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:
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:
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:
In each of these cases responsibility was never taken. To save an image, BridgeView Marketing recommends 4 Good PR Rules to follow:
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.
In Conclusion
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