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Tickers in this Article: SBUX, IP, KO, GMCR, THI, MCD
An interesting proposal was forwarded by shareholder Gail Trezise at the Starbucks (Nasdaq:SBUX) annual meeting in March. Ms. Trezise proposed that Starbucks pursue a more aggressive recycling program. It was soundly defeated (just 11% supported the initiative) prompting management to gloat that its recycling program was doing just fine. As someone who visits Starbucks as many as three times daily, I can say with certainty this is not the case. How do I know? From the pile of coffee cups and lids sitting on my kitchen-counter hoping to be reused knowing they'll end up in some landfill. As a Starbucks supporter, I hate reading about such dismissive actions by shareholders. As an investor, I realize this is a coffee-cup conundrum. IN PICTURES: Learn To Invest In 10 Steps

Compostable Cups
Several years ago, a number of coffee retailers made the move from Styrofoam to paper cups. It was thought, rightly so, that paper was better for the environment because it's compostable. Unfortunately, because most paper cups contain a plastic liner to prevent coffee from leaking, the cup isn't allowed in many municipal green-bin programs. As a result, the As You Sow Foundation suggests Starbucks contributes 3 billion cups annually to landfill. That's a bunch of trees even with the use of 10% recycled paper.

International Paper (NYSE:IP) with an assist from Coca-Cola (NYSE:KO) came up with a compostable cup in that uses a corn-based liner instead of plastic. Green Mountain Coffee Roaster's (Nasdaq:GMCR) Tully's chain were the first to use the cups. Unfortunately, the experiment lasted less than two years due to leaking cups. International Paper and EcoProducts both still market a compostable cup, although they have not yet achieved their desired level of success. In the meantime, Starbucks has recently announced it is sponsoring the Betacup coffee-cup redesign competition where the winning entry will receive $10,000. That's a lot of money until you consider it recently authorized share buybacks and initiated its first dividends, a large financial commitment. No wonder they turned down the proposal - they've already tied up a lot of cash this year.

Why Not Styrofoam?
Facebook has a group dedicated to getting Dunkin Donuts to stop using styrofoam cups. The group claims the company sends one billion to landfill each year. Personally, I thought they were a thing of the past. However, as it stands now in Toronto where I live, I can recycle styrofoam cups but not paper. So, while the ingredients might be questionable, they at least avoid the landfill. The same currently isn't the case for Starbucks and all others using paper cups with plastic liners.

The Solution
I have the ultimate respect for Starbucks CEO Howard Schultz. I still reread chapters from his book Pour Your Heart Into It despite the fact it was written over a decade ago. It's that good a read. Nevertheless, I have to say it's truly puzzling why a company that espouses sustainability would shy away from solving this dirty dilemma. Big solutions require big people and I definitely thought Schultz was up to the task but perhaps I was wrong. No matter. I have a solution to the problem. Howard can thank me later.

I carry a Starbucks card on my key chain. Every couple of weeks I top it up with a credit card. I routinely forget to bring my tumbler and as a result, I end up bringing home a paper cup further contributing to the landfill problem. Starbucks sells an $8.95 tumbler made from recycled plastic. Why doesn't it create a tumbler exclusively for cardholders who would pay a $20 annual membership enabling them to take a tumbler-to-go when they've forgotten their own? Returnable at any Starbucks, this would virtually eliminate paper cups among cardholders. At the same time, it should work with competitors Tim Horton's (NYSE:THI), McDonald's (NYSE: MCD) and Dunkin Donuts as well as the manufacturers to come up with a permanent solution. I can guarantee it will be beneficial to the environment and the shareholders.

Bottom Line
Starbucks shareholders need to wake up and smell the coffee. Cash-strapped municipalities are not going to do the heavy lifting here. Someone will create a truly compostable non-leak cup and when it becomes clear Starbucks had nothing to do with it, the company's fan base will abandon it in droves. Don't let this happen after all the good work employees have done reconnecting with customers. Reconsider your vote and force management to act before it really costs you. (For additional read, check out The Real Cost Of Drinking Coffee.)

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