Starbucks union battle pushes Wall Street back

Michelle Eisen, a barista at the Buffalo, NY, Elmwood Starbucks, the first Starbuck location to unionize, helps local Starbucks Workers United, employees of a local Starbucks, as they gather at a local union hall to vote for unionize or not, Wednesday, Feb. 16, 2022, in Mesa, Arizona.

Ross D. Franklin | PA

When Starbucks announced that Howard Schultz would return to the company as interim CEO, investors cheered. His first term as CEO transformed the company into a global brand and his second, years later, boosted both the company and its stock price.

But the applause has since died down as Wall Street predicts the coffee giant will continue to splash cash in its effort to stem a tide of unionization.

The stock has fallen 12% since Schultz took over on April 4, sending the company’s market value plummeting to $92.2 billion. The S&P 500 fell just 2% over the same period. Wedbush Securities and Citi Research both downgraded their shares to neutral ratings in April, citing the labor situation and other concerns.

The recent tension follows months of buildup.

In late August, company-owned Starbucks coffee shops in Buffalo, New York, petitioned the National Labor Relations Board for a union election. Since then, more than 200 locations in the coffee chain have filed the necessary paperwork to unionize. To date, 24 stores have voted to unionize under Workers United, with only two sites voting against so far.

Admittedly, these locations represent only a small portion of the approximately 9,000 American coffee shops owned by Starbucks. But analysts and industry experts fear Schultz is taking a frugal approach to curb the union push.

“It’s hard to avoid the reality of the situation – that problems to be solved in the short term are likely to be much more expensive and take much longer to achieve results,” wrote JP Morgan analyst John Ivankoe in a note to customers April 11.

Compensation and Benefits

In October, when Kevin Johnson was CEO, the company announced two pay increases for all of its baristas that would take effect this year and bring its average salary to $17 an hour. In late March, Starbucks Workers United warned that Schultz could take advantage of these enhanced benefits to try to rein in 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 at work when he announced that Starbucks would suspend all stock buybacks to reinvest in the employees and company cafes.

In meetings with US store executives last week, Schultz said the company is considering improving benefits for all of its workers, but federal labor law prevents the chain from paying higher wages or to make other changes to the terms and conditions of employment of unionized workers. Labor experts say that’s technically true, but Starbucks can always ask the union if those baristas want the enhanced benefits.

Higher benefits could deter baristas from organizing, but Wall Street fears the strategy may come at too high a cost.

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

There is also the risk that Starbucks will increase workers’ wages, but the initiative does not preclude organizing efforts.

“Starbucks has made the barista job so much harder that even if they ‘fix the wage and benefits issue,’ I don’t think that’s necessarily going to stop or slow down the union drive,” said Nick Kalm, who has advised other companies on how to handle worker unionization, strikes and lockouts as chairman and founder of Reputation Partners.

While organizing baristas cited poor pay gains for more experienced staff and other benefits issues, contract negotiations at its Elmwood location in Buffalo, New York, focused on layoff for “just cause”, stricter health and safety policies and allowing customers to tip with credit cards. The union is also considering asking for higher wages and benefits.

Reputation risk

With each new union counterstrike, Starbucks also jeopardizes its longstanding reputation as a progressive company.

“Our conversations with several labor experts suggest that the greatest financial risk for Starbucks is loss of market share and deterioration of brand perception if the labor battle continues to dominate the headlines,” Peter Saleh wrote on Wednesday. , BTIG analyst, in a note to clients.

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

The Seattle-based company earned a reputation as a generous employer by providing its workers with health care, paid vacations and other benefits decades ago, a rarity in the restaurant industry in then and even today. The company has also voiced support for same-sex marriage, refugee employment and other liberal causes, further cementing its image as a bastion of progressive capitalism.

While Tories have previously threatened to boycott the company, its positions have attracted progressive employees – like those pushing for a union today – and customers.

But the union alleged union-busting activities by the company, including firing organizers and cutting barista hours at union venues. The NLRB has filed three complaints against Starbucks, alleging that the company unlawfully retaliated against the barista organization. Starbucks has denied all allegations of union busting and filed two complaints with the NLRB on Wednesday, alleging the union violated federal labor laws by intimidating and harassing its workers.

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

Nick Kalm

President and Founder of Reputation Partners

Starbucks’ response to the push from unions could discourage investors who pick stocks with environmental, social and governance values ​​in mind. An investor group led by Trillium Asset Management has urged Starbucks to adopt a neutral policy toward union efforts. The group said in March that it owned at least $1.2 billion in Starbucks stock.

“If your whole mantra is to be a very progressive company, it becomes very difficult for you to reconcile strong anti-union messages with that,” Kalm said. “And that’s where they end up, and it’s going to damage their reputation. Now, at the same time, people are weirdly addicted to Starbucks products.”

One such conflicted customer is Clarissa, a 33-year-old woman from Taos, New Mexico, who describes herself as “a bit addicted to peppermint mocha or blond roast.”

She hasn’t frequented a Starbucks since Feb. 13, citing the company’s treatment of unionized workers. His personal boycott breaks a two-decade streak of visiting the coffee chain at least five times a week.

“I still have $6.70 on my Starbucks Gold card which is probably there because I won’t be coming back after their union breakup,” she said.

But not everyone is embittered by the company. BTIG has polled 1,000 Starbucks customers about their allegiance to the coffee chain if it fails to agree on a contract with Starbucks Workers United. Only 4% of respondents said they would never go to a Starbucks again and 15% said they would go less often.

More than two-thirds of consumers surveyed said it would have no impact on the frequency of their visits.

Neuberger Berman analyst Kevin McCarthy said he was sticking with the stock because of his confidence in the company’s long-term prospects under Schultz’s leadership. The investment firm has $460 billion in assets under management as of December 31.

“It’s the Howard 3.0,” McCarthy said. “Hopefully his credentials and historical track record of being able to come back into the business and reinvigorate himself will be constructive for the business in the long run.”

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