Starbucks, Dunkin' Donuts Race Against Bans, Taxes on To-Go Coffee Cups

The People’s Republic of Berkeley, Calif., takes pride in its leadership on all things civic and environmental. The small liberal city east of San Francisco was one of the first U.S. cities to adopt curbside recycling. It banned styrofoam and was early to take on plastic shopping bags. Earlier this year, the Berkeley city council put on notice a new environmental scourge: The to-go coffee cup.

Some 40 million disposable cups get tossed in the city each year, according to the city council, almost one per resident per day. So in January, the city said it will require coffee shops to charge an extra 25-cents for customers who use a take-away cup. “Waiting is no longer an option,” Sophie Hahn, the Berkeley city council member who wrote the legislation, said at the time.

Overwhelmed by trash, jurisdictions around the world are banning single-use plastic takeaway containers and cups. Europe says plastic beverage cups have to go by 2021. India wants them out by 2022. Taiwan set a deadline of 2030. Surcharges like Berkeley’s are likely to get more common in an attempt to quickly change consumer behavior before more outright bans.

For chains like Starbucks Corp., which goes through about 6 billion cups a year, this represents no less than an existential dilemma. Dunkin’ recently renamed itself to de-emphasize its donut origins and now makes close to 70 percent of its revenue from coffee drinks. But it’s also a pressing problem for McDonald’s Corp. and the much wider fast-food industry.

Executives have long suspected this day would come. Separately and together, they’ve been working on a more environmentally friendly alternative to the plastic-lined, double-walled, plastic-lidded paper cup for more than a decade.

It hasn’t gone that well.

“It nags at my soul,” said Scott Murphy, chief operating officer of Dunkin’ Brands Group Inc., which goes through 1 billion coffee cups a year. He’s been working on the chain’s cup redesign since it pledged to stop using foam in 2010. This year, its stores are finally making the transition to paper cups, and they continue to tinker with new materials and designs.

“It’s a little more complicated than people give us credit for,” says Murphy. “That cup is sort of the most intimate interaction with our consumer. It’s a big part of our brand and our heritage.”

Disposable cups are a relatively modern invention. About 100 years ago, public health advocates were eager to ban a different kind of cup—the public drinking vessel, a shared tin or glass cup left near drinking fountains. When Lawrence Luellen patented a wax-lined throwaway cup, he billed it as an innovation in hygiene, a prophylactic measure to counter diseases like pneumonia and tuberculosis.

To-go coffee culture didn’t emerge until much later. McDonald’s rolled out breakfast nationwide in the late 1970s. A little more than a decade later, Starbucks opened its 50th store. Together with Dunkin’, the three now sell close to $20 billion in coffee annually, according to an estimate from BTIG LLC analyst Peter Saleh.

Meanwhile, companies like Georgia-Pacific LLC and International Paper Co. have grown along with the market for disposable cups, which hit $12 billion in 2016. By 2026, it’s expected to be closer to $20 billion.

The U.S. accounts for about 120 billion paper, plastic and foam coffee cups each year, or about one-fifth of the global total. Almost every last one of them—99.75 percent—ends up as trash, where even paper cups can take more than 20 years to decompose.

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