What happened to Starbucks? How a progressive company lost its way
There is a coffee shop in Midtown Manhattan that is simple to overlook. It is located on the ground level of an office building. There is no menu as you go in; instead, there is a metal riser holding beverages that are ready to be picked up, and in the rear are some plush banquettes and tables. Sushi and sandwich packs are neatly organised in display cases, while shelves are stocked with gas station mainstays like Red Bull and Kettle chips. You must go through a turnstile that scans your palm in order to log into your Amazon account in order to access any of stuff. Without speaking to anyone, you may pay for the coffee and meal. Start with the applications, advises a notice beside the door.
This store—called Starbucks Pickup with Amazon Go—opened in November of last year and was marketed as “a wholly different Starbucks focused on seamless convenience.” It is the first of three that the coffee giant hopes to launch in New York. It is also a powerful representation of Starbucks’s stealthy brand evolution from cosy meeting place to tech-enabled caffeine depot as well as the difficulties the business is currently facing. Starbucks stated on March 16 that Kevin Johnson, its CEO of five years, will be stepping down, demonstrating the company’s apparent recognition that it is at a turning moment. (Starbucks stock increased 7% as a result of the announcement.)
Starbucks started positioning itself as “the third place” in the 1990s, a location where consumers could find warmth, camaraderie, and decent coffee halfway between home and work. The idea was sparked by former CEO Howard Schultz’s visit to the friendly espresso bars of Milan in the late 1980s, and Starbucks has since broadly spread the experience by running 34,000 locations throughout 84 nations. The business expanded on this philosophy to provide staff members “a friendly and uplifting third place,” which over time has come to entail generous programmes including healthcare coverage for part-timers, an intentionally inclusive workplace, free college tuition, and paid parental leave.
Starbucks has grown enormous along the way. After McDonald’s and Subway, it is currently the third-largest restaurant chain in the world, and it is expanding more quickly than either. The business intends to establish 2,000 additional locations this year, many of them in China, the company’s second-largest market, where it has been opening a new location every 15 hours since 2020. (Starbucks owns and runs all of its locations in China.) If you had invested $10,000 during Starbucks’ 1992 IPO, your money would currently be worth more than $3 million.
However, the idea of developing a third location had already started to lose priority for the business before the epidemic. 80 percent of transactions in 2019 were for takeout. The smartphone app was being used to place one-fifth of the orders. Cold beverages were outselling hot drinks because they are intrinsically more portable. Starbucks’ brand identity was deteriorating along with the cafés’ sense of community. Executives at the corporation, which denied all requests for interviews for this piece, were already subtly suggesting ideas to “reinvent” or “reimagine” the third place idea as early as 2020.
Starbucks’ relationship with its employees was also evolving at the same time, as a result of factors both within its control and outside of it. Baristas in Buffalo, New York, began organising last summer, claiming that their pay was too low and worker safety was being disregarded. One of the fastest-moving union drives in American history has been sparked by petitions for union ballots filed by partners at more than 150 Starbucks locations across 27 states since August.
However, this is neither an Alabama coal mine, a Nabisco factory, or an Amazon warehouse. This is Starbucks, a stalwart of progressive capitalism that launched ground-breaking employee-first practises and was the first business to grant stock options to even part-time workers. (Because of this, Starbucks refers to its baristas as “partners.”) Employees shouldn’t rebel against a business like this. However, coffee businesses aren’t allowed to request your biometric information. How did Starbucks get here, and how far can it go while still maintaining any semblance of its original brand DNA?
In a statement, Schultz, who is coming back to serve as interim CEO until Johnson’s formal successor is named in the autumn, acknowledged being aware of the problems: Although I had no intention of going back to Starbucks, I am aware that it has to change once more in order to prepare for a fresh and exciting future in which all of our stakeholders may prosper.
However, Schultz’s participation hasn’t exactly improved the company’s employee relations thus far, and Starbucks will continue to face strong market pressures, which suggests that extreme tech-driven efficiency tactics are definitely here to stay.
According to Stephanie Link, chief investment strategist at Hightower Advisors, “They’ve done about everything they can do.” Given the macro, which is Wall Street’s word for underlying factors like the pandemic and inflation that, lately at least, have roiled markets, the stock has languished because it is pricey and you aren’t receiving the results that you used to. Despite the fact that Johnson’s overall revenues were in the upper single digits, she continues, it still felt like “running on a treadmill simply to keep static.”
A lady and a guy entered the Starbucks-Amazon shop behind me on a Saturday in February while I studied how to register my palm on the kiosk so that the turnstile’s biometric sensor would let me through.
The man said, “Whoa,” like one does when they believe they have been found intruding. The barista informed them they couldn’t place an order as they approached the counter. To fulfil their order, they had to access the Starbucks mobile app, locate this specific location (59th Street between Park and Lexington), and place it there.
The barista said, “Right now, the wait should just be around 15 minutes.”
The pair contemplated this for a moment before leaving.
Starbucks celebrated its 50th anniversary at the shareholder meeting last year. It was completely virtual because of COVID-19. President and CEO Kevin Johnson used the phrase he invented for society’s return to post-pandemic life: “We’ve positioned Starbucks for the inevitable Great Human Reconnection that is about to occur.” After taking over for Schultz in 2017, he erected the Tryer Center at Starbucks’ Seattle headquarters, where he was standing. It’s where Starbucks creates Deep Brew, the platform for artificial intelligence that has grown to be his area of interest.
Johnson, the son of a theoretical physicist at Los Alamos and a former IBM engineer, was nothing if not a numbers person. He also held positions as CEO of Juniper Networks, the networking and security company, and an executive at Microsoft who handled Windows. And a good one at that: Starbucks’ stock increased by more than 50% when Johnson was CEO. When questioned about how his approach differed from Schultz’s, he once responded, “I employ data to assist guide judgments.” (Schultz frequently has a good instinct.)
During the 2021 annual meeting, Johnson argued that Starbucks is “more resilient and stronger today than we were pre-pandemic.” Johnson attributed this success to a methodical “plan to reinvent the Starbucks experience” that involved moving stores around, boosting productivity, and examining Deep Brew’s data.
The Starbucks mobile app, which is so well-liked that it has recently processed more mobile payments than Apple Pay or Google Pay, is the brainchild of Deep Brew.
Birthdays, geolocations, and order histories are all tracked by Deep Brew. In an effort to change customer behaviour, Deep Brew may promote prepayment or provide a discount for an Americano rather than your customary complex latte if the store is crowded. Additionally, it aids Starbucks in juggling employee schedules, stock levels, machine upkeep, and even shop development. Mobile ordering increased by 8% last year, suggesting that customers tend to prefer it, especially during a pandemic.
Johnson stated to investors during the conference in March of last year, “These were strategic initiatives we put in place long ago, which we expedited to meet this moment.” Hasn’t this very second put that idea into practise? He said that his strategy since taking over the firm has been “to honour the vision, values, and traits that make that distinctive Starbucks experience while aggressively reimagining for the future.”
In order to improve efficiency in other areas, such drive-through waits, Starbucks has also hired outside experts, like Aaron Allen of Aaron Allen & Associates. “Food offers that were eight or nine syllables” became a bottleneck.
Starbucks has trained us to recite drink orders like “Iced Venti Nonfat Latte with an extra shot,” according to Allen. Inside of stores, where they didn’t want consumers demanding the #1, that made sense. However, Starbucks discovered at the drive-through that more syllables might lengthen wait times. To make ordering simpler and faster, menu boards now include large, practical pictures and linked food and beverage products.
However, pro-management employees I spoke with who were interested in organising claimed that Starbucks hasn’t been as eager to change policies and practises to facilitate their work. The issue of staffing has caused conflict.
One barista should be able to complete 10 client orders in 30 minutes, including taking payments, making beverages, cooking any food, and handing everything off. Some baristas contend that the standard is out of date. Apparently, certain things have become more challenging as a result of the drive toward mobile ordering. With the Starbucks app, customers are no longer subject to the barista’s gaze while purchasing a drink with 14 ingredients that is renowned on TikTok. Recall the avalanche of color-changing Unicorn, Mermaid, Zombie, and Pegasus Frappuccinos from Starbucks, which has even encouraged this practise.
Sara Mughal, a shift supervisor and member of the organising committee for her New Jersey location, claims that while she and her coworkers were pleading with Starbucks to give out N95 masks, put back in plastic sneeze guards, and add more shifts during the pandemic, their team was also battling with drinks that seem to get trickier and trickier. Another partner was requested to take over the drink-making duties at her business. Instead, they were given a huge digital monitor similar to the one that welcomes guests at the Starbucks Pickup with Amazon Go location. People can see where in the queue their drink order is. However, a barista manning the busy bar must manually update it using an iPad sitting on the espresso maker.
In a letter to Johnson in January, Mughal’s planning committee stated, “We have forged deep connections with other coffee enthusiasts.” “Instead, they’ve been receiving hurried orders more frequently lately, put together by a group of baristas juggling an excessive number of duties at once. Although you have exhorted us to do so, you haven’t provided us with the tools to do so.
THE ENTIRE EXPERIENCE WILL BE BAD IF THE PEOPLE SERVING THE CUSTOMER ARE NOT HAPPY, COMMITTED, AND PASSIONATE ABOUT WHAT THEY’RE DOING.
According to Jeffrey Hollender, cofounder of the American Sustainable Business Council and former CEO of Seventh Generation, “I’m a Starbucks customer, and in my judgement the customer experience has degraded considerably over the previous two to four years.” “AI won’t make a difference there. The entire experience will be terrible if the employees servicing the client are not engaged, pleased, and passionate about what they are doing.
Scott Bedbury, who created the third place concept while serving as Starbucks’ first chief marketing officer in the 1990s, finds the idea of digitising the third place to be especially startling. (Prior to that, he developed the phrase “Just Do It” when working as Nike’s commercial director.)
At the time, Starbucks was rapidly expanding, acquiring large amounts of square area in strip malls that required a cohesive concept. Bedbury’s task included determining how to characterise that area. His team conducted a number of focus groups in 1996. Respondents were instructed to close their eyes and imagine the finest possible coffee experience rather than being shown mock-ups of cafés. ‘What do you notice when you enter inside this place?’ we would ask them. You hear any music? How about your palate? What are you touching? Bedbury remembers. The last question is, “What do you feel when this coffee experience is as excellent as it can possibly be, it couldn’t be any better?”
He searched through these coffee shop imaginations with Jerome Conlon, Starbucks’s then-VP of branding, looking for patterns. Not in the caffeine sense, he explains, “the term we kept coming back to was stimulating: the experience of being stimulated by the noises, sights, scents, and relationships of the café.” This was a flexible zone in between; it wasn’t home or work. Bedbury gave me a picture of the grease board where these concepts were mapped out. The third place is stated in the centre. Words like “oasis,” “sanctuary,” and “meditation” follow that. Some people make word associations such as “laughter” and “comedy,” “romance” and “time” and “spirituality” and “Deepak” and “not too heavy” and “not cultish.”
Since then, Bedbury has come to see the unstoppable online march as a force that will divide society rather than unite it. We consider what the digital world has done to this area between places one and two that once served as holy ground, and now we find ourselves in a fourth location, he says. It never stops, it never turns off, it’s addicting, and it’s getting to us.
Companies that promote a progressive mindset are finding themselves in an uncomfortable position as a result of America’s growing labour movement.
For instance, leftists’ favourite outdoor clothing retailer REI, a customer-owned cooperative, was put to a union vote early this year: In February, CEO Eric Artz and Chief Diversity Officer Wilma Wallace recorded a 30-minute anti-union podcast that opened with their pronoun declarations and an apology for taking Indigenous territory. Nevertheless, workers decided to unionise.
However, market observers refer to Starbucks as the canary in the mine. “We invest in people—especially our partners, so they can help individuals in the places we serve,” Johnson remarked in June 2020. However, the organising employees claim that Starbucks has sought to thwart their efforts by shutting stores, reducing hours, conducting meetings with captive audiences, and dismissing some of their leaders—strategies that businesses like Walmart and Amazon have used in reaction to union campaigns. The National Labor Relations Board also filed its first official complaint against Starbucks this week, alleging that the coffee chain had unjustifiably penalised against two Phoenix-based baristas who were organising.
Even financial experts are criticising Starbucks: Two open letters were sent to Starbucks management by a group that was coordinated by Trillium Asset Management and Parnassus Investments. In reference to Starbucks’ significant environmental, social, and governance activities, Trillium’s chief advocacy officer, Jonas Kron, says, “One reason we’ve invested in the firm is they do have a very good ESG narrative.” But given the response to current labour issues, “we are afraid they might possibly erode decades’ worth of effort over the period of a few weeks.” In December, 53 investors who collectively owned assets worth $1.3 trillion signed the first letter. In March, more than 75 people who contributed $3.4 trillion signed the document.
Customers drop by daily to talk about the union:
According to baristas who are organising, both sides of the bar discuss unionisation most frequently. According to Meridian Stiller, a business partner from the Richmond, Virginia, area who serves on their store’s organising committee, “customers come in every day and want to talk about the union.” Writing “Union Yes” on cups is like writing “Race Together” again, Stiller laughs, alluding to the company’s well-intentioned but largely derided 2015 campaign that urged baristas to write those words on cups to spark a national dialogue about race.
“Starbucks did a great job of promoting the image that it’s better than most employers, but now that the curtain has been pulled back by their own workforce, it should serve as a cautionary tale for those of us who tend to reflexively say, ‘This company is great,'” writes Rick Wartzman, director of the Drucker Institute’s KH Moon Center for a Functioning Society and author of the book The End of Loyalty. The takeaway, according to Wartzman, is “that Starbucks is now usual,” not that Starbucks is terrible.
Starbucks is a fair and generous employer by many standards. The company’s most recent environmental and social impact report indicates that 69 percent of its employees are women and 47 percent are people of colour. Executive pay is based on meeting diversity goals, and as part of a mentoring programme, the corporation matches BIPOC managers with corporate executives. It claims scores of 100 on both the Disability Equality Index and the Corporate Equality Index from the Human Rights Campaign. In order to “provid[e] a Third Place of relief for people throughout the world who seek it,” it has recruited more than 26,000 veterans to date and is more than 25% of the way toward recruiting 10,000 refugees by 2022.
But the majority of these programmes date back several years. Since their debut, other businesses have not only imitated them but also improved them. For instance, Walmart, Amazon, and Target have more comprehensive programmes now than Starbucks, which launched the first programme of its sort in 2014.
Today, it also looks like the company’s health plan is less extreme. If a new barista picks Starbucks’ suggested plan and works 20-hour weeks, 7.5 percent of their earnings will go toward monthly premiums and up to another 6.8 percent toward deductibles. According to the Commonwealth Fund, a person is considered “underinsured” if they spend 5% of their salary on their deductible alone since their insurance is insufficient and might put them in a difficult financial situation.
Starbucks is above average on some workplace policy metrics (e.g., more likely than McDonald’s or Dunkin’ to give employees at least two weeks’ notice on work schedules), but significantly below average on others, according to the Harvard Kennedy School’s Shift Project, which tracks employment in the service sector extensively (e.g., changing schedules at the last minute). According to The Shift Project, Starbucks hasn’t put an end to the infamous “clopening,” a shift in which an employee shuts their store at night and then comes back a few hours later to reopen it. The business promised to stop this practise in 2014, but according to Daniel Schneider, head of Shift Project, 30% of partners still engage in at least one closing every month.
Next are salaries. Starbucks declared that it was making “historic investments in its partners,” including lifting the salary floor to $15 an hour by this coming summer, after organising activities kicked into high gear. But in 2012, advocates referred to $15 as a “living wage,” and in 2018, Amazon began paying fulfilment centre employees that amount. According to the MIT Living Wage Calculator, a single adult has to make at least $20 per hour in New York City, $23 in the Bay Area, and $19 in Seattle in order to maintain today’s basic standard of living. According to the most recent Family Budget Calculator from the Economic Policy Institute, employees need to make at least $14.50 an hour to support themselves in Orangeburg, South Carolina, the most cheap county in America.
Starbucks’s sales in 2021 was $29 billion. Despite shareholder opposition, Johnson nevertheless earned a compensation raise of over 40%, according to the company’s annual report. Schultz allegedly increased his wealth by 50% during the epidemic; his estimated net worth is now $4 billion. The chain also announced its third price increase since last October and promised $20 billion in stock buybacks and dividends last fall. Partners like Stiller in Virginia note that this money could have been used to bolster personal protective equipment, replenish catastrophe insurance, or help stores come up with innovative ways to reclaim their sense of a third place.
“Partners miss that feeling of community, and we believe quite strongly that a union is a community,” says Stiller, who has given up waiting for Starbucks to create any sense of camaraderie.
In order to show that “it wasn’t the coffee we were selling, it was the sense of community,” as Schultz put it, Starbucks initiated a campaign in 2015 to build additional cafés in underrepresented communities. The first of these so-called Community Stores was situated in Jamaica, Queens. It included agreements with two neighbourhood groups as well as an on-site job training space.
Following the opening of fourteen additional Community Stores, investors were uneasy. Why is Starbucks building locations in Bedford-Stuyvesant, people ask us? After Brooklyn’s first Community Store opened a distance away from the middle class housing developments where Schultz was raised, Schultz said, “We’re not in the charity business. “Quarterly earnings are given so much attention, but we learnt we needed to deposit goodwill early.”
Less than two years after the shooting death of Michael Brown in Ferguson, Missouri, which led to significant unrest in the city, Starbucks built a second Community Store there.
According to Cordell Lewis, the first manager of the shop, “I instantly felt the advantage of being at a community café when I came in Ferguson.” Michael Brown’s uncle worked as a barista, and the café tried to offer goods from regional producers like Natalie’s Cakes and More. It collaborated with the Urban League to provide employment training to over 400 residents of the neighbourhood. Starbucks referred to the Ferguson location as “a roadmap for the future” in 2017.
STARBUCKS DID THE RIGHT THINGS TO BUILD THOSE EARLY RELATIONSHIPS BY GETTING OUT INTO THE COMMUNITY AND ATTENDING DIFFERENT EVENTS.
According to Ella Jones, mayor of Ferguson, “Cordell created a tremendous foundation.” “Starbucks did the proper things to create those early ties,” says the author, “going out into the community and showing up at different events.”
Lewis was promoted to district manager in 2019, with responsibility for 11 Starbucks locations in the St. Louis region. The epidemic then began. He commends Starbucks for providing ill employees with catastrophic pay. Additionally, he claims that even when the stores weren’t doing well, managers still earned thousands of dollars in quarterly incentives. However, he adds, “Starbucks really got caught with their” after pausing, “Hopefully they’re thinking about what their operating processes look like. I understand that their primary goal is to boost earnings.
The organising effort, according to Lewis, who quit Starbucks in January to take the general manager position at a furniture company, began in early 2021 when Seattle halted catastrophe compensation and informed baristas that “it’s time to return to ‘business as normal’.”
Since the initial round of 15, Starbucks has constructed eight additional Community Stores, and it recently declared its intention to construct 1,000 by 2030. While Starbucks continues to significantly invest in “new formats that rethink the third place experience,” for example by building 42 mobile-order-only Starbucks Pickup locations since 2019, key executives driving the programme have gone. Before the epidemic had begun, however, Starbucks in Ferguson ceased selling Natalie’s Cakes and had Lewis’ Urban League’s job-training programme terminated.
According to Lewis, “all the original programmes have kind of withered away.” “I have no idea who owns that in Seattle or locally. But the store manager didn’t work in vain to make things happen. He claims that for a company the size and intelligence of Starbucks, “we might have showed up differently. maybe virtual collaborations. or at the very least checked in frequently to keep lines of contact open during the outbreak. Since that is what the rest of the world did, of course.
Similar outcomes have befallen other community stores. After missing sales goals, the business in Trenton, New Jersey was recently relocated to a new corporate neighbourhood.
Graffiti is now all over Bedford- Stuyvesant’s, which is located in a location that belonged for 40 years to the local landmark discount retailer Fat Albert. I recently went there and barely noticed two customers.
The tables were all photographed on the same day at Bushwick Grind, a locally owned coffee shop three blocks away, where a barista described the ingredients in the “sea moss smoothie.” Sea moss supplier DrSeaMoss is among the local firms with products on the inside shelves. Each day at 4:00 p.m., employees put leftover food in a communal refrigerator outside. With assistance from a neighbourhood charity called Together We Thrive that supports Black-owned companies, the shop is getting set to launch an urban garden.
The third location is there, pandemic or not. There will always be a need for a gathering place. They don’t require a green siren to summon them.