New Leader's First Day! Starbucks Begins Transformation!

According to The New York Times, interim CEO Howard Schultz announced on his first day back in office that Starbucks would halt its stock repurchase plan, hoping to channel more profit into partners and store operations. On the news, the company's stock fell more than 5% in early trading.

The Growing Unrest Among Starbucks Partners

After the pandemic hit, squeezed by supply chain crises, high inflation, and local COVID-19 prevention measures in the United States, Starbucks cut operating costs through layoffs and reduced store funding while continually rolling out beverage promotions to draw in consumers. Partners' workloads multiplied several times over, yet wages and benefits stood still. Under mounting intensity and pressure, dissatisfaction began to surface...

At first, partners hoped reasonable negotiations would persuade Starbucks to put more money into employee benefits and store operations. The company turned a deaf ear. After repeated requests went nowhere, partners began petitioning and voting to form unions, seeking a direct channel to negotiate with the company.

The company stayed indifferent to demands for better benefits but was remarkably active in blocking unionization... to no avail. Once the first Starbucks employee union appeared, more and more American partners grew restless—some applied, others joined—until the situation became hard to contain. To date, employees at 10 Starbucks stores in the United States have voted to form unions, with employees at more than 170 stores requesting union representation.

Howard Schultz's Return and Investment Plans

Starbucks had previously announced that then-CEO Kevin Johnson was retiring and that Howard Schultz would take over on an interim basis until a successor was chosen. Before officially returning, Howard had already drawn up a plan to "change Starbucks' situation," one component of which was adding $1 billion for wages, training, and benefits.

Such a sum would certainly not come from Schultz's own pocket! More money in one place means less in another. So on his first day back, April 4th, Howard Schultz announced in an open letter the immediate suspension of the stock repurchase plan.

When a company buys back its own stock, the move typically lifts the share price, rewarding the investors and executives who hold large stakes. Starbucks had halted buybacks in 2020 because of the pandemic; only at the end of 2021 did it recommit to investors that it would return $20 billion in dividends and repurchases over three years. In the quarter ending January 2, 2022, Starbucks had already repurchased 31.1 million shares. Under the current authorization it could still buy back 17.8 million shares, though the amount spent has not been disclosed.

- Source: The New York Times

What is known is that Howard Schultz will redirect the funds earmarked for repurchasing those 17.8 million shares into employees and store operations. And to "stabilize morale," he will spend the coming weeks visiting stores for face-to-face conversations with frontline employees.

A New Approach to Employee Relations

Schultz's return won support from many investors and employees, because on the union question he chose not to oppose workers but to address the underlying problems. Before taking office, he had already spoken with the manager of the first store to unionize. He later told New York Times reporters that the company had failed to help solve stores' operational problems, which had disappointed employees. So when shaping Starbucks' 2022 plan, his first considerations were employee benefits and fixing staffing shortages.

As Howard Schultz once said: "People (partners) will always be our most important asset and Starbucks' competitive advantage."

A building with a loose foundation cannot stand steady. Rather than shoring up supports around the outside, find a way to make the foundation solid. Companies are no different: if employees cannot find good treatment and a sense of belonging, operations only grow harder.

Image source: Internet, The New York Times

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