STARBUCKS PREPARES FOR ONE OF ITS WORST YEARS EVER IN 2017

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The Claim:

Some outlets, including MarketWatch and KomoNews.com, have claimed that Starbucks may be headed for major profit losses, earnings cuts, and declining expansion in 2017.

The Verdict:

Late in 2016, Starbucks Coffee showed signs of slowed growth in the 4th quarter. The company posted a 3% same-store earnings growth, missing expectations of 4% set by analysts. In terms of earnings, this is a huge miss for a company that planned rapid expansion in 2016-2017. Starbucks has spread its corporate tentacles across Europe and Asia and has broadened its market specifically in China, where it believes it has the most potential for growth. 

Starbucks U.S. growth has been relatively flat for a year, as has its stock price. But in early 2017, signs of falling profit margins have surfaced. Starbucks dramatically lowered its revenue growth projections, down from its usual 15-21% to 8-10% in 2017. This year, most of the company’s profitability won’t come from the U.S., but from China. Starbucks continues to see its U.S. market share chipped away. Meanwhile, investors have begun to doubt its strategy. Starbucks has shifted dramatically to mobile order-and-pay, likely a response to the declining traffic they have experienced in-stores. The company has also tried to expand its upscale line of coffee, called Reserve Roastery, which offers an expensive menu to consumers. Starbucks may be tapping into an upscale line due to increasing competition from Dunkin’ Donuts and McDonald’s.

These poor indicators preceded CEO Howard Schultz’s press release that resulted in calls for a boycott.

Starbucks Dug Its Own, Permanent Grave

Arguably one of the worst PR moves in recorded history happened on January 29th, 2017, when Starbucks CEO Howard Schultz came out in opposition to President Donald Trump’s travel ban. Howard enraged millions of Americans when he released a press statement that read the following:

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 down 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 discrimination.  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.  And we will start this effort here in the U.S. by making the initial focus of our hiring efforts on those individuals who have served with U.S. troops as interpreters and support personnel in the various countries where our military has asked for such support.”   

Howard’s Folly

According to the Motley Fool, Starbucks in-store traffic took a dip starting in February 2017.

For many, the offense was that Starbucks, which has profited billions of dollars from U.S. consumers, didn’t offer to hire 10,000 U.S. veterans, disabled citizens, or another group of Americans looking for work. There is a very large market of U.S. citizens who are out of jobs or out the workforce completely. A decent gesture would be to hire some of the people who have spent, collectively, billions of dollars on Starbucks’ horribly overpriced coffee, rather than hiring refugees who have never tasted Starbucks in their lives.

However, that’s not what Starbucks did. The company went full social justice warrior in its press release, criticizing Donald Trump for not helping people who are non-U.S. citizens. Howard, with a “heavy heart,” says:

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.”

After outrage and a boycott threat, Howard added a footnote at the bottom of his letter about how Starbucks supports U.S. veterans:

A week following Starbucks’ PR debacle, the Motley Fool published an article stating that in-store traffic slowed dramatically and that the company’s double-digit profit goals for 2017 are threatened as a result. A boycott of Target over its transgender bathroom policy has proven to be highly successful, collapsing the company’s profitability margins down 43% in the fourth quarter 2016 with a rough 2017 outlook. It appears Starbucks is headed for a storm in 2017 as it also faces a boycott.

[Editorial credit: pio3 / Shutterstock.com]