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Starbucks Stakeholder Relations

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An analysis and evaluation of the stakeholder relations in Starbucks Corporation, including the history, the current situation, and recommendations for the future

An analysis and evaluation of the stakeholder relations in Starbucks Corporation, including the history, the current situation, and recommendations for the future

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  • 1. Starbucks Stakeholder Relations Evelyn Peiyun Chao Emerson College November 29, 2012 CC648Stakeholder Relations J. Edwin HollingworthDepartment of CommunicationStudies
  • 2. Starbucks Stakeholder Relations ContentsIntroduction……………..……………………………………………………………..2History………………..………………………………………………………………..2Current situation……..………………………………………………………………...3Future situation……..………………………………………………………………….8Summary………….…………………………………………………………………...9Conclusion………..………………………………………………………………..…10Recommendations..…………………………………………………………………..10Endnotes………..………………………………………………………………….....12References……..…………………………………………………………………..…13Appendix……………………………………………………………………………..15 1
  • 3. Starbucks Stakeholder Relations Introduction As the market leader in the retail coffee industry, Starbucks is a multinationalcorporation that manages many different publics in different regions of the world. Asa public-traded coffeehouse giant, Starbucks needs to respond to shareholders,customers, employees, suppliers, franchisees, and many other governments andnonprofit organizations. On the homepage of the official U.S. website, Starbucks shows its devotionand expertise in stakeholder relations: almost every major Starbucks’ public can findinformation specifically designed for it. There are many sections on the site for theneeds of various groups. For example, there is a page for investor relations forshareholders, a career center for employees, office coffee for corporate clients,licensed store for potential franchisees, landlord-related FAQs for landlords, onlinecommunity for customers, newsroom for the media, and responsibility for the generalpublic. By observing Starbucks’ stakeholder relations strategy, organizations,especially those in the retail industry, can learn from its complex, global-scalerelationship management. History “Without great coffee, we have no reason to exist” (Schultz & Gordon, 2011,p. 4). This statement from Howard Schultz wrote in his book conveys the essence ofStarbucks’ existence. The giant Starbucks Corporation began as a small coffee shop in Seattle,Washington, in 1971, founded by Gordon Bowker, Jerry Baldwin, and Zev Siegl. Thethree named the shop after Starbuck, the first mate of the doomed whale ship inHerman Melville’s Moby Dick. Originally, it was a coffee bean marketer and laterexpanded its bean sales to restaurants and coffee bars after Schultz joined the 2
  • 4. Starbucks Stakeholder Relationscompany’s marketing team. Following a visit to Italy in 1983, Schultz was fascinatedwith Milan’s coffee culture, in particular, the role the ubiquitous “neighborhoodespresso bars” played in Italians’ daily social lives (Moon &Quelch, 2006). Hegenerated “the third place” concept that recognized American consumers’ needs for acomfortable resting place other than in the office or home. Unable to persuade his partners to open an Italian-style espresso bar like thosethat he found attractive in Italy, Schultz left the company in 1986 to open his ownespresso bar, Il Giornale. It was a café selling “espresso, espresso-based drinks suchas cappuccino, and food items, in addition to whole bean coffee” (Garthwaite, Busse,& Brown, 2012). In the next year, Schultz’s success in the venture led to his purchaseof the Starbucks company from the original owners. He rebranded the existing storeswith the Starbucks name. With a unique positioning, the company experienced anaggressive expansion in the subsequent 20 years. Starbucks completed its initial public offering in 1992. At that time, thecompany had 146 U.S. stores in the Northwest and Chicago and 19 Canadian stores.In 1996, the company went overseas for the first time. It opened the majority ofoverseas stores through licensing (Herriman, Wanikawa, Ichinose, Darak, &Chaivan,2008). According to Starbucks Corporation’s fiscal 2011 annual report (2012), globalrevenues reached a record $11.7 billion with more than 17,000 stores in 55 countries(Exhibit 1). Among the stores, 63 percent were domestic, while 53 percent werecompany-operated. Current Situation Below are several important publics for Starbucks with brief introductions totheir relationships with Starbucks, and the tactics the company uses to connect withthese publics. 3
  • 5. Starbucks Stakeholder Relations Shareholders. Starbucks has reported to shareholders annually since it wentpublic on June 26, 1992.Starbucks Corporations Common Stock is traded on Nasdaq,under the trading symbol SBUX. Starbucks Corporation provides detailed informationand Q&A for investors on the Starbucks Investor Relations website. As of November11, 2011, Starbucks had approximately 21,900 shareholders on record (StarbucksCorporation, 2012). The company communicates with shareholders primarily throughmailing documents, though shareholders can choose to receive informationelectronically. There are two important meetings: the Annual Meeting of Shareholdersand the Biennial Investor Conference. Although the company does not guaranteeseating for all shareholders, they can watch a live stream of the events online. Employees. “Every Starbucks is a little bit different. The reason is simple.The people.” (Schultz & Gordon, 2011, p. 147). Starbucks now has 200,000 employees globally. It calls its employees“partners,” trying to build a direct and open relationship with them in a positiveworkplace. The company is listed more than 10 times on Fortune’s 100 BestCompanies to Work For (2012). Generally, Starbucks has a high employeesatisfaction rate, thanks to the company’s health insurance benefits. Store managersserve as the intermediary between the company and partners. Managers are coaches,bosses, marketers, entrepreneurs, and community ambassadors all at once. They areresponsible for negotiating work schedules for partners. Except for management, employees work part-time, and often not the sameshifts each week or month (Simon, 2009, p. 107). This makes it difficult for baristasand patrons to build a rapport like in the early days of Starbucks in Seattle. Starbuckshad an 80 percent yearly turnover rate for partners and 20 percent for store managers(Weber, 2005). Employee relations were once not so good in the U.S. Starbucks tried 4
  • 6. Starbucks Stakeholder Relationsto buy off prounion workers with baseball tickets and, if that did not work, would firethem (Simon, 2009, p. 16). In theco-written pamphlet, Solidarity Unionism at Starbucks, Daniel Grossand Staughton Lynd (2011) tell the stories behind the formation of the StarbucksWorkers Union (SWU) in 2004. Gross was hired by Starbucks in 2003 and fired in2004 after participating in a picket line protest. Back then, Starbucks employees weresubject to many unfair conditions, ranging from work schedules and hourly minimumwages to restrictions on qualifying for health insurance benefits. Now the labor unionserves as another communication channel for employees to negotiate with thecompany. Customers. Starbucks succeeded in establishing a unique coffee culture withits timeliness in satisfying customers. The brand identified the desires of those buriedin the mundane routines of daily life in urban settings of the U.S., and around theworld. With decent jobs and education, these customers had rising incomes throughthe 1980s and 1990s. They longed for small indulgence in the hectic society wherethey were usually controlled by tight schedules, and they developed “a desire to keeplearning and discovering new things, especially if they were not too new or hard tofind” (Simon, 2009, p. 10). Starbucks provided the solution for yuppies (young urbanprofessionals), bobos (bourgeois bohemians), and their imitators: a way to show offtheir desire for wealth by buying a premium-priced coffee. Starbucks has engaged in communication with customers primarily throughbelow-the-line promotional activities, rather than above-the-line advertising.Customers can rarely see Starbucks advertisements on billboards, on publictransportation posters, in newspapers, and other traditional media. “The company hasspent so much less on traditional advertising than other big chains; yet, its been doing 5
  • 7. Starbucks Stakeholder Relationsbetter than what almost anyone expected from it a few years ago” (Morrison, 2011).In 2011, it spent about 1% of U.S. sales on advertising, including televisioncommercials and digital and social media. The company does not rely on “Budweiser-type advertisements” to talk to customers (Simon, 2009, p. 149). In retail stores, the company adopts “experiential marketing” strategies tocreate an exclusive customer experience, such as the “sense marketing” of the coffeearoma in every Starbucks store (Keller, 2012, p. 154). Starbucks designers decoratetheir stores in earth tones and equip them with cozy wooden furniture that mirrors“the natural upscale aesthetic of the 1980s era and beyond” (Simon, 2009, p. 11).Staff members handwrite and draw promotional information on chalkboards whenthere are new products and national activities. In addition, the My StarbucksRewards™ loyalty program gives free drinks and bonuses to loyal customers who usea Starbucks Card to collect “Stars” in order to become Gold members, who willreceive free personalized gold cards with their names engraved. Beginning in 2008,Starbucks partnered with AT&T to provide free Wi-Fi Internet access, creatingconvenience and an ever-welcoming store ambiance. Moreover, it has also partneredwith Apple to offer free downloads of "Pick of the Week" songs, which are similar tothe songs playing in a Starbucks, targeting iPhone and MacBook users. On the Internet, Starbucks has a huge presence for connecting with customers.Besides an official website, the company has appeared on Twitter, Facebook, Flickr,and YouTube to update news and reports. There’s also a My Starbucks Idea website,an online discussion community, where users are encouraged to share their feedback,experiences, ideas, votes, and suggestions. Starbucks also sends out emails aboutpromotions, new products, and store events to customers who are registered on theemail list. Customers can shop online as well as on the Starbucks Store website. 6
  • 8. Starbucks Stakeholder Relations Franchisees. 47% of all Starbucks stores are licensed stores, which areentirely operated by franchisees. Franchisees pay loyalty commissions to Starbucksfor using logos, recipes, and benefits from corporate marketing campaigns. There aretwo types of Starbucks franchisees: domestic and international. Domestic franchisees come from air-travel, business, college-university,health care, lodging, recreation, and retail industries. Licensed Starbucks stores maybe in an airport, a casino, an entertainment resort, a hotel, a hospital, or on auniversity campus, where there are some restrictions for Starbucks to open company-owned stores. These licensed stores have autonomy to a certain degree, which meansStarbucks does not intervene in the store management and operation. Some poorlymanaged stores might have caused employee dissatisfaction back in the early 2000s. Franchised stores account for 63% of international Starbucks stores. This isbecause it is easier for Starbucks to enter a regional market with a franchisee’s localcapital and business connections. The licensed regional franchisee establishes a localStarbucks company and operates in full sovereignty. They can open new stores andlaunch new Starbucks-related products. For example, the Starbucks in Taiwan isoperated and owned by the 7-11 Corporation. The Taiwanese Starbucks executesinternational promotions designed by the U.S. parent company, but it can also developnew products limited to the local market. Due to the differences among franchisees in different countries, somemarketing campaigns and promotions are international while some are regional.While a U.S.-issued Starbucks Card can be used only in the U.S. and some othercountries, like the U.K. and Hong Kong, Starbucks Cards that are issued in somecountries like Japan and Greece can be used only in the issuing countries. These 7
  • 9. Starbucks Stakeholder Relationsconditional restrictions depend on the contracts between Starbucks and each regionalfranchisee. Future Situation Shareholders. As a public-traded corporation, Starbucks is doing well inshareholder relations. In the future it has to maintain its current relationship withshareholders and can try digital media to more promptly communicate with them. Thecompany has to keep in contact with shareholders, especially in times of emergency.Meanwhile, it offers a Rumor Response section to give investors first-handinformation about Starbucks’ myths and facts. It is an efficient but passive way toclarify rumors. It can try using emails to actively update news on a frequent basisduring the year. Employees. Unlike employees in other countries, workers in the U.S. andtheir labor union appear to be actively involved in the company’s decision-makingand reformation. Starbucks’ most crucial step is to train store managers. Storemanagers handle front-line workers and play an important middle role in managingemployee relations. The company could increase quantified evaluation tactics tocontrol store performance and provide interactive ways for bottom-line workers tospeak to corporate offices directly through the Internet and such. Also it needs tobetter relationships with the Starbucks Workers Union and other involved laborunions, like Industrial Workers of the World. Customers. Between 2000 and 2007, Starbucks raised its prices four times(Petrecca& Kirchhoff, 2007). Seeing that thousands of Starbucks are open in thesaturated coffee market in the U.S., customers have begun to think that Starbucks isover-priced. In order to preserve its elevated status, the company needs to continue 8
  • 10. Starbucks Stakeholder Relationsconversation with customers through more versatile media formats and deliver its“quality coffee” core message to maintain a premium pricing strategy. Franchisees. Starbucks absolutely needs to maintain positive relationshipswith franchisees. Although the parent company has successfully built a desired brandposition with valuable brand equity, franchisees (especially the international ones) arethe actual managers who build the brand position in different countries. There’s notthat much to lose for franchisees, who manage the brand for a decade or two.However, the parent company will try to protect and build a sustainable brand asmuch as possible. In the U.S., Starbucks has to operate more company-owned retail stores inorder to regain more controls over employee relations and store quality management.Since franchisees come from all kinds of industries, some have the passion but lackthe business acumen and tools. In the international markets, Starbucks might retrieveits management rights in the future from some franchisees that perform poorly. Yet itcould improve franchisee relations with those who manage well by, for instance,granting the franchisees more involvement in planning international promotions. Summary Starbucks has four major stakeholder publics: shareholders, employees,customers, and franchisees. In terms of stakeholder relations, the corporateheadquarters is responsible for managing shareholder relations, domestic andinternational franchisees, and employee relations incompany-operated stores in theU.S. and international markets. Stakeholder relations is not a one-way conversation. Customers have the rightto make purchase decisions, shareholders have the board of directors to help supervisethe management team, franchisees have a legal relationship with Starbucks, and 9
  • 11. Starbucks Stakeholder Relationsworkers have labor unions to negotiate employee benefits. The company is known forprimarilyusing digital media to conduct an open, two-way conversation withcustomers. The shareholder relations and franchisee relations are more one-sided, andStarbucks is also using digital media to manage these publics. Last but not least,employee relations, especially in the U.S. stores, play an important role in Starbucks’shareholder relations management. Due to the part-time employment of partners,employees have a high turnover rate, making it difficult to build long-term, deepemployee relationships.Starbucks need to select full-time store managers who can runretail outlets well and train them to maneuver employee relations. Conclusion Having celebrated its 40th anniversary in 2011, Starbucks needs to keep openconversation with various publics to fulfill its corporate social responsibility. Thecompany is not simply a coffeehouse that serves quality coffee. It has to devotecorporate resources to improve relevant communities and causes because of its largescale and the gains from the society. Maintaining relationships with relevant publicswill help the company grow even engaged and meaningful to customers, employees,shareholders, and communities. Recommendations Starbucks should avoid repeated over-expansion. Its rapid expansion duringthe early 2000s led to a drop in comparable store sales, a drop in share price,worsened employee relations, and poor management in supply chains. As amultinational company that benefits from its economic scale, Starbucks faces thesame amount of risks as rewards. The company should grow slowly along with allrelevant publics. It should not be company-oriented, but customer-oriented andemployee-oriented. 10
  • 12. Starbucks Stakeholder Relations The company should also commit to its mission of helping good causes.Another cornerstone that builds up this multinational company is its well-knownconcern for local and underprivileged communities. Starbucks supports the localcommunities around its stores as well as broader world communities throughcorporate social responsibility programs. Its recent “Create Jobs for USA” programaims to help better the U.S. economy by partnering with the Opportunity FinanceNetwork® to finance community business. Supporting these cause programs isexactly what Starbucks should continue doing to contribute to society. Stakeholder relations have become increasingly important in moving thecompany forward. Although the company has been improving stakeholder relationsvia various media, it still needs to become more transparent, conduct more openconversation with local communities and publics, and engage more in corporate socialresponsibility events. Otherwise, it will end up being just another multinationalcorporation that hides its capitalism under a feigned authenticity. And that’s exactlywhat the world does not need: yet another such corporation. 11
  • 13. Starbucks Stakeholder Relations EndnotesBussing-Burks, M. (2009).Starbucks. Santa Barbara, CA: Greenwood Press. This book gives a broad view of the corporation in different aspects, from the original management team, guiding principles, to coffee social responsibility.Hilton, A. (2012, October 26). Starbucks tax furore is PR failure. PR Week. Retrieved from http://www.prweek.com/uk/opinion/1156317/starbucks-tax-furore-pr- failure/ Starbucks U.K.corporation raised public furor for paying virtually no U.K. corporation tax.Wikipedia. (n.d.). Starbucks. http://en.wikipedia.org/wiki/Starbucks This webpage covers details and more than 200 references about Starbucks Corporation, related articles such as coffee culture, and chronologically recorded controversies. 12
  • 14. Starbucks Stakeholder Relations ReferencesFortune. (2012, February 6). 100 Best Companies to Work For 2012: Full list. Fortune. Retrieved from http://money.cnn.com/magazines/fortune/best- companies/2012/full_list/Garthwaite, C., Busse, M., & Brown, J. (2012).Starbucks: A story of growth. Evanston, IL: Northwestern University.Gross, D., Lynd, S., &Keough, T. (2011).Solidarity unionism at Starbucks[Pamphlet]. Oakland, CA: PM Press. This pamphlet written by a former Starbucks employee briefly introduces the beginning of Starbucks Workers Union (SWU) founded in 2004.Herriman, M., Wanikawa, M., Ichinose, R., Darak, S., &Chaivan, Y. (2008).A crack in the mug: Can Starbucks mend it? London, ON, Canada: The University of Western Ontario. This case analyzes Starbucks’ crisis in 2008 and the implications of potential threats and challenges for the company.Keller, K. L. (2012). Strategic brand management (4th ed.). Upper Saddle River, NJ: Prentice Hall, Inc.Madison, J. (2011, June 15). No ones going to drink a cup of Pee-quod! How Starbucks was almost named after the doomed ship in Moby-Dick. Mail Online.Retrieved from http://www.dailymail.co.uk/news/article- 2003632/Starbucks-named-Moby-Dick-doomed-ship-Peqoud.htmlMoon, Y., Quelch, J. (2006).Starbucks: Delivering customer service. Boston, MA: Harvard Business School Publishing. This case focuses on customer service and customer profile change before Howard Schultz resumed as CEO in 2008. 13
  • 15. Starbucks Stakeholder RelationsMorrison, M.(2011, November 7). Starbucks forges moments of connection by offering experience. Advertising Age. Retrieved from http://adage.com/article/special-report-marketer-alist/marketer-a-list- starbucks/230837/Petrecca, L.& Kirchhoff, S. (2007, July 24). Coffee king Starbucks raises its prices. USA Today. Retrieved from http://usatoday30.usatoday.com/money/industries/food/2007-07-19-starbucks- raising-prices_N.htmSchultz, H., & Gordon, J. (2011). Onward: How Starbucks fought for its life without losing its soul. New York, NY: Rodale. Starbucks CEO Howard Schultz talks about how he brings the jeopardized enterprise back to the right track.Simon, B. (2009). Everything but the coffee: Learning about America from Starbucks. Berkeley, CA: University of California Press. The book is about how Starbucks embodies the American consumerism.Starbucks Corporation. (2012). Fiscal 2011 annual report. Retrieved from http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsannualStarbucks Corporation. (n.d.). Starbucks Coffee Company. Retrieved November 26, 2012 from http://www.starbucks.com/Starbucks Corporation. (n.d.). Starbucks Investor Relations. Retrieved November 26, 2012 from http://investor.starbucks.com/Weber, G. (2005). Preserving the Starbucks counter culture. Workforce Management, February 2005, 28-34. Retrieved from http://www.workforce.com/article/20050201/NEWS02/302019989/preserving -the-starbucks-counter-culture 14
  • 16. Starbucks Stakeholder Relations AppendixExhibit 1Company-operated and Licensed Store Summary as of October 2, 2011 US As a % of International As a % of Total Total As a % of Total US International Total Stores Stores StoresCompany- 6,705 62% 2,326 37% 9,031 53%operated storesLicensed stores 4,082 38% 3,890 63% 7,972 47%Total 10,787 100% 6,216 100% 17,003 100%Source: Starbucks Corporation fiscal 2011 annual report. 15