Starbucks’ Brand Takes Massive Dive After Declaring It Would Hire 10,000 Refugees

The purpose of a business is to generate profits for the owners. In the case of a firm whose shares are publicly traded, its purpose is to maximize the profits that accrue to those shareholders since profitability is a principle driver of share prices. This means a business should pursue projects that add value to the firm and avoid what tends to detract from its value.

Engaging in nasty political debates is a distraction for the firm's management and should be avoided if at all possible. It's also a good way to alienate customers, both current and prospective. None of this is apparently obvious to the management of Starbucks. Or maybe their corporate leadership is so caught up in leftist politics that they just don't care about the impact of their political actions on profitability. If so, they should be fired.

About a month ago, Starbucks CEO Howard Schultz decided to ‘take a stand' in defiance of Trump's immigration executive order and penned a message to the world vowing, among other things, to hire 10,000 refugees over the next 5 years and “build bridges, not walls, with Mexico”.

Here is one excerpt from Mr. Schultz's letter:

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.

In this letter, Mr. Schultz cemented the reputation of Starbucks as an advocate for leftist causes, told Americans looking for jobs to get to the end of the line, and told conservative Americans to go to hell. In other words, supporting Starbucks would be similar to supporting the Democratic Party, or at least a political action group affiliated with the left. You just get a cup of coffee with your “donation.”

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 opinions.  Which, according to Yahoo Finance, has sent the company's “brand perception” into a downward spiral since January 29th.

The coffee giant's consumer perception levels have fallen by two-thirds since late January, according to YouGov BrandIndex.

The perception tracker measures if respondents have “heard anything about the brand in the last two weeks, through advertising, news or word of mouth, was it positive or negative.” In Starbucks' case, perception is still overall positive, but significantly lower than it was prior to CEO Howard Schultz published a public letter outlining the company's plans to give refugees jobs.

YouGov says that there's reason to believe backlash will impact the chain's bottom line. Two days before Starbucks' announcement, 30% of consumers said they'd consider buying from Starbucks the next time they were craving coffee, the highest proportion in nearly a year. Now, the percentage is down to 24%, according to YouGov.

The board should fire Mr. Schultz, but of course they are not going to do that. Perhaps they believe the same way as he does.

While it is too small to be a threat at this point, a small and growing coffee company has seen an opportunity here to get some free publicity on the back of Mr. Schultz's poor judgement. Black Rifle Coffee has claimed that it plans to hire 10,000 US veterans as it grows.

One of the reasons small businesses are the source of much of our economy's growth is because they can often move and innovate more quickly than large firms. And sometimes they can take advantage of their larger competitors' blunders. This appears to be what has happened here.

If Starbucks' management wishes to place their obsession with leftist politics above profit maximization and their shareholders' best interests, they are welcome to do so. They will simply be wasting their time and money just like all those billionaires did when then supported Hillary for president.

They will also learn that the market will have the final say on their decisions and performance.

Source: ZeroHedge



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