Employees are the frontline when it comes to customer relationships and delivering the brand experience. This is especially true in a service business. Investing in a brand’s people should always be a priority.
In March 2022, Starbucks changed its CEO. Kevin Johnson who became CEO in 2017, announced that he was leaving. Mr. Johnson was replaced by Starbucks founder, Howard Schultz. Faced with external pressures and internal unrest, Mr. Schultz is defying the financial norm of purchasing buybacks and focusing those monies on Starbucks’ employees. Mr. Schultz will be investing in the gold mine that is his frontline.
Regardless of one’s position on Starbucks’ unionization, investing in a brand’s employees is the right thing to do. Just because a business is customer-focused does not mean that customers come first. Customers come second. Employees, the brand’s people, come first.
Internal alignment is essential. A committed culture is critical. A disgruntled culture is a crisis. Internal brand pride is a key success factor affecting external attitudes and outcomes. If a brand’s people are not proud and inspired then a brand will falter.
If a brand wants its employees to love the brand then the brand needs to love its employees. If a brand wants its employees to have passion and pride in the delivery of a trustworthy relevant, differentiating quality experience than the brand must demonstrate passion and pride in what employees do and in who they are.
Data show that employees play a powerful role in shaping business perceptions through positive communications with all stakeholders. Proud employees communicate well beyond their place of work. Proud employees’ advocacy of the business enhances perceptions among external and internal stakeholder audiences. Employee pride translates into higher job satisfaction. Employee pride and satisfaction contribute to customer satisfaction.
The difficulties brand-businesses face due to the impact of coronavirus have just exasperated the difficulties of keeping a workforce happy, engaged and committed to the brand. Keeping a brand’s culture alive when working from home is incredibly challenging. Even more challenging is keeping a workforce that must show up at work committed during a pandemic.
It is unfortunate that a keen, laser-like focus on employees is something that tends to be put aside when management and investors focus on financial engineering such as extreme cost cutting including job losses, debt accumulation, share buy-backs, increased dividends, forced spinoffs and money siphoned into the pockets of investors rather than invested into businesses. Investments in continuous improvement and innovation are decreased as dividends and share buybacks are increased. Monies are siphoned from employee training and recognition programs, R&D, customer insight research, service and support and marketing resources.
As for buybacks, data in The New York Times indicates that in 2021, companies in the S&P 500 repurchased $882 billion in shares. The New York Times also reported that analysts at Goldman Sachs expect this year’s forecast to be over $1 trillion in buybacks.
Barron’s, the financial magazine, wrote that there may be a slowing in buybacks. Quoting a variety of sources, Barron’s indicated that where dividends are “sacrosanct,” buybacks are more flexible. Additionally, with a rising interest rate, using debt to buy back shares is looking like a less desirable action. However, Barron’s also notes that there are few examples of companies “de-emphasizing or suspending share repurchases.” There is nothing quite like juicing your stock price.
This is what makes Starbucks’ move so interesting.
The first action Mr. Schultz took in what is now his third term as CEO was to suspend buybacks and invest the money in Starbucks’ people. Mr. Schultz said that stopping the share buybacks would allow Starbucks “… to invest more profit into our people and our stores – the only way to create long-term value for all stakeholders.” The Wall Street Journal reported that during a “forum” at Starbucks’ headquarters, Mr. Schultz told employees that Starbucks had not done enough for them in recent years. He said, “We have to reimagine the role and responsibility of a public company in America today. We have not done enough. I promise to do better.”
Recognizing that there is quantity of growth and quality of growth, Mr. Schultz said, “… Starbucks has a winning strategy and millions of loyal customers and that it was not worth fixating on the company’s stock price. He said he faced pushback when investing returns in benefits for part-time employees when he first started the company, but it was the right thing to do for Starbucks and its workers. He added, “For all of you following the stock price today and that stock is going down, that’s a short-term thing.”
With more Starbucks voting to unionize, Mr. Schultz and his leadership team are out in the field listening to employees express their complaints and concerns. Mr. Schultz wants to better understand how employees feel. Mr. Schultz said employee feedback will “inform” the brand’s “decision-making” according to The Wall Street Journal. In addition, Mr. Schultz has hired a Chief Strategy Officer, Frank Britt, reinstating this function that was eliminated in 2018. According to Mr. Schultz, Frank Britt, formerly of Penn Foster, a workplace development enterprise, has spent his career “… empowering frontline employees to unlock their full potential in work and life.”
As The Wall Street Journal reported, Mr. Schultz is “… reviewing the company’s benefits to develop an expanded employee-benefit package in an effort to better recruit and retain baristas.” It appears as if these benefits will only be for non-union personnel. Legal restraints prohibit alterations to union-agreed terms for unionized workers without bargaining with their union. Mr. Schultz has been clear as to his feelings about unionization. On the other hand, investing in people and stores should not be seen as simply a way to bust burgeoning unions. Investing in people and stores should be seen as a way to build a better brand.
If you think that focusing on building employee pride and passion is less effective than product or service or pricing, you would be wrong. The 2003-2005 turnaround at McDonald’s was not achieved solely by the creation of its continuing “i’m lovin’ it” campaign. There was a concerted effort to build back employee enthusiasm and advocacy for the McDonald’s brand. In 2002, morale among employees, corporate and in stores, was funereal. Unhappy employees at the counters took out their feelings on customers. Reports of rudeness and inaccurate orders rose, bathrooms were not cleaned as frequently, tables were dirty, lines at drive-thru were long and drive-thru times increased.
Then CEO, Jim Cantalupo, publicly defended the reputation of every individual who worked at McDonald’s. He invested in employees and in the quality of the HR department. McDonald’s created an onboarding program, “Learnin’ It, Livin’ It, Lovin’ It” and focused on a lifetime of skills that a job at McDonald’s offered. Not every employee looks for a lifetime job, but they do want a job that delivers a lifetime of skill sets transferable to other jobs. Employees want to acquire skills that can last them a lifetime.
Horscht Schulze, founding president and former COO of The Ritz Carlton Hotel Company, built The Ritz Carlton brand on employee passion. The core guiding employee concept was “Ladies and gentlemen serving ladies and gentlemen. In a 2006 article from Dealerscope, Audrey Gray wrote, “The Ritz Carlton is so intent on empowering their employees to ‘wow’ customers, each employee has permission to spend up to $2000 a day per guest to fulfill expresses or unexpressed wishes.” “… the company’s most successful customer service policies revolve around hiring and empowering their employees. The Ritz Carlton acted on the belief that if its people did not believe in the brand then the brand could not expect its guests to believe in the brand.
Publix supermarkets has about 1000 stores, about 800 of which are in Florida. Publix’ culture is one element that makes Publix so successful and such a nice place to shop. And, its culture is based in part on employee ownership. Publix is also a non-unionized organization. According to Barron’s, of its 225,000 employees, 205,000 own Publix stock. Publix is the largest employee-owned company in the United States. Publix is a private company that is owned by employees, Board members and the Jenkins family which founded the business. Publix shares are not traded publicly. Stock is awarded yearly to staff members. Staff members can also purchase stock from the company. Barron’s calls Publix’ culture “strong and durable.” Publix treats its employees as owners, which they are: the workers are the winners, not the investors, as Barron’s points out. And, Publix has stated that it plows its money into its operations and stores rather than investing in buybacks.
A brand’s service experience is a key factor in making a brand more attractive. How customers are treated makes all the difference in the world. To be successful, brands must take their service to the next level. This includes building and reinforcing employee pride and brand commitment. Pride transfers to the other side of the counter.
Howard Schultz is making a bold move. What is especially important to note, politics aside, is that he is making this move in a business world that has been increasingly focused on the short-term. Mr. Schultz understands that Starbucks grew based not just on product but by offering a comfortable third place staffed with knowledgeable, friendly baristas. These baristas were not just serving the brand’s products; they were serving the brand’s experience. They were aficionados of coffee. The baristas were not just agreeing to Starbucks’ brand experience, they were advocates and adherents of Starbucks’ brand experience. Starbucks’ baristas put the brand experience in the hands of every single customer. The Starbucks brand cannot afford to have unhappy baristas.
Putting monies into its employees is the right thing to do. Not just for the employees, but for all stakeholders. With a committed workforce, Starbucks, and any brand for that matter, has a competitive advantage. Focusing on the long-term health and welfare of employees at the expense of short-term stock gains is not an expense at all. It is an investment for high quality revenue growth.