulz and Flanigan (2016) agree with what have been mentioned earlier regarding sustainability being a broad concept. Thus, to make it more comprehensive, sustainability is often divided into three dimensions; economic, environmental, and social. The
economic dimension of sustainability is often quantitatively based and measured though revenue performance and year-to-year gross margin performances. Moreover, the environmental dimension often involves different measurements, such as energy
consumption, use of natural resources, and waste management. The social dimension of sustainability often refers to individuals, communities, regions, or organizations and are measured through different factors for example, health and well-being, educations, exercise, and quality of life. Below there is a figure that also shows the three dimensions of sustainability.
Figure 2: The Three Dimensions of Sustainability
Sustainable
Economic
Environmental Social
As coffee is one of the most traded agricultural commodities internationally, it constitutes a significant part of the average economy as well as a source of foreign exchange revenue for many developing countries. Furthermore, responding to the trend of increased sustainability, it is therefore not surprising that coffee continues to be at the forefront of sustainability initiatives (Samper and Quiñones-Ruiz, 2017). Gilbert et al.
(2011) defined sustainability initiatives as a set of 'predefined voluntary rules,
procedures, and methods to assess systematically, measure or communicate the social and environmental behavior and performance of firms (p.24). Furthermore, these standards lead to new 'sustainable' markets for certified products, such as sustainable coffee (Kolk, 2005 and Reinecke, Manning and von Hagen, 2012).
Another important concept that can be seen as a part of sustainability is the circular economy. Geissdoerfer et al. (2017) define the circular economy, based on the three dimensions, as a regenerative system in which resource input, waste, emission, and energy leakage are minimized by slowing, closing and narrowing material and energy loops. For companies, a circular economy is achieved through durable design,
maintenance, repair, reuse, remanufacturing, refurbishing, and recycling (p. 759).
Gonzales et al. (2019) mention reducing the usage of plastic, composing waste as well as recycling waste as examples of how to achieve a circular economy within the coffee industry.
2.2 Certifications and Requirements
Coffee producers' processes have become more regulated due to the demand for high-quality, good-tasting coffee together with the need of meeting the requirements of both environmental and social standards. In order to meet the multiple requirements, sustainability tools are being used by large retailers to manage the coffee quality (Bray and Neilson, 2017). Some retailers follow the specific sustainability standards, for example, Fairtrade and Rainforest Alliance, while some retailers have worked out their standards, e.g., Starbucks using C.A.F.E (Starbucks). Even though some retailers do not have their own standards, they make it clear to coffee suppliers that they follow
requirements and sell good quality coffee. The standards or the requirements retailers implement is a way for the retailers to gain the upper hand and be able to switch among coffee suppliers to get the quality coffee they require (Elder et al., 2013). This leads to farmers and producers mainly focusing on following the retailers' standards and
requirements instead of improving their own sustainable and social programs (Taylor et al., 2005).
Most of these certifications started as voluntary standards from third-party organizations, where the producers were audited and certified independently.
Furthermore, the standards set by the third-party organizations can differ depending on the organization (Bray and Neilson, 2017).
Fairtrade is an independent product branding whose focus lies with human rights and improving conditions for better working and living conditions. (Fairtrade, n.d.).
Rainforest Alliance is an independent certification whose focus lies with preserving biodiversity, sustainable cultivation methods, and grow a
(Rainforest Alliance, n.d.). UTZ is a non-profit organization that, through information and education, creates the conditions for a more sustainable production, increased
productivity, and a higher standard of living (UTZ, n.d.). Organic (EU Organic) indicates that the coffee comes from organic farming without chemical pesticides and fertilizers (European Commission, n.d.). Getting certified under such certifications or implementing own measures, regulations, as well as partaking in the production of coffee is what we understand under sustainability standards and sourcing.
In Sweden, all retailers, regardless of size, carry at least one type of certified coffee, and some, even created their own 100% ethically sourced line of coffee, as it can be seen in the table below:
Table 1: Swedish Retailers Certification Standards
Sources: ICA (2019); Coop (n.d.); Axfood (Willy s / Hemk p, 2019); Ikea (n.d.);
Espresso House (n.d.); Wayne s Coffee (2019).
2.2.1 Positive and negative impact of certifications
Using certifications in the business may be a challenge and has different results for consumers and producers. Implementing certifications as a marked-based method may enhance value in either social, economic, or environmental aspects. Along with other research, Giovannucci and Potts (2008), suggest that certifications mean different things to consumers and branded manufacturers. For consumers, certifications can be used as a way of decreasing anguish, both social and environmental, about their
consumption. For branded manufacturers, certifications are a way to ensure there will not COMPANY SUSTAINABLE COFFEE
CERTIFICATION
ICA Utz certified
COOP Fairtrade certified
WILLY S / HEMKÖP Rainforest Alliance certified
IKEA Utz certified
ESPRESSO HOUSE
Green Leaf ECO. accredited Specialty Coffee graded WAYNE'S COFFEE Rainforest Alliance certified
be a long-term supply shortage. Thus, producers assume that buyers value the certification label and use it as a marketing tool (Bray and Neilson, 2017).
For example, Raynolds et al. (2004) suggest that using the Fairtrade certification
a a a a a a a a a a a
and ensuring a more stable organization. Aranda and Morales (2002) agree with
Raynolds (2004) by adding that due to the greater price margins from using the Fairtrade certification, farmers and producers can invest in more advanced processing equipment, warehousing, and office space. Moreover, Guthman (2007) mentions that Fairtrade may act as a barrier to entry for many small coffee producers since there is an oversupply of Fairtrade certified coffee, which leads to significant consequences for the social
distribution of Fairtrade benefits. However, Bray and Neilson (2017) mention that even though there are different findings regarding certifications, there are more positive than negative impacts when using and working with the certification organizations.
Even though companies work to create and adopt a more sustainable way of working, there is also research that shows that some companies present their business as sustainable. However, in reality, it is only a marketing scheme, i.e., only doing it for financial profit. This has been researched by Cabeza- Cutes (1996) that have categorized sustainable practices into two categories; weak and strong sustainable practices, where the former phenomenon is defined as weak sustainability practices. Solér, Bergström, and Shanahan (2009) also mention that weak sustainability can be defined by some
companies choosing to be sustainable due to external pressures only, i.e., government agencies, and the fear of being put into a negative spotlight in the eyes of stakeholders and customers (Beske, Land, Seuring, 2014). Moreover, Siegel (2009) further criticizes that a firm's strategy is nonetheless sustainable, as being green leads to profit gain, but for the wrong reasons.
Nevertheless, it is understood that green supply chain management, along with green marketing and green products, will advance and open up new frontiers of
competitiveness among companies in the global markets (Yang et al., 2013; Sarkar, 2012;
Minton et al., 2012). Therefore, even though the sustainability field has increased its importance, there is a lack of research on the relationship between competitive advantage and sustainability and how they influence each other.
2.3 Competitive Advantages
When it comes to implementing socially responsible practices into a business, companies are driven by either internal or external pressures. Corporate social
responsibility involves not only the way a company treats its employees and is meeting societal goals but also how and from where they are sourcing their products as well as the ecological footprint of the business operations. Nevertheless, some barriers may hinder a company from performing socially responsible purchasing.
As Gray et al. (2012) and Mont et al. (2009) note in their papers, there appears to be a gap between the society's need for more sustainable practices within a business and the actual implementation of socially responsible purchasing (SRP). Furthermore, as such, there is a need for research regarding the current business practices performed by companies to understand the drivers and barriers in incorporating CSR into their sourcing activities, especially concerning the coffee industry. The concept of socially responsible purchasing can be interpreted in many ways, as seen in previous literature. Nevertheless, its core purpose relies on the social, environmental, and ethical aspects that hold a company accountable (Webb et al., 2008; Allen 2006; Carter, 2005). In this paper, socially responsible purchasing will be discussed in the case of private Swedish organizations.
2.3.1 What is driving sustainability?
Numerous drivers trigger a company to address ethical and societal problems within its organizational purchasing practices. Mont et al. (2009) note that the implementation of SRP and CSR activities into a company is linked to obtaining a competitive advantage. These benefits can usually be seen as an increase in customer base, financial gains, and, not only subjected to, improved production processes (Rankin et al., 2011; Webb et al., 2008; Maignan et al., 2002).
One notable driver for improving a company's practices is the periodical
evaluation, i.e., through audits, and rating indexes. The fact that companies are expected by both shareholders and customers to report their strategy on addressing societal and ethical issues openly (Mont et al., 2009) through a sustainability report has acted as a driving force for using SRP (Shiers et al., 2007 and Casals, 2006). Shiers et al. (2017) notes that a business' legal obligation to abide by laws and regulations influence a company's willingness to achieve sustainability targets and social obligations. On the same note, there are also voluntary reporting ways for companies to show their
commitment to sustainability. Gray et al. (2012) mention that this type of reporting has become widely adopted thanks to the Global Reporting Initiative that established a guideline for sustainability reporting as well as what environmental, social and, ethical obligations involve and how a company can achieve its goals through GRI.
Another driver, especially relevant to private companies, is the preservation of their brand reputation and relevancy on the market (Fombrun in Doh and Stumpf, 2005 and Roberts, 2003). Webb et al. (2008) explain that customers have certain expectations of companies, one of which being to behave more socially and environmentally
responsible. Similarly, Huanfeng et al. (2008) explain that being green opens new market opportunities and wealth creation that would be otherwise not possible since customers value products that are environmentally friendly and choose to purchase goods and services from such companies. As a result, a company gains various critical intangible assets such as customer loyalty, risk reduction, and improved organizational
performance.
Although many drivers seem to be external, several notable internal drivers contribute to making a business environmentally considerate and ethically conscious.
One such driver can be seen through a company's mission statement and values. Many companies strive to partner with suppliers that share the same system of values, i.e., regarding social issues. By sharing the same values, both companies and suppliers avoid the risk of clashing interests or being put in dangerous situations that may result in bad press or customer loss (Epstein et al., 2010 and Mont et al., 2009). For example, IKEA sees working on social issues as a driver for maintaining employee loyalty and improving product quality and cost reduction (Mont et al., 2009). Another driver worth mentioning is the desire of a company to outstand its competitors by taking the initiative to work on socially responsible purchasing and CSR, without the direct influence of external pressures. In other words, social considerations are a way of making both suppliers and industry peers engage in such activities themselves and, at the same time, market one's company as socially and ethically conscious (Epstein et al., 2010, Mont et al., 2009;
Roberts, 2003).
However, in the end, Epstein et al. (2010) emphasizes that implementing
sustainability standards is just one step in improving overall sustainability performance.
Other internal and external measures are needed, such as leadership, company culture, and consistency. He also puts a focus on the fact that people may be one the most critical drivers for sustainability and that the management ought to strive to communicate to the employees the importance of sustainability in day-to-day work life if sustainability is to be included in the management decisions.
2.3.2 Barriers when implementing sustainability
Vassallo et al. (2008) explain that implementing SRP into a business strategy can lead to changes in the supplier selection, the level of employee training, for example, the need for a food safety certification, and can even impact the product design and logistics of a business. Moreover, this may lead to additional costs that a business cannot foresee;
either from the need to develop more SRP strategies or the need for more processes to collect more information about customer and shareholders expectations (Chen and Chai, 2010 and Maignan et al., 2002).
In Sweden, Mont et al. (2009) explain that socially responsible purchasing for companies is often hindered by the absence of legislation that would require them to implement more socially and ethically criteria inside the supply chain. Most companies choose to be more environmentally conscious voluntarily, vouching to be more
sustainable by eco-labeling, dedicating a department inside the corporation for CSR, or reducing their gas emissions. For example, IKEA announced in late 2019 that it was investing 200 million Euros in becoming more climate positive. By using only renewable energy across its supply chain and better forest management practices, it hopes to combat deforestation and minimize their climate impact (Ikea, 2019). Another barrier that
companies are facing is when dealing with importing products. Mont et al. (2009), through IAPSO, note that corruption in developing countries can hinder free trade and fair competition with developed countries as a lack of strict purchasing criteria and
difficulties to verify the information provided by their suppliers are challenging the integration of SRP.
Another problem faced by companies in Sweden is that it is impossible to guarantee that their whole supply chain follows all local and international guidelines regarding sustainability and ethical standards. Thus, although they cannot guarantee that, most companies demonstrate their commitment to being climate-conscious and ethically responsible by actively working and developing programs on social issues through partnering with their suppliers (Mont et al., 2009).
Table 2 shows a summary of drivers and barriers for Swedish companies in implementing socially responsible purchasing, adapted from Mont and Leire, 2009:
Source: Pages 396-401, Social Responsibility Journal, Vol. 5
2.3.3 Power balances
Lallanilla (2014) mentions the impacts of climate change; having less access than larger producers to knowledge, technology, and finance makes smallholders more
vulnerable. In line with Lallanilla's (2014) study, there is research that points to that farmer's conditions not getting better. Instead, it is shown that retailers are receiving more power and can make higher profits. Furthermore, Jaffee and Howard (2009) mention that due to retailers' impact in the coffee market and ability to change standards and
certification systems, they can keep pricing, trading, and retailing practices.
Moreover, many retailers are starting to buy their own-brand sustainable coffee directly from roasting companies in hopes of shortening their supply chain. According to Elder et al. (2013), this may lead to retailers obtaining more control over the producers and being able to implement business strategies to make the process more efficient, without adapting and developing environmental and social factors.
Additionally, the question of the retailer's power is a subject that Ghosh (2019) touches on. He notes that this power can allow them to control and enhance their own
Drivers Barriers
A company's mission statement, policy, and code of conduct Improving its brand image
Partnering with suppliers that share the same values Employing people that resonate with the business practices Expanding its customer base by tackling global challenges Expectations of stakeholders
Auditors, rating indexes and evaluations
Absence of strict legislation on social and ethical purchasing
Impossible to audit all suppliers and ensure that all follow the local and international code of conduct
Additional costs
Corruption in other countries
goals at the expense of other actors in the supply chain. Moreover, Ghosh (2019) agrees E (2013) statement about farmers losing influence in the business by referring back to the coercive power where one actor, the retailer, can punish the farmers and producers. In the case that they fail to comply with the requirements set up by the retailers, the farmers risk their contracts dissolving or the terms of trade renegotiated (Ghosh, 2019). Subsequently, due to the vast influence retailers have on the market, they can implement non-negotiable rules. For example, et-out clauses where the retailer can, even under fixed contracts with growers, pay a low price or even reject the product if the retailer has found cheaper products from another actor (Tretyak and Radaev, 2013 and Peitz and Shin, 2013).
2.3.4 Sustainability as a competitive advantage
The increased demand for sustainable coffee is a combination of consumers wanting to show solidarity to poor coffee growers, along with retailers introducing sustainable coffee on the shelves (Kolk, 2012, 2011). Furthermore, Ghosh (2019), along with Elder et al. (2013), mention that there has been a shift in the market where food retailers have gotten more power than before by gaining the power that previously belonged to food suppliers. For retailers, the increased demand for sustainable coffee has led to changes in the business strategy; for example, retailers are using sustainability programs as a strategic business tool. Furthermore, multiple factors are affected by retailers implementing sustainability programs into their businesses, and a few are mentioned below (Elder et al. 2013).
One factor that Elder et al. (2013) mention is that retailers can increase
consumers' demand for specialty coffees and, as a result, be able to have a higher price margin return on their products. Another consequence of implementing more
sustainability in the coffee industry is that retailers rebrand themselves in a more
sustainable way, which makes it possible to both apply a higher price and increase profit margins along with improving the brand's reputation.
However, according to the same author, retailers are implementing sustainability in their businesses to achieve market control, profit, and higher sales number. On the same note, previous research draws attention towards external pressure as NGOs for being one of the main reasons for retailers working sustainably (Elder et al., 2013).
Furthermore, Schulz and Flanigan (2016) discuss that companies active in competitive industries may see the implementation of the three dimensions of sustainability as an opportunity. This opportunity is used to create a competitive advantage as demands from consumers, employees, and external stakeholders provide influence through purchasing activities, workforce loyalty, and public opinion. However, they mention that only implementing sustainability on the corporate level is not
sufficient; it needs to be implemented all through the organization.
2.4 Summary of Literature Review
The literature review above explores the various dimensions of sustainability in the coffee industry and its impact on environmental management as well as the factors behind building a competitive advantage. The use of sustainability as a business tool, certifications and requirements, drivers, and barriers and power balance in the market, are concepts used to make the subject more comprehensive, as well it is working as a ground for us to conduct our study. With an increased demand for sustainable and
environmentally produced coffee, every part of the supply chain needs to do their share and implement sustainable ways of working.
However, one concluding mark is the power that retailers now have. This power is driven by the consumers that, through the retailer, set their agenda and push companies to be socially conscious. As a result, this is causing an imbalance for the other companies in the supply chain since retailers can set different requirements and standards that put pressure on the smaller companies. Therefore, this power shift leads to both positive and negative outcomes, as seen from a sustainable point of view.
Another concluding remark is that even though the certifications regarding coffee and production may enhance farmer's working and living conditions, it is essential to view the certification organizations from a critical and nuanced view. Nevertheless, the global coffee industry is continuously developing and changing. Companies need to adopt new ways to strengthen their competitive advantage to remain exciting and competitive towards their competitors and consumers.
The conceptual framework below points out the essential factors, concepts, and perspectives that we have focused on. To be able to answer our research question, we have divided the subject into three themes: certifications and requirements, circular economy, and driving forces in relation to the three dimensions of sustainability, leading to competitive advantage.
Figure 3:
Chapter 3 Methodology
This chapter provides an outline of the research methodology used to answer the research question - the research approach and design, data collection methods, data analysis techniques used, and limitations of the research method. For clarity purposes,
the research question and the purpose of this study will be restarted.
Thus, the research question is: How do Swedish retailers build a competitive advantage through improving sustainability standards in the coffee industry? With this question in mind, we seek to understand and assess the way companies integrate sustainability into their business strategy and attempt to gain a competitive advantage from doing so and outperform their competitors.
3.1 Research Approach
Based on the previous research, the implementation and impact of sustainability within a supply chain, as well as its consequences, are of great importance to researchers, specifically within the field of business. To remain profitable, a company has to reduce its ecological footprint and formulate its strategy according to the socio-economic aspects of our society. Those aspects may include the implementation of sustainability standards, building innovation, and tackling global challenges. Thus, sustainability performed by companies has become another variable for measuring whether or not a company is profitable.
Moreover, based on previous research, the foundation of sustainability lies in the three dimensions on sustainability: the environmental, economic, and social aspects (Smokers et al., 2014; Klassen et al., 2012; Murphy, 2005)- Figure 3. In the coffee industry, the dimensions are represented through the adoption of sustainability standards, such as certifications, together with the implementation of various SRP and CSR
activities that are used in the production, development, and retail of goods and products, as well as informing the business conduct (Bray and Neilson, 2017; Mont et al., 2009:
Vassallo et al., 2008).
This thesis seeks to understand and explore how a company can gain a competitive advantage by implementing sustainability and sustainability standards. While in rapidly changing environments, i.e., in our case, change fuelled by societal changes and
expectations of shareholders and consumers, we will attempt to answer our research question and deepen our understanding of the phenomena by observing and analyzing it in real-life situations (Slevitch, 2011). Thus, this research will be done using a qualitative research design (Bryman and Bell, 2015). Qualitative research is a research strategy that usually emphasizes words rather than quantification in the collection and analysis of data (Bryman and Bell, 2007, p. 694). This approach fits our thesis since it allows us to seek data that describes and provides an understanding of a particular phenomenon through one's subjective feelings and experiences.
Furthermore, the research question will be explored through multiple-company case studies, where the focus is on a contemporary phenomenon within some real-life context, and where the boundaries between phenomenon and context are not evident (Yin, 2003, p. 13). Additionally, our data approach will be based on W (2011) typology of theorizing case studies, where the relation between causal explanation and
contextualization is explored. The typology also distinguishes four different approaches to qualitative research: interpretive sensemaking, contextualized explanation, inductive theory-building, and natural experiment (Tsang, 2013). In our case, we will focus on contextualized explanation where cultures (companies) are being compared to each other and then divided into concepts, themes, and dimensions so that its causes, similarities, and differences between each actor can be easily noticed. This method will help us test theoretical models and phenomena from previous research in real-life situations and whose findings we will attempt to correlate through inductive reasoning. Jebreen (2012) defines the inductive approach as the analysis of raw data, i.e., from case studies, to derive concepts, phenomena, or themes through the researcher's subjective interpretations of the data. Moreover, this paper focuses on a multiple-case study approach of companies that are relevant to the coffee industry and which are to be further described and named in the following chapter. Therefore, as all the criteria necessary for the case study method is fulfilled within this study, the selection of this research method is most appropriate.
3.2 Research Setting
The thesis focuses on Sweden, which, after Finland, is the second-largest coffee consuming country in the world. The average amount of coffee consumed, per person, comes to approximately three cups per day, or around 9 kg of coffee per year, which makes Sweden a major agricultural importer of coffee beans (Kaffebönor, n.d).
Moreover, Sweden was chosen as a focus country for this study as it is considered to be a pioneer in implementing sustainability and tackling social issues. In 2019, Sweden ranked number one out of the 65 countries on the RobecoSAM Country Sustainability Ranking, which analyses and compares countries based on their environmental, social, and governance (ESG) position on the market (Schieler, 2019). Sweden successfully defended its first position many years in a row, mostly due to its continuously proven efforts in combating climate issues and developing and implementing sustainability strategies all across various domains, including work ethics, logistics, and governmental initiatives. Therefore, Sweden matches our thesis as it is a role model when it comes to promoting sustainability and consciously driving a society.
Our research is based around six actors in the retail and coffee sector, as can be seen from Table 3. The companies used for this study have been chosen for their engagement in corporate social responsibility operations and proactive engagement in sustainability issues within their supply chains. The companies, regardless of size, are known for their direct involvement in the process of producing and distributing coffee, from a bean to a cup. Moreover, all of them have published their efforts in combating ecological, ethical, and social issues through either publicly sharing their sustainability
reports, letting the customer participate and see for themselves the process that the coffee beans go through or ensuring that their coffee is made sustainably.
A brief description of each of the companies chosen is given below. However, for more details on each company's mission statement, competitors, and individual
involvement in the coffee industry, we refer the reader to Appendix A Multiple-Case Study Company Presentation.
Table 3 - List of Companies Participating in the Study
Ikea is the largest retail company in the world, with a total of 208 000 employees, which was founded in Sweden (IKEA, n.d). Ikea is a pioneer in the implementation of sustainability in all parts of its supply chain, as high expectations are put on its producers and distributors. However, it does not only focus on sustainability, but also on corporate social responsibility where ethical, social, and environmental matters are prioritized throughout the business chain. Rot Butik och Kök is an independent Stockholm based grocery store, with a turnover of just 20 million SEK per year and around 20 full-time employees, which means it is a relatively small company. However, its focus on ecologic and locally produced goods, food waste reduction as well as overall respect for the planet, people and environment makes it one important actor in our study. Lykke Kaffegårdar is a small-sized start-up company based in Stockholm, currently employing 16 people.
What is interesting about this company is that the farmers, as well as the investors, both own parts of the farms and roasters, in this way, making sure that the whole supply chain is sustainably developed and that the coffee beans are ethically sourced. Gigafood is a café and catering business in Stockholm that focuses on environmentally friendly goods
Name Role Size Age
Gigafood Café & Catering Small Less than 3 years
IKEA Range & Supply
and Industry
Large 20 years or more
Lykke Kaffegårdar Coffee-producer Small Less than 3 years
Löfbergs Coffee-
producer, Retailer, Café &
Catering
Large 20 years or more
Rot Butik och Kök Retailer Small 4 to 9 years Stockholm Roast Coffee-producer
and Retailer
Small 10 - 19 years
and services and is even fully vegan. The company follows WWF's certification One Planet Plate, following sustainability standards in every part of its business. Löfbergs, a family-owned business founded in 1906, currently in the third and fourth generations, is one of the biggest roasters in Scandinavia, known for its work on sustainability and fight against environmental issues. Stockholm Roast is a company founded eight years ago that is currently active in both Sweden and Japan. Their inspiration came after a trip to India, where they explored coffee beans sites and farms as well as their experience in the restaurant and café industry. Today, their focus lies on specialty coffee and the
production behind it.
3.3 Data Collection
The population sample we have chosen for this study consists of several companies (n=6) from Sweden who have adopted sustainability practices in their business models. We have chosen this sample because we wish to test the theory of the triple bottom line, and as such, it is only sustainable companies that are relevant to our research question. As case studies are qualitative and lack the perks of quantitative sampling, we will use purposive sampling where the companies of this multiple-case study were chosen beforehand. We believe they provide us with relevant data to our study, but also have enough experience with sustainability reporting. This technique is not only easy to use and report, but it also offers us the freedom to explore a phenomenon in real-life situations and then connect it to previous qualitative findings.
The data is generated from semi-structured face-to-face and telephone interviews.
According to Bryman & Bell (2015), semi-structured interviews involve a set of
questions, which are divided into themes and sub-themes, but the interview itself is kept open so that new ideas and insights from what the respondent answers can be gained.
Similarly, Yin (2003) argues that interviews are one of the best ways of sourcing
information as both parties can ask questions and engage in the discussion, thus, enabling a two-way communication with the person(s) being interviewed. Moreover, because of the conversational language used in these types of interviews, the person may feel more relaxed and keener to offer new insights on the subject at hand. Additionally to the interview questions, the method of data source triangulation (Bryman & Bell, 2015), where both primary sources (conducted interviews) and secondary sources (newspaper
a , a a , a a ents) are used to develop a
comprehensive understanding of phenomena and attempt to answer our research question from a nuanced perspective.
Interviews were held with central people from each company, including a
Business Analyst & Sustainability Manager at Ikea, a PR Manager at Löfbergs, the CEO of Rot Butik och Kök, the CEO of Lykke Kaffegårdar, the CEO of Stockholm Roast and the CEO of Gigafood. One interview session was conducted with each respondent, either over the phone or face-to-face. Each interview lasted approximately 40 minutes. See Appendix D - Collected Data for more details on time, date, and type of interview.
Besides the interviews, we conducted field notes during and right after the interview, as
well as recorded each one of them to help us analyze more easily the things that were said.
We also created an interview guide to operationalize the research question for the collection of empirical material, where the questions are divided into three themes
regarding profitability, sustainability, and corporate social responsibility; see Appendix B - Interview guide for more information. The first theme, sustainability, highlights the importance of sustainability within a business, for example, the presence of barriers (any risks or negative aspects) as well as drivers (shareholder & consumer pressure,
governmental initiatives, company culture) regarding being green. The second theme, certifications and requirements, focuses on the implementation of certifications such as Fairtrade as well as the actors of the supply chain and their involvement in socially conscious business decisions. Special interest is put on the processes behind distributing, producing and integrating sustainability in all parts of the supply chain as well as what consumers value the most when purchasing goods and services. Lastly, the theme of competitive advantage seeks to gain an understanding of the competitive environment within the coffee sector and whether sustainability has had an impact on profit gains. It also seeks to understand a company's position and image in the eyes of the shareholders and consumers and whether or not their sale of ecological products has increased since adopting sustainability in the business strategy.
By attempting to answer these questions, we can gather new insights on the aftermath of sustainability and see how it affects profit, a company's competitive stance, and corporate culture when keeping up with rapidly changing societal expectations.
Through understanding how a company chooses its actors in a supply chain, certain types of certifications and standards as well as how profit comes in the equation, our research question will be answered.
3.4 Approach for Data Analysis
After conducting the interviews, the process of translating the empirical data into thematic results follows. The recordings of the interviews are transcribed using data analysis tools and software as well as translation softwares as our interviews were conducted in Swedish and later translated into English.
Our analysis method of choice will be based on Welch's et al. (2011) method of contextualized explanation. This method means that the nature of research is subjective search for cases where the cause, in this case, the adoption of sustainability measures, is investigated, and the way it affects a company's profitability is to be examined.
Moreover, the concepts from the literature review will be divided into themes and whose findings will then be gathered in similar dimensions that reflect the literature concepts. In other words, the transcripts are to be analyzed and divided into themes and sub-themes based on the interview guide. Important statements, claims, and passages that are relevant to our study and support our claim will be highlighted so that standard patterns can be easily seen and interpreted. However, the interviewer will act as an observer and remain
passive and objective and treat each case company as a single entity before drawing any cross-case conclusions and patterns between the multiple-case study actors.
It is to be noted that the interviews were recorded with approval by the participants and that the analysis was sent to each actor for confirmation of used quotes and any eventual additional commentaries. Lastly, from looking at all the answers for each question, it is possible to draw conclusions and find similarities and differences between the multiple-case study actors when implementing sustainability measures and standards into their businesses. Based on the findings gathered, the purpose of the study is fulfilled and the research question answered.
3.5 Source Criticism and Research Ethics
For the quality of the research, there are, of course, various things to be taken into consideration, starting from the assessment quality of the study to the qualitative analysis with only a few interviews, at hand, available as empirical material.
At the beginning of the research, some ethical guidelines should be considered when gathering data for the study, some key criteria being trustworthiness and
authenticity, as noted by Bryman and Bell (2015). In other words, the core of the research lies on being transparent about informing the actors of the study about what the purpose of this study is, their rights in refusing or being able to edit or change their answers at all times and that participation is voluntary and not binding in any way. Moreover,
confidentiality agreements can be offered if the actors of the study do not wish to be mentioned or referred to throughout the paper.
It is also crucial to mention that the empirical data, i.e., interview records, quotes, company information, will only be used for conducting this study and answering the research question. It is also important to mention that the results of our study may or may not be applicable outside of this multiple-case study setting and are only relevant at the date and point in time from when the interviews are conducted and can be subjected to changes. Though, some general ideas and thoughts can be summarized from our research that will hopefully come in hand for future research or development of new theories regarding sustainability and the coffee industry. Lastly, the authors of this paper ought to vouch not to deceive the actors of this study or manipulate the answers in any way for the sake of the participants of the study. Therefore, as the criteria and procedures for being trustworthy and authentic, such as fairness, ontological authenticity, educative
authenticity, catalytic authenticity, and tactical authenticity have been followed
throughout the paper, we believe that the central ethical concerns for writing a research paper have been considered (Bryman and Bell, 2015).
When conducting this type of study, the question of bias should also be addressed (Bryman and Bell, 2015). For the interviewer, as our research is based from an
interpretive point of view, this bias involves human interests into their study, for
example, the mind's ability to process information, individual motivation, emotions, and experience, and thus, objectivity is a relative variable in this case (Welch et al., 2011).
