Starbucks’ union fight pushes Wall Street away

Members respond during Starbucks union vote in Buffalo, New York, USA, December 9, 2021.

Lindsay DeDario | Reuters

When Starbucks announced that Howard Schultz would return to the company as interim CEO, investors cheered. His first tenure as CEO made the company a global brand, and his second, years later, revived both the company and the stock price.

But the applause has since subsided as Wall Street predicts the coffee giant will continue to spend money in its efforts to stem a union.

The stock has fallen 12% since Schultz took over on April 4, pulling the company’s market capitalization down to $ 92.2 billion. The S&P 500 fell only 2% in the same period. Wedbush Securities and Citi Research both downgraded equities to neutral ratings in April, citing the work situation and other concerns.

The latest excitement follows months of build-up.

In late August, company-owned Starbucks cafes in Buffalo, New York, asked the National Labor Relations Board for a union election. Since then, more than 200 of the coffee chain’s locations have submitted their papers to the union. To date, 24 stores have voted to be affiliated with Workers United, with only two sites so far voting against.

Admittedly, these places represent a small portion of Starbucks’ nearly 9,000 company-owned American cafes. But analysts and industry experts are concerned that Schultz is not taking a frugal approach to slowing the union’s push.

“It’s hard to avoid the reality of the situation – that problems that can be solved in the short term are probably much more expensive and time consuming to bear results,” JP Morgan analyst John Ivankoe wrote in a note to clients on 11 April.

Salary and benefits

In October, when Kevin Johnson was CEO, the company announced two pay raises for all of its baristas that would take effect this year, bringing its average pay to $ 17 an hour. In late March, Starbucks Workers United warned that Schultz could take advantage of these enhanced benefits in an effort to curb the union’s campaign.

Starbucks did not respond to a request for comment at the time, but Schultz appeared to confirm the strategy on his first day back on the job when he announced that Starbucks would suspend all stock repurchases to invest back in the company’s people and cafes.

In meetings with U.S. store managers last week, Schultz said the company weighed enhanced benefits for all of its workers, but that federal labor law excludes the chain from giving higher wages or making other changes to the terms of employment of unionized workers. Labor experts say that is technically correct, but Starbucks can still ask the union if these baristas want the enhanced benefits.

Higher benefits could deter baristas from organizing, but Wall Street is concerned that strategy may have too high a cost.

Citi Research analyst Jon Tower wrote in a note on April 11 that either wage increases or growing momentum behind union efforts would make him more bearish on the stock.

There is also a risk that Starbucks will raise workers’ wages, but the initiative does not avert union efforts.

“Starbucks has made the job as a barista so much more challenging that even if they ‘solve the pay and benefit issue’, I do not think it will necessarily stop or slow down the trade union movement,” said Nick Kalm, who has advised other companies on how to handles union work, strikes and lockouts as founder and president of Reputation Partners.

While organizing baristas have mentioned the low payouts for more executives and other benefits, contract negotiations at its Elmwood location in Buffalo, New York, have focused on “fair” firing, stronger health and safety policies, and allowing customers to tip. . by credit card. The union also plans to ask for higher wages and benefits.

Reputation risk

With each new union’s counterattack, Starbucks also risks its long-standing reputation as a progressive company.

“Our conversations with several union experts suggest that the biggest financial risk for Starbucks is loss of market share and deterioration of brand perception if the union struggle continues to make headlines,” BTIG analyst Peter Saleh wrote in a note to customers on Wednesday.

Saleh lowered its stock price target from $ 130 per share. share to $ 110, but maintained its buy rating.

The Seattle-based company gained a reputation as a generous employer by offering its workers health care, paid leave and other benefits decades ago, a rarity in the restaurant industry at the time and even today. The company has also been vocal in its support for same-sex marriages, refugee employment and other liberal purposes, which has further strengthened its image as a bastion of progressive capitalism.

While conservatives have threatened to boycott the company in the past, its views have attracted progressive employees – such as those pushing for a union today – and customers.

But the union has claimed union-wide activity on the part of the company, including firing organizers and cutting barista hours at union venues. The NLRB has filed three lawsuits against Starbucks alleging that the company illegally retaliated against organizing baristas. Starbucks has denied all allegations of union termination and filed two separate complaints with the NLRB on Wednesday, claiming the union violated federal labor law by intimidating and harassing its workers.

If your whole mantra is to be a very progressive company, it will be very difficult for you to reconcile strong anti-union messages with it. “

Nick Kalm

President and Founder of Reputation Partners

Starbucks’ response to the union’s push may cut off investors who choose stocks with environmental, social and managerial values ​​in mind. An investor group led by Trillium Asset Management called on Starbucks to adopt a neutral policy towards union efforts. The group said in March that it holds at least $ 1.2 billion in Starbucks shares.

“If your whole mantra is to be a very progressive company, it will be very difficult for you to reconcile strong anti-union messages with it,” Kalm said. “And that’s where they are, and it’s going to take a toll. Now people are in a weird way addicted to Starbucks products.”

One such conflict-filled customer is Clarissa, a 33-year-old in Taos, New Mexico, who describes herself as “a bit of a peppermint mocha or blonde frying addict.”

She has not been patronizing a Starbucks café since Feb. 13, citing how the company has handled union work. Her personal boycott breaks a two-decade-long series of visits to the coffee chain at least five times a week.

“I still have $ 6.70 on my Starbucks Gold card, which probably just sits there because I do not want to return after their union breakup,” she said.

But not everyone is angry at the company. BTIG investigated 1,000 Starbucks customers about their loyalty to the coffee chain if they failed to agree on a contract with Starbucks Workers United. Only 4% of respondents said they would never visit a Starbucks again, and 15% said they would visit less frequently.

More than two-thirds of consumers surveyed said it would not affect their frequency of visits at all.

Neuberger Berman analyst Kevin McCarthy said he is holding on to the stock because of his belief in the company’s long-term prospects under Schultz’s management. The investment company had $ 460 billion in assets under management per share. 31th December.

“It’s Howard 3.0,” McCarthy said. “I hope his credentials and historic track record of being able to return to business and revive will be constructive for the company in the long run.”

Leave a Reply

Your email address will not be published.