In December, a Starbucks store in New York became the first location in the United States to call for unionization. Since then, a total of nine stores have voted to unionize and 160 locations have petitioned to organize. Starbucks, like other food and beverage companies, is battling the threat of higher labor costs due to unionization. The timing of unionization is great for employees and terrible for companies that are still licking their wounds from the COVID-19 pandemic.
The US job market is arguably the best it has been in decades. On March 24, the number of Americans applying for unemployment benefits reached the lowest level in 52 years. Nationwide urelement is now just six million people, or 3.6% of the population. Many companies are struggling to find workers, and those that have help are having a hard time paying folks an amount the company can afford.
However, Starbucks is not one of these struggling small businesses. Starbucks earned US$29.06 billion in revenue in 2021, US$4.2 billion in net income, paid US$2.11 billion in dividends, and raked in US$4.52 billion in free cash flow. In October, the company announced a US$20 billion stock repurchase and dividend program between fiscal 2022 and fiscal 2024. The company typically raises its dividend by 10% or so per year, meaning it would have paid roughly US$7 billion in dividends over that three-year time frame. That leaves US$13 billion in buybacks. If a company can afford to buy back US$13 billion of its own stock in just three years, it’s hard to argue it can’t afford to pay its employees more, as well as offer better benefits. And although Starbucks has long been seen as one of the more proactive companies when it comes to profit sharing, wages, and education assistance, certain employees appear to not think these efforts are enough. Judging by Starbucks profits, these employees may have a point.
Changing Of The Guard
Starbucks CEO, Kevin Johnson, who said around a year ago he was planning on retiring, officially left Starbucks on April 4, and was replaced by Howard Schultz, Starbucks’ old CEO and in many ways the mastermind behind its global dominance. Schultz was CEO of Starbucks from 1987 to 2000, and then again from 2008 to 2017. On Monday morning, just minutes into his third term as CEO, Schultz announced that Starbucks was suspending share buybacks until further notice and focusing instead on investing on its people and its stores. In other words, the company is going to invest in the growth of its business and its culture, not the coffers of shareholders. “This decision will allow us to invest more into our people and our stores — the only way to create long-term value for all stakeholders,” said Schultz in a statement. The decision to cancel the buyback program could be seen as an olive branch toward disgruntled employees.
Schultz also wrote a brief letter to employees, the contents of which are as follows:
Dear Starbucks partners (employees), customers, communities, and shareholders,
I love Starbucks. Many of you do, too. We all have a stake in our future. It is something we all share. And this serves as an invitation to come build it.
This is my first note on the job as I return as CEO.
Our company, like many companies, is facing new realities in a changed world. Pinched supply chains, the decimation caused by COVID-19, heightened tensions and political unrest, a racial reckoning, and a rising generation which seeks a new accountability for businesses.
As Starbucks, we can either choose to rise to this moment — or stand idle.
I am returning to the company to work with all of you to design that next Starbucks — an evolution of our company deep with purpose, where we each have agency and where we work together to create a positive impact in the world.
My first work is to spend lots of time with partners. To lift up voices. To see everything that is already in play to help us become this kind of company. To invent. To face challenges — and for us each to be transparent with one another and become accountable for building the future of our company.
Our vision is to once again reimagine a first-of-a-kind for-purpose company in which the value we create — for each of us as partners, for each of us as customers, for our communities, for the planet, for shareholders — comes because our company is designed to share success with each of us and for the collective success of all our stakeholders.
Today, I’m outlining some first, essential steps:
- Starting immediately, we are suspending our share repurchasing program. This decision will allow us to invest more profit into our people and our stores — the only way to create long-term value for all stakeholders.
- In the weeks ahead, I will be traveling, along with our leaders, to connect with partners in our stores and manufacturing plants around the world to understand your thinking and ideas about how to build this next Starbucks.
- And beyond, we will then engage in design sessions with partners of all levels across the organization to co-create a future of mutual thriving in a multi-stakeholder era. We see these sessions as the deepest form of inventing together we’ve ever attempted as a community.
This will get us started in the right next direction.
I look forward to this next chapter.
Onward, together,
Howard
Stakeholder Backlash
Starbucks stock fell as much as 6% in just one day in response to the slashing of the share buyback program. On top of that, Schultz’ commentary at a town hall meeting on April 4 signaled that his stance on unionization may be more hawkish than the letter initially indicated.
“Now here’s where it gets a little sensitive — because I’ve been coached a little bit — but I do want to talk about something pretty serious,” Schultz said at the meeting. “We can’t ignore what is happening in the country as it relates to companies throughout the country being assaulted in many ways, by the threat of unionization. There’s two ways I can approach this. I can say I’m anti-union, and that I don’t want to see that at Starbucks. But I’m not an anti-union person. I am a pro-Starbucks person. Pro-partner, pro-Starbucks culture, pro-heritage, the history of our company… We didn’t get here by having a union.”
Schultz didn’t lead the company through the COVID-19 pandemic. But he did acknowledge that Starbucks could have done things better.
“We did make some mistakes during COVID-19 when we were not at our best,” Schultz said, according to a transcript verified by the company. “We’re going to fix all that. We’re going to restore trust, restore belief. And we’re going to do everything we can to ensure the fact that our partners understand the most important elements of everything Starbucks has done and will do is elevating the partner experience.”
Schultz added that he returned as interim Starbucks CEO “to ensure the fact that we the collective will co-create a reimagined Starbucks with our partners at the center of it all. As a pro-partner company. A company that does not need someone in between us and our people.”
The Long Game
In just one day, Schultz found a way to upset Starbucks shareholders and employees. However, Schultz has a reputation for growing Starbucks and fostering a solid corporate culture that many food and beverage companies have since tried to emulate. In this vein, Schultz may be playing the long game — accepting short-term criticism as merely a necessary expense behind his long-term vision. Schultz may have been successful in the past. But social media has changed a lot since then, even in the last five years since he stepped down as CEO. With the company still recovering from the pandemic, not to mention the new threat of runaway inflation, Schultz certainly has his hands full keeping Starbucks’ growth intact. The company is trying to juggle shareholder happiness and employee happiness. It’s a tall order, or in Starbucks’ case, a venti. If the company fumbles the unionization issue by failing to listen to employee needs, it could damage its reputation, and potentially, the value of its company.
