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Rough Notes, Jun 2000 by Boone, Elisabeth

At Starbucks, brokers are key partners in brewing winning risk management strategies

Americans' love affair with coffee is almost as old as the nation itself. Cowboys drink it dark, hot, and strong as iron filings. Hostesses serve it in dainty demitasse after dinner. And millions of us, from park rangers to presidents, rely on a steaming cup of java to clear the fog of early morning, to fight the midafternoon blahs, and to provide the perfect finish to a hearty evening meal.

It wasn't until recently that most of us knew anything more about coffee than the brand we chose from our supermarket shelf Coffee was coffee, no more exotic or sophisticated than staples like salt, sugar, butter, or bread. In the last several years, however, coffee has made a quantum leap from commodity to gourmet delight. Coffee houses, once the dark, mysterious haunts of black-clad beatniks, now are a familiar part of the suburban landscape. Spearheading this cultural transformation has been a Seattle-based pioneer that not only markets an array of exotic brews, but also strives to make each visit to its outlets a pleasant and memorable occasion: the Starbucks experience.

Since the first Starbucks opened in Seattle's famous Pike Place Market in 1971, the company has diligently pursued its mission of educating and pleasing consumers' palates with a tempting and ever-changing assortment of fine coffees. Whether you crave espresso, latte, cappuccino, or just a nofrills cup of House Blend, you'll find it wherever you see the familiar green and white Starbucks logo. Even if you're a tea aficionado, you're in the right place: choose black tea, green tea, herbal infusions, or a variety of Tazo teas. And every good beverage deserves an accompaniment; that's why Starbucks also offers an appetizing array of fresh pastries, cookies, and biscuits. There's Frappuccino, a low-fat iced coffee drink, as well as a line of premium coffee ice creams. Customers also can purchase coffeemakers, mugs, gift packets ... even compact discs and books. Starbucks coffees are available in supermarkets, and an extensive array of related merchandise is offered online and via mail order.

Since opening its first store nearly 30 years ago, Starbucks has grown to become an international business with more than 2,900 retail locations in North America, the United Kingdom, the Pacific Rim, and the Middle East. Virtually everywhere we are, Starbucks is ... and its thousands of locations, 37,000-member staff, and variety of operations make for some major risk management challenges. In this article we'll talk with Erwin Mallernee, Starbucks director, risk management, to find out the qualities he values most highly in selecting and working with insurance brokers. Mallernee, who has over 30 years' experience in risk management and insurance, is responsible for insurance, self insurance, safety and risk control, claims management and self-administration, fire protection, risk financing, and risk management information at Starbucks, where he supervises an 11-member staff.

Challenges and rewards

As director of risk management for the world's leading retailer and roaster of specialty coffees, what are some of the biggest challenges Mallernee faces-and what are the greatest rewards? "Our most important task is finding, developing, and retaining good people to meet the challenges and responsibilities of Starbucks' risk management," he responds. "We need partners (Starbucks' term for employees) who are people oriented and who fit in with our culture." Mallernee recruits staffers from two key sources, one internal and one external. "The baristas (espresso beverage makers) in our retail locations are often good candidates because they understand customers and know how to handle customer situations," he explains. "Also, Washington State University has a fine degree program in insurance and risk management; three of our staff are graduates."

The greatest reward of his work, Mallernee says, is "knowing we've prevented or minimized incidents and accidents to our customers and partners. From the start, we build safety and risk control into our store operations and activities, and we take satisfaction in knowing we're part of the solution, not part of the problem. Our approach is not to say, `No, we can't do it'; we try to understand the risk and seek ways to mitigate it."

Defining the broker's role

What qualities does Mallernee seek in an insurance broker? "We look far a broker team that will function as an extension of our risk management department," he responds. "These are people I want to work with, selected as I would select members of my risk management department-and people I can trust to get the job done. As a broker, you need to be accurate and deliver what you promise on time; I don't have time to look over your work." Further, "I want to work with technicians who work with markets-not salespeople."

Should a broker be all things to the risk manager? "No," Mallernee replies firmly. "I may not need all your services; I may be very selective." For example, he says, "We have in-house safety and loss control capabilities, and we use staff expertise and a TPA for our workers compensation and general liability claims, so our broker is less involved in those areas. Our broker helps us with property losses and directors and officers liability, where we have lower loss frequency. Our broker is extensively involved in our risk management information system and in helping us structure programs that allow us to assume as much risk as possible and transfer that which we don't want to assume."