What has Starbucks become? How a progressive business went astray

There is a coffee shop in Midtown Manhattan that is simple to overlook. It is located on the ground floor 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 back are some plush banquettes and tables. Sushi and sandwich packs are neatly organized 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 can pay for the coffee and meal. The door has a placard that reads, “Start with the apps.”

This store, branded Starbucks Pickup with Amazon Go, was the first of three that the coffee business planned to build in New York and was marketed as “a completely different Starbucks built on effortless convenience” when it originally opened last November. It is also a powerful representation of Starbucks’s stealthy brand evolution from cozy 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. (On the news, Starbucks’ stock increased by 7%.)

In the 1990s, Starbucks started marketing itself as “the third place,” a location where consumers could find coziness, camaraderie, and great coffee in 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 widely exported the experience by running 34,000 locations throughout 84 nations. The business expanded on this philosophy to offer staff members “a welcoming and uplifting third place” as well. Over time, this third place has incorporated generous practices including healthcare coverage for part-time workers, 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. If you had invested $10,000 during Starbucks’s original public offering in 1992, it would now be worth more than $3 million (Starbucks fully owns and operates its outlets in China).

However, the idea of developing a third location had already started to lose priority for the business before the epidemic. In 2019, 80% of transactions were to-go orders. 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 article, 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 organizing 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 who launched ground-breaking employee-first policies and was the first business to grant stock options to even part-time workers. Employees aren’t expected to rebel against a firm like this, which is why Starbucks refers to its baristas as “partners.” 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?

Although he didn’t plan to return to Starbucks, Schultz said in a statement that he is aware of the problems: “Although I did not plan to return to Starbucks, I know the company must transform once again to meet a new and exciting future where all of our stakeholders mutually flourish.” Schultz will take over as interim CEO until Johnson’s official replacement is named in the fall.

However, Schultz’s involvement 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 all 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 getting the results that you used to. Johnson’s performance, she continues, “was impressive,” but it still felt like “running on a treadmill just to stay still.”

A woman and a man entered the Starbucks-Amazon store 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 in.

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 fulfill 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 only be around 15 minutes.”

The couple 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 coined for society’s return to post-pandemic life: “We’ve positioned Starbucks for the inevitable Great Human Reconnection that is about to unfold.” 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 guy. 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: Starbucks’ stock increased by more than 50% while Johnson served as CEO. When questioned about how his approach differed from Schultz’s, he once responded, “I leverage data to help inform decisions.” (Schultz frequently has a good instinct.)

Johnson claimed at the 2021 annual meeting that Starbucks is “more resilient and stronger today than we were pre-pandemic,” something he credited to a deliberate “plan to reinvent the Starbucks experience” that involved moving locations around, making operations more efficient, and looking at 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 behavior, 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. Customers appear to enjoy it, especially in times of crisis; last year, mobile ordering increased by 8%.

Johnson stated to investors at the meeting in March of last year, “These were strategic plans we put in place long ago, which we accelerated to meet this moment.” Hasn’t this very second put that idea into practice? He went on to say that his strategy since becoming the company’s CEO has been “to honor the mission, values, and attributes that create that special Starbucks experience while boldly reinventing for the future.””

In order to improve efficiency in other areas, such drive-through times, Starbucks has also hired outside experts, like Aaron Allen of Aaron Allen & Associates. “Food offerings that were eight or nine syllables” became a bottleneck, according to Allen. “Starbucks has taught us to rattle off drink orders like ‘Iced Venti Nonfat Latte with an extra shot.’ That made sense inside stores, where they didn’t want customers saying, “Give me the #1. 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 organizing claimed that Starbucks hasn’t been as willing to change policies and practices to facilitate their work. The issue of staffing has caused conflict. One barista should be able to complete 10 customer orders in 30 minutes, including taking payments, making drinks, cooking any food, and handing everything off. Some baristas contend that the standard is out of date. Apparently, some things have become more challenging as a result of the push 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 practice.

Sara Mughal, a shift supervisor and member of the organizing 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 line their drink order is. However, a barista working the busy bar must manually update it using an iPad sitting atop the espresso maker.

In a letter to Johnson in January, Mughal’s planning committee stated, “We have forged meaningful connections with fellow coffee lovers.” “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 means to do so.

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 opinion the customer experience has deteriorated significantly over the last two to four years.” “AI won’t make a difference there. The entire experience will be terrible if the employees servicing the customer 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 digitizing the third place to be especially startling. (Earlier, as Nike’s advertising director, he coined the phrase “Just Do It.”) At the time, Starbucks was expanding rapidly and was acquiring large amounts of square area in strip malls that required a cohesive theme. Bedbury’s task included determining how to characterize that space. His team conducted a number of focus groups in 1996. Respondents were instructed to close their eyes and imagine the best possible coffee experience rather than being shown mock-ups of cafés. ‘What do you notice as you step inside this place?’ we would ask them. You hear any music? How about your palate? You touch what?Bedbury explains. “And finally, ‘When this coffee experience is as fantastic as it possible can be, it can’t get much better, how do you feel?'”

He searched through these coffee shop imaginations with Jerome Conlon, Starbucks’s then-VP of branding, looking for patterns. This wasn’t home, it wasn’t work; it was a moldable area in between. “The word we kept coming back to was stimulating,” he says, but not in the coffee sense: “The feeling of being stimulated by the sounds, sights, smells, and connections of the café.” Bedbury gave me a picture of the grease board where these concepts were mapped out. The third place is stated in the center. Words like “oasis,” “sanctuary,” and “meditation” follow that. Some people conjure up phrases like “laughter” or “comedy?”Time should slow down for romance, and Deepak’s spirituality shouldn’t be too overbearing or cultlike.

Since then, Bedbury has grown to see the unstoppable online march as a force that will split society rather than unify it. “We look at what the digital world has done to this place that used to be sacred ground between places one and two, and now we find ourselves in a fourth place,” he says. “It’s always on, it never stops, it’s addictive, and it’s overwhelming us.”

Companies that promote a progressive mindset are finding themselves in an uncomfortable position as a result of America’s growing labor movement. For instance, liberals’ favorite outdoor clothing retailer REI faced a union vote earlier this year. In February, CEO Eric Artz and chief diversity officer Wilma Wallace recorded a 30-minute anti-union podcast that started with them stating their pronouns and saying they were sorry for occupying Indigenous land. Nevertheless, workers decided to unionize.

However, market observers refer to Starbucks as the canary in the mine. The organizing workers claim that Starbucks has tried to thwart their efforts by closing stores, cutting hours, holding captive-audience meetings, and firing some of their leaders—tactics that companies like Walmart and Amazon have used in response to union drives. Johnson stated in June 2020 that “We invest in people—especially our partners, so they in turn can support people in the communities we serve.” The National Labor Relations Board also filed its first formal complaint against Starbucks this week, alleging that the coffee chain had unjustifiably penalized against two Phoenix-based baristas who were organizing.

Investors are also criticizing Starbucks: two open letters to Starbucks management were written by a group led by Trillium Asset Management and Parnassus Investments. According to Trillium’s chief advocacy officer, Jonas Kron, “One reason we’ve invested in the company is they do have a very strong ESG story,” referring to Starbucks’s effective environmental, social, and governance activities. But given the response to current labor issues, “we are concerned they could potentially undermine decades’ worth of work over the course 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.

According to baristas who are organizing, both sides of the bar discuss unionization most frequently. According to Meridian Stiller, a business partner from the Richmond, Virginia, area who serves on their store’s organizing committee, “customers come in every day and want to talk about the union.” “Writing ‘Union Yes’ on cups is like the new ‘Race Together,'” Stiller says, alluding to the company’s well-intentioned but largely derided 2015 effort that encouraged baristas to write those words on cups to spark a national discussion 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.

Starbucks is a fair and generous employer by many standards. The company’s most recent environmental and social impact report indicates that 69% of its employees are women and 47% are people of color. Executive pay is based on meeting diversity goals, and as part of a mentoring program, 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. To date, it has hired more than 26,000 veterans, and it is already halfway toward its 2022 goal of recruiting 10,000 refugees to “provid[e] a Third Place of respite for those around the world who seek it.”

But the majority of these programs 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 programs now than Starbucks, which launched the first program of its sort in 2014.

Today, it also seems like the company’s health plan is less extreme. If a new barista picks Starbucks’ suggested plan and works 20-hour weeks, 7.5% of their earnings will go toward monthly premiums and up to another 6.8% toward deductibles. According to the Commonwealth Fund, someone who spends 5% of their salary on just the deductible is considered “underinsured,” indicating their insurance is insufficient and could put them in a difficult financial situation.

Starbucks is rated above average on some workplace policies, such as being more likely than McDonald’s or Dunkin’ Donuts to give employees at least two weeks’ notice about work schedules, but significantly below average on others, such as making last-minute schedule changes, according to the Harvard Kennedy School’s Shift Project, which tracks workplace policies extensively in the service industry. According to The Shift Project, Starbucks hasn’t put an end to the infamous “clopening,” a shift in which an employee closes their store at night and then comes back a few hours later to reopen it. The business promised to stop this practice in 2014, but 30% of partners, according to Shift Project director Daniel Schneider, believe they still perform at least one closing each 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 organizing activities kicked into high gear. However, $15 was the amount that protestors referred to as a “living wage” in 2012, and Amazon began paying fulfillment-center employees that amount in 2018. 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 revenue in 2021 was $29 billion. Despite shareholder opposition, Johnson nevertheless received a compensation raise of almost 40%, according to the company’s annual report. Schultz reportedly increased his wealth by 50% during the pandemic; 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.

Stiller has given up hoping that Starbucks can create any sense of camaraderie, saying, “Partners miss that sense of community, and we feel pretty strongly that a union is a community.”

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 more cafés in underrepresented neighborhoods. The first of these so-called Community Stores was situated in Jamaica, Queens. It included agreements with two neighborhood groups as well as an on-site job training space.

Following the opening of fourteen more Community Stores, investors became uneasy. Why is Starbucks opening 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 declared, “We’re not in the charity business. “Quarterly earnings are given so much attention, but we learned 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 store, “I immediately felt the benefit of being at a community café when I arrived 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 neighborhood. 2017 saw Starbucks refer to the Ferguson location as “a blueprint for the future.”

According to Ella Jones, mayor of Ferguson, “Cordell laid a great foundation.” “Starbucks did the right things to build those early relationships,” 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 pandemic then began. He commends Starbucks for providing sick employees with catastrophic pay. Additionally, he claims that even when the stores weren’t doing well, managers still received thousands of dollars in quarterly bonuses. 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. But what about the concept of the third location where people enter, sit for hours, and hold meetings? That component is lost.

Lewis, who quit Starbucks in January to take a general management position at a furniture firm, thinks the organizing effort really took off in early 2021, when Seattle ended catastrophe compensation and told baristas, “It’s time to return to ‘business as usual.'”

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 heavily invest in “new formats that reimagine the third place experience,” for example by opening 42 mobile-order-only Starbucks Pickup locations since 2019, key executives behind the program have left. Before the pandemic even begun, however, Starbucks in Ferguson ceased selling Natalie’s Cakes and had Lewis’ Urban League’s job-training program terminated.

According to Lewis, “all the original programs have kind of dwindled away.” “I have no idea who owns that in Seattle or locally. However, the store manager made an attempt. For a company the size and intelligence of Starbucks, he claims, “we might have shown 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 neighborhood. Graffiti is now all over Bedford-Stuyvesant’s, which is located in a location that belonged for 40 years to the neighborhood landmark discount store Fat Albert. I recently went there and barely noticed two customers.

The same day, three blocks away at Bushwick Grind, a locally owned coffee shop, the tables were all taken and a barista described what went into the “sea moss smoothie.” Shelves inside showcase goods from nearby businesses, including sea moss supplier DrSeaMoss. Each day at 4:00 p.m., employees put leftover food in a communal refrigerator outside. With assistance from a neighborhood charity called Together We Thrive that supports Black-owned companies, the store 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.

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