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 he would halt Starbucks' stock repurchase plan, hoping to invest more profits into current partners and store operations. Following this news, the company's stock price fell more than 5% in early trading.

The Growing Unrest Among Starbucks Partners

After the pandemic outbreak, affected by supply chain crises, high inflation rates, and local COVID-19 prevention measures in the United States, Starbucks had reduced operating costs through layoffs and cuts to store operational funds while continuously launching beverage promotions to attract large numbers of consumers. This caused the workload of current partners to increase several times over, while wages and benefits remained stagnant. Under high-intensity work and environmental pressure, Starbucks partners began to express dissatisfaction...

Initially, partners hoped through reasonable negotiations that Starbucks would invest more funds in employee benefits and store operations. Faced with these requests, Starbucks turned a deaf ear and showed no intention of addressing them. After repeated requests yielded no results, partners began petitioning and voting to form unions, hoping to establish direct channels for negotiation with the company.

At that time, the company remained indifferent to employees' demands for better benefits but was quite active in preventing union formation... However, this proved futile. With the emergence of the first Starbucks employee union, more and more American Starbucks partners became restless—some applied, others joined—ultimately developing the situation to a point where it became difficult to control... To date, employees at 10 Starbucks stores in the United States have voted to form unions, with employees at over 170 stores requesting union representation.

Howard Schultz's Return and Investment Plans

Previously, Starbucks announced that former CEO Kevin Johnson was retiring and Howard Schultz would temporarily take over as CEO until a new successor was selected. Before officially returning, Howard had already developed a plan to "change Starbucks' situation," one component of which was adding $1 billion for wages, training, and benefits.

But such a large sum certainly wouldn't come from Schultz's personal funds! An increase in one area means a decrease in another. Therefore, on his first day back in office on April 4th, Howard Schultz announced through an open letter the immediate suspension of the stock repurchase plan.

When a company uses its funds to repurchase its own stock, it typically raises its stock price, thereby rewarding investors and executives who often hold large amounts of stock. However, due to the pandemic, Starbucks had stopped stock repurchases in 2020. Not until the end of 2021 did Starbucks recommit to investors that the company would return $20 billion in dividends and repurchases within three years. In the quarter ending January 2, 2022, Starbucks had already repurchased 31.1 million shares. Under current authorization, Starbucks can still repurchase 17.8 million shares, though the amount spent on these repurchases has not yet been disclosed.

- Source: The New York Times

What is known, however, is that Howard Schultz will use the funds originally intended for repurchasing 17.8 million shares to invest in company employees and store operations. To "stabilize morale," Howard Schultz will visit stores in the coming weeks for face-to-face communication with frontline employees.

A New Approach to Employee Relations

Howard Schultz's return has received support from many investors and employees because, in handling the union issue, Howard Schultz did not oppose them but chose to address the fundamental problems. Before taking office, Howard Schultz had already spoken with the manager of the first store to form a union. Afterwards, Howard Schultz told New York Times reporters that the company had failed to help them solve store operational problems, which had disappointed them. Therefore, when formulating Starbucks' 2022 plan, his first consideration was providing employee benefits and addressing staffing shortages.

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

This is like a building with a loose foundation—how can it possibly be stable? Rather than trying to build support structures around the outside of the building, it's better to find ways to make the foundation solid. The same applies to companies. If employees cannot receive good treatment and a sense of belonging within the company, operations will only become increasingly difficult.

Image source: Internet, The New York Times

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