Over the past several months, Starbucks has been making headlines almost daily, from its latest clash with the growing union, to Howard Schultz coming back as interim CEO and closing stores, to most recently, getting rid of the COO position entirely.
Although the abundance of operational changes coming from the world’s largest coffee chain may seem reactive and chaotic, analysts that have covered Starbucks for a long time are experiencing déjà vu.
“I have seen Starbucks go through multiple transitions over the years and multiple times Howard has come back and left again,” Peter Saleh, analyst at BTIG said. “And every time he comes back, he has a game plan and makes major changes to the business almost immediately. When he came back in 2008/2009, he closed a lot of stores, reset the store base, and fired a lot of people. There was a lot of skepticism around what he doing back then too.”
Similar to when Schultz returned to Starbucks in 2008, the country is in yet another economic crisis (though not quite a recession yet) as the restaurant and retail industry deals with ballooning inflation and the uncertainty of a post-pandemic world. What’s new this time around? Starbucks’ ongoing issues with the SBWorkers United union.
Schultz took the helm from former CEO Kevin Johnson in April, right at the peak of the unionization tide that swept Starbucks stores. Since then, Starbucks’ reaction to the now-233-store union has been swift and union leaders have called out their parent company for alleged union-busting, including actions like closing recently unionized stores (or stores in the middle of the union election process) and firing union leaders at stores. Starbucks, for its part, has defended its actions, saying that the store closures had to do with underperformance, and the union leaders were not fired for their activism, but rather for breaking store rules, or even sometimes breaking the law.
The ongoing power struggle between SBWorkers United and Starbucks has even reached the courts: a federal judge recently ordered the reinstatement of two fired Starbucks workers. Starbucks, meanwhile, is pushing back hard against the union’s efforts and has accused the National Labor Relations Board of bias and tampering with elections.
Although the intention is to quash the union’s grab at power (or a more equitable seat at the table), analyst John Gordon of Pacific Management Consulting Group thinks it might have actually had the opposite effect.
“You have staked out a position that has actually succeeded in enraging the other side,” Gordon said. “If Starbucks instead was studiously neutral, that would have toned down the union situation […] If they followed the NLRB electioneering rules and sat it out, the union wave might have calmed down. The more they struggled, the more attention they attracted.”
But as Peter Saleh pointed out, the media attention on Starbucks union elections likely won’t last forever, and the union’s momentum already seems to be losing steam. In March, there were 70+ stores that filed for unionization, while there have been fewer than 10 in August. Saleh thinks this has a lot to do with Starbucks aggressively rolling out more benefits and higher wages, starting with Schultz’s announcement in May that he will be investing $1 billion in employees and stores in 2022.
“Do I think a fully unionized Starbucks is on the horizon? No,” he said. “I actually don’t know exactly what they’re trying to accomplish at this point. But I don’t think unionization is going to be a part of Starbucks’ future.”
While SBWorkers United’ success in the long-run remains to be seen, Howard Schultz’s strategy seems to be to usurp the attention and power from the union until employees don’t feel that they actually need representation anymore. This might be a challenging task to take on while also balancing investor satisfaction and company profitability.
“Being a barista is a hard job so anything Starbucks can do to make that job a little bit easier, of course you want to do to keep them happy,” Mark Kalinowski said. “The best thing to do is pay them more but that’s a tricky thing because you can’t just dole out this endless grab bag of cash for your employees because then you’ll go out of business. […] Starbucks is trying its best to address this situation.”
All three of the analysts we spoke with agreed that it’s very likely Howard Schultz will stay on as interim CEO longer than he planned to, based on his previous patterns. Originally, the new Starbucks CEO was supposed to begin in fall 2022, but that could be pushed back into the middle of next year until Schultz rights his ship. So, at this point, what does he want to change about the company besides employee satisfaction and slowing turnover rates? Many think that Schultz is reigning in the third-place strategy that he began in the ‘90s and reinvigorated when he came back in 2008.
Now, Schultz may be walking back the company’s famous open bathrooms policy in response to safety concerns, particularly in urban areas, that have increased over the last few years. In an interview at The New York Times’ DealBook D.C. policy forum in June, Schultz said he doesn’t know if he can keep the bathrooms open, saying “we have to harden our stores to protect our people.” This stance has been reiterated with the numerous stores Starbucks has since closed due to drug use in bathrooms and other safety concerns.
So, moving forward, Starbucks might focus instead on its growing off-premises business instead of making its cafes community centers for all.
“I don’t think they’re going to need to change their strategy,” Kalinowski said. “The stores might shrink a little, but the consumer has really moved away from that mentality [of sitting in a coffee shop] so it might happen naturally.”
Given all of the turmoil happening at Starbucks, could this affect the health of the company in the long-run? The analysts we spoke to don’t think it will be an issue, even if in the short-term, operations are topsy-turvy.
“Howard has made a lot of permanent decisions: he’s fired people and closed stores, so whoever takes over won’t be able to easily backtrack on these things,” Saleh said. “They’re just going to have to live with the strategies he’s laying in place. He’s basically saying, ‘I’m going to set it up for you and then you’re just going to drive the company forward.’”
Contact Joanna at [email protected]
Find her on Twitter: @JoannaFantozzi
