Starbucks Reputation Gets Decaffeinated

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When a company that prides itself on its social consciousness does something stupid, the genie escapes and there’s no getting it back in the magic lantern. That’s what happened last Thursday at Starbucks Corp. (NASDAQ: SBUX).

For whatever reason, a store manager in Philadelphia decided that two men who had been sitting at a table were loitering and he called police, who arrested them. The two men, who were waiting for a third to arrive, were both African American. They were later released and the charges were dropped.

But incidents like this typically put a serious dent in a company’s reputation and Starbucks felt the pain. The YouGov BrandIndex Buzz score fell from 13 on Friday to −8 on Tuesday. A Buzz score ranges from −100 to 100 based on answers to a generic question: “If you’ve heard anything about the brand in the last two weeks, through advertising, news or word of mouth, was it positive or negative?”

The BrandIndex score indicates whether a larger percentage of people heard something positive or something negative about the brand. A 21-point drop over a weekend is significant. It’s a one-point larger drop than Starbucks took in November 2015 when the company changed the design of its Christmas cup.

In an interview on CNBC this morning, founder and CEO Howard Schultz said:

I’m embarrassed, ashamed. I think what occurred was reprehensible at every single level. I think I take it very personally, as everyone in our company does, and we’re committed to making it right.

Starbucks is closing all its U.S. stores (about 8,000) for one afternoon next month in order to hold a racial-bias training session with all employees. Schultz continued:

[The May training session] is just the beginning of what we will do to transform the way we do business and educate our people on unconscious bias. It will cost millions of dollars, but I’ve always viewed this and things like this as not an expense, but an investment in our people and our company. We’re better than this.

Two other components of YouGov’s Starbucks BrandIndex also fell over the weekend. When asked if they would consider making a purchase at Starbucks the next time they wanted to buy food or drink, the Purchase Consideration score dropped from 28% to 25% from Friday to Tuesday.

When asked if they would be proud to work for Starbucks, the Reputation score fell from 14 to 4 in the same period.

Starbucks stock dropped about 1.2% between the time news of the even broke Thursday and Friday’s opening bell. The stock traded within a few pennies of that Thursday price Wednesday afternoon at $59.56 in a 52-week range of $52.58 to $64.87.

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