Employees at over 100 Starbucks’ (NASDAQ:SBUX) company-owned locations in the U.S. went on a strike on Thursday to protest against the company’s alleged anti-union approach and refusal to negotiate in good faith. Employees have been demanding higher wages, better staffing levels, and other benefits. Persistent labor issues and disputes with the workers’ union could impact Starbucks’ performance at a time when macro challenges are already putting pressure.
Starbucks’ Union Woes
The strike on Thursday coincided with Starbucks’ “Red Cup Day,” one of the biggest sales days for the company, where it gives reusable red cups with its logo to mark the holiday season. As per Starbucks Workers United union, this strike was the largest coordinated national action that it has taken since its formation last year.
The number of stores that participated in the strike represented a small proportion of Starbucks’ U.S. footprint of nearly 9,000 company-owned locations. That said, the gravity of the situation cannot be ignored, given the rising conflict between the union and Starbucks.
As per the Wall Street Journal (WSJ), the National Labor Relations Board (NLRB) has certified unions in 248 Starbucks’ U.S. stores since the unionization campaign began in late 2021. Meanwhile, unionization efforts have failed at 50 locations.
Unionization efforts,which started in late 2021, have not been welcomed by the company. Allegedly, the company has been firing pro-union baristas and closing stores with union activity. Starbucks has denied these allegations. In late October, the company filed 22 unfair labor practice charges against the union and its representatives for “failing to bargain in good faith.”
Higher Labor Costs are Impacting Starbucks’ Profitability
Starbucks experienced strong demand in the fiscal fourth quarter even as it hiked prices to mitigate the impact of rising costs. However, the company’s operating margin declined 380 basis points to 15.1%, mainly due to “investments in growth in labor, including enhanced store partner wages and new partner training.” (Note that Starbucks calls its employees partners).
In May, Starbucks announced higher pay and benefits for employees at non-union stores and stated that it could not offer these benefits to workers at unionized stores without bargaining. This move further disappointed the union, and a complaint was filed by the National Labor Relations Board (NLRB) in this matter.
Clearly, Starbucks’ efforts to discourage unionization are working. As per WSJ, NLRB records reveal that 17 Starbucks stores have filed for union elections since October 1, 2022, down from a peak of 71 in March.
Is Starbucks a Buy, Sell, or Hold?
The Street’s Moderate Buy consensus rating for Starbucks stock is based on 13 Buys and 10 Holds. The average SBUX stock price target of $100.35 implies 3.5% upside potential. Shares have declined 17.1% year-to-date.
Starbucks’ tactics to increase salaries and benefits for non-union workers have definitely impacted the unionization campaign. Nevertheless, higher wages are weighing on the company’s profitability. Moreover, the rising dissatisfaction of pro-union workers might result in further protests and hurt the company’s performance in the days ahead.