How Starbucks Became America’s Punching Bag

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Everybody hates Starbucks. The left, the right, even some of its millions of customers.

That’s the reality Laxman Narasimhan will face when he arrives in October to begin six months studying founder Howard Schultz as the “incoming chief executive” of the $95 billion company.

The Seattle-based chain has long attracted bricklayers for its ubiquity, elaborate drinks and even the way it roasts coffee. Now he finds himself squarely in the crosshairs of America’s culture wars and economic struggles. He has been targeted for unionization by a resurgent labor movement, and was also sued last week by conservatives challenging his diversity and inclusion efforts.

Meanwhile, staffing issues and changing customer preferences have contributed to unpleasant experiences for everyone at many stores. Outlets designed to fulfill 1,200 orders a day routinely serve 1,500, and increased personalization has made it more difficult. Labor and raw material costs have weighed on earnings, and the company’s share price has fallen 29% this year, lagging the market as a whole.

Schultz may have boasted on a recent earnings call that “the Starbucks brand has real legitimacy and relevance outside of our stores.” But the resulting whirlwind of challenges from all sides is probably not what he had in mind.

Starbucks, which owns and operates many more outlets than other major chains, prides itself on treating its staff well and creating an inclusive environment. In 2018, it closed all of its stores for training on implicit racial bias. While many U.S. companies have workforce diversity goals, Starbucks has been particularly public about how it ties executive compensation to achieving those goals.

Tory activists have therefore seen him as an attractive target when deciding where to file a new legal challenge to these policies. The shareholders’ lawsuit argues that diversity goals lead to unlawful discrimination against white candidates. Starbucks declined to comment.

“We’re a small shop and we can’t sue everyone,” says Scott Shepard of the National Center for Public Policy Research. Starbucks “are so twee and so happy with themselves . . . that seemed like a good place to start.”

But Starbucks’ progressive orientation has also made it fertile ground for organized labor. At a time when popular support for unions in the United States is at the highest level since 1965, more than 230 of the nearly 9,000 Starbucks stores across the country have voted to unionize since December.

“Starbucks is in some ways iconic of the whole [US] economy . . . you have highly educated people who wind up in low-wage jobs,” says Joseph Geevarghese of Our Revolution, a progressive political action group.

The company, since Schultz, fought back harshly. He has resisted signing collective bargaining agreements and recently accused federal labor officials of working with union leaders to influence ballot results. Starbucks Workers United’s claim that the chain illegally fired union workers and closed unionized stores resonated with some customers and employees.

“Because it’s a progressive company, it attracts progressive people,” says Richard Bensinger, a veteran labor activist who advises Starbucks organizers. “Schultz’s overreaction [to the union efforts] outraged people.

Still, customers keep coming. U.S. same-store sales were up 9% year-on-year last quarter and the number of unique customers hit a new high. The business also jumped 22 slots in the annual Harris Corporate Reputation Survey ranked 43rd among America’s 100 Most Visible Companies.

This speaks to Starbucks’ ability to adapt. A gathering place for coffee drinkers when it was floated on the stock exchange in 1992, the chain now attracts a clientele with a much wider offer: cold drinks favored by young people represent 75% of beverage sales and almost half sales are made at the drive-thru.

Schultz, who returned to active management in March, has revamped the management team and the company has promised to unveil new “game-changing” plans at an investor day next week. The chain has been working for more than a year on updating operations to ease the burden on workers and speed up service.

The challenge for Narasimhan will be pulling off the next evolution, knowing that Starbucks’ enormous size and ubiquitous branding means it will continue to be a punching bag.

“What’s happening in America is more important than Starbucks,” Schultz said in June. “Starbucks unfortunately happens to be the agent.”

brooke.masters@ft.com

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