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Starbucks

Starbucks to educate staff about racism – and it could cost coffee giant US$12 million in lost profits from 8,000 US store closures

Coffee giant Starbucks will shut stores around the United States on Tuesday to conduct an unprecedented training exercise at its more than 8,000 American outlets

PUBLISHED : Sunday, 27 May, 2018, 3:47pm
UPDATED : Sunday, 27 May, 2018, 9:08pm

As Starbucks prepares to close stores for racial-bias training this week, the coffee giant will not only be confronting a difficult and emotional issue, but will incur some hefty expenses in the process.

Starbucks’ decision to initiate the training will cost US$12 million in lost profit as it closes the doors of more than 8,000 company-owned stores and its corporate office Tuesday afternoon, estimates Sharon Zackfia, a partner at investment banking firm William Blair.

The training caps a series of efforts that the company has undertaken to recover from criticism concerning an incident that occurred at a Starbucks store in downtown Philadelphia in April.

A manager called police to arrest two African-American men for trespassing. The pair was peacefully waiting to meet with another man to talk about a business deal and hadn’t made any purchases. One man asked to use the restroom – and was told he couldn’t.

Since the incident, the Seattle-based chain has apologised to the victims, who received a financial settlement. Starbucks created a new policy which allows people who don’t make purchases to use restrooms.

Starbucks’ training will be open to up to 180,000 employees between its stores and headquarters. Workers will be paid while they are attending.

While US$12 million is a relatively small impact for Starbucks, which posted net income of US$660 million in the quarter ended April 1, the chain is hoping the investment pays off when it comes to customer care, boosting the brand’s long-term value.

“You want to patronise a business that treats its employees and customers well. Starbucks has gone much further than many other companies in this regards,” said John Zolidis, president of Quo Vadis Capital.

“The sensitivity training, together with everything else Starbucks is doing, should be beneficial to the brand.”

Seattle-based Starbucks may minimise the impact by having chosen a lightly-trafficked time of day, the afternoon after the lunch rush, and following a long holiday weekend to close its coffee shops.

The sessions will begin about 1pm local time and last three to four hours, Starbucks said.

Most stores won’t reopen after the training is over, though most normally stay open well into the night.

The only other chain wide closure in Starbucks’ 47-year history was in 2008 for espresso training for baristas, according to the company.

That mass shutdown translated into US$6 million in lost profits, according to Zackfia. Closing costs include not only lost sales, but also salaries paid to employees.

Starbucks’ coffee competitors have been standing back. Chains like Dunkin’ Donuts and Tim Hortons have remained silent as the fallout from the Starbucks incident in Philadelphia unfolded. None have any of them made a play for Tuesday afternoon’s business.

“If a competitor is closing to do sensitivity training around an extremely sensitive topic, to somehow try to take advantage of that would be perceived poorly,” said Zolidis.

The sessions are expected to be guided by workbooks, employee conversation starters and videos presented on iPads, Starbucks disclosed Thursday.

Included in the pre-recorded messages are insights by Starbucks CEO Kevin Johnson, Starbucks executive chairman Howard Schultz and rapper Common.

To develop the training, Starbucks requested input from national and local experts, including former US attorney general Eric Holder; Sherrilyn Ifill, president and director-counsel of the NAACP Legal Defence and Education Fund; and Heather McGhee, president of the public-policy organisation Demos.

In a phone briefing for the media on Thursday, Ifill and McGhee said they spent many hours talking to company executives in person and on the phone, emailing them and drafting a list of sensitivity trainers that Starbucks could contact. They laud Starbucks’ effort.

“I don’t know a company as ubiquitous as Starbucks is … that has stated their willingness to directly confront racism and bias within their own company,” Ifill said.

“That’s powerful.”

Tribune News Service, Agence France-Presse