Starbucks is closing 8,000 Stores on the afternoon of May 29, 2018 for a “racial-bias” training of its employees. But what kind of business strategy is this when it will result in an enormous loss of revenue? The answer is simple: It’s a reputation and brand reinforcement strategy that far exceeds a day’s revenue loss. But, what happened to require a global juggernaut to trade such an enormous amount of revenue for image polishing?
Starbucks had become the target of protests after two African-American men were arrested in April at a cafe in Philadelphia. Here is the breakdown:
- One of the men who had not yet purchased anything asked to use the bathroom.
- He is told, “no.”
- Both men then sat down and said that they were waiting for a friend.
- They were asked to leave by Starbucks’ employees.
- The men refused.
- The store manager called the Police.
- A video of the incident went viral with 10 million shares.
But, sometimes a mere “sorry” will not do. And in this case it was clear, due to the public outrage, that actions would be louder than words. In response, Johnson then announced that all stores will be closing for a day of racial-bias training.
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Precedent has been set for apologies as a communications strategy, and many companies have had to offer them:
- News Corp: In 2011, after a phone hacking scandal was unearthed, Rupert Murdoch had to apologize. He took out full-page ads in several newspapers, and appeared before Parliament calling it “the most humble day of [his] life.” Many thought that this appearance made the tycoon seem more down to earth. They could relate to him, understand him better, and therefore be better able to trust him.
- General Motors: In 2014, General Motors had a crisis regarding faulty ignition switches that led to deaths and multiple rounds of congressional testimony. Because she portrayed herself as truly sorry and spoke honestly right from the start, General Motors CEO, Mary Barra, was praised for maintaining public trust in her company.
- Facebook: Most recently, Facebook founder Mark Zuckerberg had to apologize when his company allowed the personal data of 87 million users to be misused. Zuckerberg took out full-page ads in nearly every major newspaper in America and Great Britain. "This was a breach of trust, and I'm sorry we didn't do more at the time. We're now taking steps to ensure this doesn't happen again," the advertisement stated. And then in front of Congress in two days of testimony, Zuckerberg opened comments in the Senate by saying, “We didn't take a broad enough view of our responsibility, and that was a big mistake. And it was my mistake. And I'm sorry. I started Facebook, I run it, and I'm responsible for what happens here.”
Again, a straight-up apology. He took responsibility and showed humility. Zuckerberg was criticized for waiting too long to apologize, but his words were accepted and the public is now expecting him to follow through with safeguards. The same was true for General Motors and News Corp. - in both cases the apology worked.
But there are times when the apology doesn’t work and there are reasons why:
- Fyre Festival: In 2017 a music festival in the Bahamas run by rapper Ja Rule turned out to be a catastrophe after the headliners pulled out, the promised amenities were never delivered, and festival goers who paid thousands were stranded at the airport. Rule went on Twitter and made his apology. "NOT MY FAULT," he wrote. His apology didn’t go over well and criminal charges resulted. He decided to play the blame game rather than take responsibility.
- United Airlines: In 2017 security guards literally dragged Dr. David Dao off an overbooked plane. United CEO Oscar Munoz released a statement to Dao, "I apologize for having to re-accommodate you.” That was cold and caused an outrage. A day later, he released a second statement on Twitter, saying that the event was "truly horrific." Better, but too late. The public did not cut the airline any slack.
- The Weinstein Company: In 2017, Harvey Weinstein was publicly accused of sexual harassment by dozens of Hollywood actresses. In a statement to the New York Times, Weinstein never acknowledged what he was apologizing for. Rather, he quoted Jay-Z and announced that he would be channeling his "anger" and using his energy to defeat the National Rifle Association. This apology was not received. His movie company is now being sold. And no one wants it. His brand is now toxic.
In each of these cases responsibility was never taken. To save an image, BridgeView Marketing recommends 4 Good PR Rules to follow:
- Flush the wound immediately, don’t let time pass.
- Own the problem, don’t pass the buck.
- Sound contrite.
- Explain how you will make amends.
News Corp., General Motors and Facebook all saved their brands with apologies followed by actions. In regard to those who decided to blame others, deflect, down play and do little to nothing: the Fyre Festival is defunct, the Weinstein movie studio will never make another movie, and good luck finding a happy United Airlines passenger.
Back to our, Cafe “No Way!” moment.
Howard Schultz followed the four good PR rules for apologizing.
"There's no doubt in my mind that the reason [the police] were called was because they were African-American," Howard Schultz, chairman of Starbucks, said on CBS Wednesday. "And I'm embarrassed by that, I'm ashamed by that. That's not who Starbucks is, that's not who we have been and that's not who we're going to be."
In addition, Starbucks chief executive Kevin Johnson apologized to the men in person for what he called the “reprehensible” circumstances that led to their arrest. The company also removed the manager who called police.
Will Bad PR Have an Impact? Let’s do the math…
On April 26, 2018, after the market closed, Starbucks reported revenue of $6.03 billion and same store sales in the U.S. grew by 2%.
In January 2018, Schultz said that the average Starbucks store makes about $32,000 a week. Using that as a benchmark, 8,000 stores would make about $260 million in that same period, or about $36.6 million a day. If those locations are shut down in the afternoon, the company could easily lose 20 percent, if not more, of its daily sales, or about $7.3 million.
Schultz’s brand polishing comes at a price tag of $7.3 million. A freshly brewed Grande cup of coffee at Starbucks cost $2.10. To recoup the 7.3 million dollars, Starbucks needs to sell approximately 3,476,190 grande cups of coffee.
In their last annual reporting period, Starbucks likely used between 2.916 and 2.946 billion cups at their stores, or an average of 8,070,428 per day. So, it will take them approximately half a day to sell 3.5 million cups of coffee.
Now, these are global sales figures, but it’s clear to see that closing the U.S. stores on May 29th will not be detrimental for the shareholders. At the very least, after the retraining occurs, all Starbucks in Philly should offer a free cup of coffee.
The value of a company’s brand image is an intangible line item on a balance sheet and PR, although not tracked like sales figures, has the ability to make or break quarterly profits. In addition, a company’s brand is also part of each consumer’s personal image e.g. Dunkin Donuts’ customers have a completely different image than Starbucks customers. But no matter what your preference for java is, if a company portrays a cold and uncaring nature, customers will tend to deviate in order to preserve their “I’m better than that,” self image.
The corporations who follow the 4 Good PR Rules in times of controversy, will ultimately make consumers and shareholders happy.
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Author: Mike Emerton, Founder, BridgeView Marketing