SIRI Andrea, FITZSIMMONS Rachel, WAN Matt, BIAZ Lamiaa
Responsible consumption and production: a persistent problem
At the end of 2017, poignant scenes in Blue Planet II (the most watched TV show in the UK that year) directed the world’s attention to the problems of plastic pollution in our oceans. From images of picturesque beaches covered with washed-up litter to sea turtles tangled in plastic bags, to a pilot whale calf that died from consuming a mother’s milk that had been contaminated by toxic chemicals from plastic, Blue Planet II provided visceral, tangible evidence of the negative externalities of human consumption on the environment. A call-to-arms of sorts swept social media, and even governments responded to the increasingly urgent issue at hand (for example, the UK environment secretary)—a report from the World Economic Forum estimates that by 2050 there could be more plastic in the ocean than fish.
However, plastic pollution is just one piece of the bigger picture around sustainable consumption. In fact, sustainable consumption is one of the UN Sustainable Development Goals. UN SDG12 seeks to “ensure sustainable consumption and production patterns”—covering a range of issues including management and use of natural resources, food waste, waste reduction, and sustainability practices and reporting in the private sector. Governments around the world are working (to varying degrees) to advance UN SDG12. One notable example is the European Union’s Circular Economy Package, which includes a strategy for plastics and an ambitious goal of having all plastic packaging recyclable by 2030.
One industry for which sustainable consumption is particularly relevant is the Food, Beverage, and Consumer Goods industry. From fashion to packaging for snacks to restaurants and cafes, sustainable consumption is front of mind for many players in the private sector. Some initiative highlights include:
- Patagonia: Perhaps the “golden child” of environmental and social responsibility within fashion & textiles, Patagonia has a strong culture of commitment to sustainable consumption. Aside from donating one percent of its sales to environmental groups, Patagonia has initiatives such as The Footprint Chronicles, which maps out origins and stories of its supply chain, and Worn Wear, which is an online platform that facilitates trade-ins / recycling, repairs, and shopping used items
- McDonald’s & others: Announced in June 2018, McDonald’s will switch from plastic to paper straws in its 1,361 UK locations in 2019, with recycling facilities for the straws available in all stores by the end of 2019. McDonald’s joins other brands in the movement to replace plastic straws with paper, including Costa Coffee, Wetherspoons, and Pizza Express. McDonald’s will also expand and trial the initiative in its other locations around the world later this year. In the US, large food service company Bon Appetit has also announced its transition to paper straws by September 2019 in its 1,000 locations across 33 states
- Starbucks: As the UK government considers a 25p ($0.35) tax on disposable coffee cups (the “latte levy”), Starbucks has been testing a 5p ($0.07) surcharge at some of its locations in London. Starbucks’ collections will go to Hubbub, an environmental charity. Pret A Manger on the other hand offers a 50p ($0.66) discount for customers bringing their own coffee mug
Focusing in on the topic of single-use coffee cups, while a tax or surcharge can help to internalize some of the negative externalities from production and usage, there are other approaches that combine both business model and technological innovation. One such example is Cupclub.
CupClub: an application of the circular economy concept
Cupclub, a London-based start-up, is applying the ideas of the circular economy to the coffee business. We interviewed their founder and CEO, Safia Qureshi.
“Our model is about servitization of an industry that is currently just purchase”
On the surface, the idea is simple, intuitive. In need of a cup of coffee, we go to the nearest coffee shop and buy one. Our Cupclub membership card is scanned and we leave not with a disposable cup, but with one of Cupclub’s single-material, durable, multi-use containers. We are free to drink our coffee on the move and we later dispose of the cup, at the nearest participating store (checking an app to find one, if needed). Job done, and all for the normal price of a cup of coffee.
For the store, it’s a similar story. Rather than purchasing single use cups, they sign up to Cupclub and clean, reusable cups are delivered to them. They serve coffee to their customers in these cups and customers, perhaps not their own, dispose of used coffee cups in their in-store disposal bins. Cupclub collects these cups and takes them away for washing and processing.
Sounds simple? As with so many things these days, Cupclub have pimped up their offering with a layer of technology, in the form of embedded RFID chips. From Safia Qureshi:
“There are systems in play that are really successful without [tracking technology] but the logistics and the cost of managing them would be so high that without technology we wouldn’t stand a chance to compete at the price point required, which is that of disposable packaging. CocaCola has its own returnable logistics for glass. The beer industry again has deposit for bottles. We have to compete against paper cups which range from 4-12 pence per cup, depending on where a brand or a customer is buying that product from. That is really hard.”
RFID chips are passive, electronic tags embedded in objects – in this case, in Cupclub’s cups. They allow for tracking as the cups move from store, to consumer, to drop-point, to cleaning facility. Knowing exactly how their products move through the supply chain will help Cupclub to optimize their operations and build a strong competitive position. In the long term, the data they collect may offer further value. The repackaging of information about trends in customer behaviour as a product is a possibility Safia Qureshi is aware of, but for now it is only a distant thought.
There will, of course, be a cup attrition rate within the system. Cupclub’s business model transfers the economic burden of cup loss to the final customer. Once the customer buys a coffee through Cupclub, he or she is responsible for returning the cup, or risks losing a deposit. This requires finding a convenient disposal point. Ensuring that such disposal locations are available will be crucial for the success of the scheme.
What is innovative about Cupclub?
There are several innovations introduced by the Cupclub model.
The most relevant is the circularity concept. The service of cup collection, cleaning and redistribution enables almost a no waste disposal system since every cup is used over and over again. The cups’ single material design also makes them easy to recycle at end of life.
Another important aspect is servitization. Cupclub defines itself as digital cup as-a-service: the company has reworked the idea of “owning a cup” to a “pay per drink” model which covers the cost of the cup, the maintenance and the infrastructure cost.
Furthermore, the Cupclub business model benefits from pooling in the cup cleaning stage of the process, performing this action for a large number of retailers within a given geographical region, potentially enabling lower costs compared to those of each single retailer, were they to use their own china.
Cupclub’s model allows retailers to outsource environmental responsibilities to a third party, who is focused entirely on sustainability. With the “pay per drink” model, the retailer’s and the service provider’s returns are both tied to volumes of coffee sales, but the retailer benefits from a reputation as a sustainability leader without adding significant cost or complexity to their own processes.
Cupclub also makes use of an established technological concept, the Internet of Things. The company is one of the first movers to use IoT to track cups and consequently allows for the observation of patterns in customer movements after the purchase of food and beverage.
For the moment, Cupclub benefits from the advantages of having a focused strategy. Playing only in the specific market of coffee cups allows the company to develop skills and efficiency needed to scale. Nevertheless, once the business model is proved successful, the company will likely consider expanding its service to other food containers.
Cupclub: sparking a revolution?
A staggering 100 billion single-use coffee cups are discarded each year around the world. In the UK alone, the figure is about 2.5 billion. In theory, many of these disposable coffee cups are recyclable. However, only a very small fraction is actually recycled (about 0.25% or one in 400) because most recycling facilities cannot separate the plastic lining from the paper construction of typical single-use cups.
Looking to increase the sustainability of our coffee consumption, Cupclub seeks to make an impact, and make money, by reducing use of single-use coffee cups—through an end-to-end, returnable cup service with trackability, an in-built loyalty scheme, and reusability (each cup can be reused over 100 times). This closed-loop system aims to keep coffee cups in circulation as long as possible, making full use of the resources used to create the cups in the first place. By designing a product while keeping in mind its lifecycle (and afterlife), Cupclub is developing a business model innovation in a wider nascent circular economy to positively influence consumer behavior and benefit the environment.
However, while Cupclub looks to make a difference, it does not see itself, nor does it want others to see it, as a charity. As the founder Safia Qureshi put it, Cupclub is “a limited company, not a charity.” Cupclub should both be able to make an impact and to build a viable, vibrant business. Below are a few of reasons why and how it may succeed and become a real “game changer.”
First, Cupclub’s offering is aligned with changing consumer sentiment, as well as shifting regulatory environment. Cupclub’s service is well-aligned with the EU’s target with regard to recyclable plastic packaging by 2030 as part of the Circular Economy Package. The importance of finding a sustainable solution to single-use coffee cups is further underscored by a recent environmental audit conducted by the UK government. As Safia Qureshi explained in an interview with Sky News, if the Cupclub model is generalized to other products or areas, there can be significant positive impact for the environment in terms of decreasing waste. By designing products with circularity in mind, players not only use more environmentally friendly materials (e.g., fewer chemical that are hazardous to the environment) but also reduce the environmental costs associated with consumption. To support such efforts, the UK government has started to give incentives to those that design products with an end-of-life value function and circular design in mind, as well as to penalize those who are not aligned with plastic reduction and zero waste objectives (mainly through new taxes).
Second, by offering its returnable cup service to retailers, Cupclub spurs change within the broader ecosystem. With its business model innovation, Cupclub encourages players across the value chain to rethink the status quo, from R&D to manufacturers to vendor to recyclers, et al. New skills and technologies are required, as well as increased collaboration (and potentially competition) along the value chain. How can rethinking and changing the way things are done today apply to other parts of the food packaging industry? Which opportunities are good both for society and for business?
Finally, Cupclub promotes positive consumer behavior. As consumer sentiment shifts increasingly toward environmental stewardship, retailers and service providers need to follow suit and meet demand. However, Cupclub’s offering also acts as a catalyst to change consumer sentiment and behavior. According to Safia Quereshi, “it starts with design because ultimately it’s not the consumer that is going to make a decision: it’s brands”—by educating, enabling, and facilitating behavior change through its partnerships with retailers, Cupclub influences not only how people drink coffee but also increases awareness and sets up for broader scaling and generalization of behavior better aligned with sustainable consumption. Additionally, as seen in one of Cupclub’s pilots with the Royal College of Arts in London, change can take place rapidly. Fueled by network effects, adoption at the RCA grew quickly—in the first three days of marketing activation during fresher’s week (student orientation), 30% of the college population were signed up for Cupclub; sign-ups then organically grew to 61% over six weeks.
What are the obstacles for this model to work?
The largest challenge Cupclub is facing is scaling. How does a start-up, currently at seed stage and looking towards series A funding, achieve the necessary growth?
“We would need to raise at least £10m to even start in the retail area, primarily because your marketing spend would be pretty substantial, your critical mass, on-boarding a whole collection of retailers within close proximity, the interaction with government…”
So far, Cupclub’s approach has been to target small, closed ecosystems such as universities or government buildings, within which it works well. However, achieving a critical mass of retail stores will be paramount for the business to become a player citywide. Cupclub is convenient for consumers only if there are a sufficient volume of well-located bins within reach, wherever they finish their coffee. Any gaps in Cupclub coverage could be frustrating for consumers. Furthermore, the logistics involved in collecting and distributing the cups are heavy and scale will make them a lot more efficient.
An additional observation is that each city can be regarded as its own, closed ecosystem within which the service is provided – at least for the time being. Scale in one city does not imply scale in other cities, although building a strong brand in one city could ease the entrance elsewhere.
Retailers, retailers, retailers. City scale is realizable only through a large retail network. Cupclub needs to grow now, but customer acquisition costs are high and if it takes five to six years to raise the money, other players will have time to enter the game. The first mover advantage could be lost. Fundraising takes time unfortunately, so at this stage, one appealing option would be to find a strong player with whom to partner: the quickest route to scale seems to be to incorporate large chains into the network. Winning the custom of such retailers, ideally convincing them to collaborate in a single system for cup disposal within existing stores, appears, to us, to be the quickest way to grow.
Another relevant challenge for Cupclub is consumer’s trust.
The Cupclub service relies on a chip embedded in the cup, that allows the company to collect information about what the consumer consumes and where he or she travels after purchase. While the former idea is already embedded in many store loyalty cards, the ability to track the journey of the consumer after purchase, through information about the bin the consumer uses to get rid of the cup, is an innovation. Cupclub may in future provide anonymized and aggregated data that retailers can then use for commercial purposes—it could be useful in deciding where to open new stores, for example. Consumers may not love the idea that Cupclub is tracking their movements (and can identify whether or not they go to work, etc). In these days of CCTV, electronic payment, and mobile phone location devices though, this is maybe not such a big deal. The data is anonymized within Cupclub’s systems and individuals are protected by data protection laws…it seems unlikely that many will let such concerns get between them and a good cup of coffee.
But Cupclub are not the only ones
There are other initiatives similar to Cupclub, in other geographies. For example, the city of Freiburg in Germany has the “Freiburg Cup,” a hard plastic, reusable coffee cup that customers can obtain with a one euro deposit. The cups can be returned to any participating store, which will clean and reuse returned cups with other customers.
However, according to Cupclub’s founder Safia Qureshi, “[their] biggest competition really are other solutions,” such as compostable cups, cups that are more recyclable, or even just customers bringing their own reusable cups. Given the wide range of customer preferences and needs in specific contexts, Safia fully believes that different solutions serve different purposes and that “every one of them has their own place in the industry.” Government regulation has a huge role to play role and new initiatives such as the UK’s proposed “latte levy,” will have implications for both consumers and retailers. At the end of the day, however, perhaps the biggest battle Cupclub (and others) will face is with consumer behavior and the desire for absolute convenience in the quest for coffee.