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Credit Suisse: Customer Blowback Over Starbucks’ Refugee Hiring Spree Could Crush Same Store Sales

Friday, March 10, 2017 23:26
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(Before It's News)

A few weeks ago we wrote about how the controversial decision of
Starbucks’ CEO Howard Schultz to hire 10,000 refugees, a clear shot
at the Trump administration’s immigration policies, seemingly
backfired as his “brand perception” took a sudden and massive hit,
a clear signal once again that coffee drinkers would prefer
to not have a side of political propaganda with their $5 morning
(see “ ""
target="_blank">Starbucks’ ‘Brand Perception’ Takes A Massive Hit
After Announcing Plans To Hire 10,000 Refugees

Now, Credit Suisse’s Restaurant team, led by Jason West, is
warning that Schultz’s latest attempt to cram his political
opinions down the throats of his customers could cause the company
to miss upcoming same-store-sales estimates.

We have analyzed online “net sentiment” data (positive vs.
negative online mentions) provided by NetBase to gauge changes in
Starbucks’ brand perception. This follows recent media reports that
SBUX’s decision to hire 10,000 refugees over the next five
years could have upset some customers
, perhaps negatively
impacting sales trends. Our work shows a sudden drop in
brand sentiment following announcement of the refugee hiring
initiative on Jan. 29th
, to flattish from a run-rate of
~+80 (on an index of -100 to +100). Net sentiment has since
recovered, but has seen significant volatility in recent weeks.
While this is only one data point, the analysis leaves us
incrementally cautious on SBUX’s ability to meet consensus US SSS
forecasts, which call for SSS to accelerate from +3% in F1Q17 (Dec.
qtr.) to ~+3.5% in F2Q and ~+5.5% in 2H17

Potential impact to F2Q SSS: NetBase data show that net
sentiment remained depressed for 10 days in late Jan. and early
Feb. and was particularly volatile through the remainder of
Feb. We see potential for a
scenario in which US SSS slowed for a few weeks following news of
the refugee hiring initiative, negatively impacting full-quarter
SSS by ~70-80bps under a reasonable bear case
. This
assumes that (1) SSS during the initial 10-day stretch were ~flat,
(2) SSS averaged +2% during the remaining 3 weeks of Feb. (when net
sentiment saw particularly high volatility) and (3) SSS during the
rest of the qtr (Jan. and Mar.) average +3.5% (in line with
consensus forecasts for F2Q), putting F2Q US SSS at ~+2.8%. We
caveat that we found little to no correlation over longer time
periods between the net sentiment data and US SSS. However, in our
past work on Chipotle (CMG: Neutral), we found that large
and sudden spikes in net sentiment coincided with similar shifts in
SSS trends.

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alt="CS" width="500" />

For those who missed it, here are some excerpts from the "nofollow" href=
target="_blank">politically charged message
drafted by Schultz
to his employees with “deep concern and a heavy

I write to you today with deep concern, a heavy heart and a
resolute promise. Let me begin with the news that is immediately in
front of us: we have all been witness to the confusion,
surprise and opposition to the Executive Order that President Trump
issued on Friday, effectively banning people from several
predominantly Muslim countries from entering the United States,
including refugees fleeing wars
. I can assure you that our
Partner Resources team has been in direct contact with the partners
who are impacted by this immigration ban, and we are doing
everything possible to support and help them to navigate through
this confusing period.

Hiring Refugees: We have a long history of
hiring young people looking for opportunities and a pathway to a
new life around the world. This is why we are doubling
on this commitment by working with our equity market
employees as well as joint venture and licensed market partners in
a concerted effort to welcome and seek opportunities for
those fleeing war, violence, persecution and
.  There are more than 65 million
citizens of the world recognized as refugees by the United Nations,
and we are developing plans to hire 10,000 of them over
five years
in the 75 countries around the world where
Starbucks does business.

Building Bridges, Not Walls, With Mexico: We
have been open for business in Mexico since 2002, and have since
opened almost 600 stores in 60 cities across the country, which
together employ over 7,000 Mexican partners who proudly wear the
green apron. Coffee is what unites our common heritage, and as I
told Alberto Torrado, the leader of our partnership with Alsea in
Mexico, we stand ready to help and support our Mexican customers,
partners and their families as they navigate what impact proposed
trade sanctions, immigration restrictions and taxes might have on
their business and their trust of Americans.

Unfortunately, Schultz quickly found out the hard way that while
most adult-aged Americans can agree that they like coffee,
roughly 50% disagree with his leftist political

Meanwhile, the only folks that don’t seem to be noticing the
controversy surrounding Starbucks’ latest mishap are the company’s

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alt="SBUX" width="500" />

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