It’s the stuff of an executive’s nightmares. On April 14th, a Starbucks manager called the police on two black customers who were there waiting to discuss a business proposal with a third party. Video catches these customers being taken out and arrested by police, all while other customers ask why this is happening.
As a response, Starbucks has decided to undergo racial bias training, shutting down all of its company-owned locations on May 29th. And it may be an excellent opportunity for the company to display and develop its company culture — while reassuring customers and investors of its values.
“Hi, I have two gentlemen in my cafe that are refusing to make a purchase or leave,” says the store manager on the 911 call. Witness Melissa DePino stated in her post: “The police were called because these men hadn’t ordered anything. They were waiting for a friend to show up, who did as they were taken out in handcuffs for doing nothing.”
Starbucks stock has remained relatively stable for the last few years, following sharp growth from 2014 through 2015. Even in the wake of what would appear to be a PR nightmare, Starbucks stock didn’t just maintain its price, but instead rose.
This type of event has spelled disaster for many organizations before. In 2017, Papa Johns saw its stock fall 14% following a feud with the National Football League, which many perceived as racially motivated. So why, following this event, has Starbucks stock actually risen?
It all has to do with the response.
Starbucks isn’t just doing what’s right for its customers and shareholders (though that is undoubtedly important), it’s also tapping into a cultural phenomenon: socially responsible investing.
Studies have shown that millennials are increasingly investing in what they see as socially responsible companies, with at least 25% of their investments going to companies that they believe are contributing positively to society. By “voting with their dollars,” millennials are increasingly seeking to financially incentivize ethical behavior in big business.
While on the surface this racial issue could be seen as a downfall, handled correctly it could be nothing but a boon to the company. Few can imagine that the events at Starbucks are due to secretive, racially-biased policies on behalf of the company itself — a sharp contrast to the Papa Johns controversy, in which comments came directly from an executive. Instead, the public is aware that this is something that could happen in virtually any organization: a single employee acting on their own racial biases. It’s the reaction of Starbucks that potential investors and customers are looking for.
In fact, public sentiment has come down firmly on Starbucks’ side following the announcement that they will be closing their shops. Not only is this seen as a positive move for the business itself, but as sending a message to the community.
“We will learn from our mistakes and reaffirm our commitment to creating a safe and welcoming environment for every customer,” said the executive chairman Howard Schultz in a press release that acknowledged the event almost immediately after it went viral.
There is a monetary cost associated with this racial bias training. Apart from the cost of the training itself, Starbucks is estimated to lose about $16.7 million in sales. However, this is nothing for a business that had $22.4 billion in revenue. Certainly, it’s nothing in the wake of the positive public sentiment they have received — which essentially amounts to free advertising for the business. Yet it’s also easy to see how approaching this angle differently could have led to boycotts or other serious and costly problems for the coffee chain giant.
Starbucks is an excellent example of now negative press can be turned into positive press, and how a company’s reaction to a negative event can prove to be more important than the negative event itself. Though it’s still early to say, it appears that Starbucks may actually see growth in customer and investor confidence, as modern customers and investors are both looking to support ethical companies with their dollars. Starbucks has been a profitable company and a solid buy for quite some time, and its expert handling of this issue in the press could well contribute to that.
Regards,
Ethan Warrick
Editor
Wealth Authority
