Starbucks’s earnings miss last week was bleak but not shocking. Close watchers of the Seattle-based coffee chain had been preparing for lacklustre results, given a slowdown in discretionary spending, growing price consciousness and competition in China. But analysts also pointed to another factor weighing on its results: consumer boycotts over the war in Gaza and the chain’s long-drawn battle against employees’ unionization efforts.
Until now, Wall Street had been hesitant to give much credence to the idea that Starbucks’ embroilment in a firestorm of social, cultural and geopolitical issues could impact its performance. Most analysts wrote off earlier boycott threats as ‘noise,’ or said labour organizing only impacts a fraction of outlets. But the company posted slow sales growth. A shift is underway and when companies step on the wrong side of some hot-button issues, customers react. Gen Z goes beyond TikTok rants, actually putting money where their mouth is.
The business impact of angry customers is hard to quantify and doesn’t fit neatly into a financial model. Consumers have rarely followed through. After Starbucks promised to hire 10,000 refugees in response to Trump’s 2016 immigration ban, two groups formed: one threatening to boycott the chain and another saying it would “buycott” in support of the pledge. A study underway from Brayden King, a professor at Kellogg School of Management at Northwestern University, has found that neither group changed its actual purchase behaviour.
Eight years on, the landscape has shifted. Consumers are turning to their social feeds for information; more than three-quarters of Gen Z adults and two-thirds of millennials rely on social media for news, according to S&P Global Market Intelligence. TikTok and Instagram chatter about a business, accurate or not, travels fast and tempers can be quick to inflame. Starbucks is just the latest firm to learn that a social media frenzy can have business consequences. Last year, Bud Light lost its spot as the top-selling beer in the US after a partnership with transgender social media influencer Dylan Mulvaney led to blowback from conservatives. Over the summer, Target said that a “negative reaction” to its Pride Month collection contributed to its sales decline in the second quarter last year.
But there’s something unique about the Starbucks backlash. Not only is it coming from the political left, but it’s hitting on two fronts: a messy public battle with its union and anger over the Israel-Hamas war. The two issues became entangled in October two days after the Hamas attack on Israel, when an employee union posted a now deleted tweet, “Solidarity with Palestine!” on X. Starbucks distanced itself, saying, “We unequivocally condemn acts of terrorism, hate and violence....” Consumers critical of the company’s alleged union-busting and Israel’s invasion of Gaza vowed to boycott the company.
Starbucks is vulnerable. Over the years, it cultivated a reputation as a progressive company, speaking out on social issues like Black Lives Matter and same-sex marriage long before they caught on. This places all its public stances under scrutiny. McDonald’s has also faced boycotts after reports that an Israeli franchisee gave free meals to the Israeli military. But Bloomberg Intelligence research parsing social media data predicted that the impact on McDonald’s sales and traffic would be short-lived, while Starbucks could feel the effects into 2024. The report said social media posts calling for boycotting Starbucks jumped to an average of 466,000 a month in the fourth quarter, compared to 3,200 the rest of the year. That seems to have translated into real action, especially on college campuses. Cornell said it won’t renew its contract with Starbucks after students protested the company’s anti-union tactics. Students at UCLA and UC Riverside are petitioning to have the schools end their relationships with it. These actions impact only a few outlets, but should worry a company that sees students are a future customer base.
Starbucks now seems to be acknowledging the impact. During its earnings call last week, Chief Executive Officer Laxman Narasimhan told investors that events in the Middle East “had an impact in the US, driven by misperceptions about our position.” And the company’s stance on the union seems to have softened. Last month Starbucks sent a public letter saying it wanted to resume bargaining and reach a contract with represented stores in the coming year, and in November it announced a new board committee in part formed to address employee interests. This seems like progress. Businesses and Wall Street long put these kinds of social issues into the bucket of ‘reputational risk.’ It’s time to start accepting that they’re risks to the bottom line too. Bloomberg