Crisis continues to brew at Starbucks
As last weekend’s protests by tax campaigners show, Starbucks still has a long way to go to rescue its brand.
Having hired RLM Finsbury to handle the reputation crisis, Starbucks made its first concerted move to restore its ailing reputation with a speech from UK managing director Kris Engskov at the London Chamber of Commerce last week and followed that with an open letter splashed across most British newspapers. In a classic application of the ‘3 Rs’ approach to crisis management, Starbucks declared regret, announced a review of its tax policies and then proposed a remedy in which the company would pay £10m each year for the next two years.
But if anything, Starbuck’s attempts to manage the crisis have only served to undermine the brand and imperil the situation still further.
Why is Starbucks still in such trouble over tax and why does the situation seem to be getting worse? The answers, I believe, lie in a combination of 11 factors that spell out a potential Christmas calamity for the brand.
One: It was late in responding. Where was the crisis management plan back in October when news of its tax payments initially emerged? Why did it need to hire RLM Finsbury in late November? Well-run brands are meant to be ready for this kind of thing.
Two: Taking full-page ads in major newspapers might be the standard approach to crisis management but you should know what you want to say. The general response from those who read Engskov’s open letter was either confusion or anger - most people remain unsure about what the company was actually communicating. “Starbucks has complied with all UK tax laws” suggests it rejects any notion of wrong-doing. But the admission: “We know we are not perfect” and the commitment to “paying a significant amount of tax during 2013 and 2014” suggests the company accepts that errors were made. Which is it? Is Starbucks wrong or not?
Three: Starbucks still appears to not have grasped the concept of tax being a legally enforced, non-negotiable matter for most people. Engskov’s letter appears to suggest that paying more tax is a very generous decision on Starbucks’ part, which has enraged the British public, who don’t get any choice on their tax contributions. “I think I’ll pay 20p for a coffee, over 2 weeks,” was one pithy response on Facebook.
Four: It’s still not enough money. While I’m unclear on Starbucks’ full accounting practices, it generates around the same revenues as Costa and presumably has similar cost structures. In 2011, Costa made a £50m profit from revenues of £377m and paid £15m in tax. That puts Starbucks’ £10m into context.
Five: Despite the concerted attempt to make Engskov the face of Starbucks and its response, tellingly, most of the press coverage last week used photographs of the company’s chief executive Don Schultz. It makes sense for Starbucks to keep its inspirational boss well away from the crisis but it weakens the response when the ultimate leader of the company is not seen to be taking ultimate responsibility.
Six: By responding at all, Starbucks has become the poster brand for tax avoidance in the UK. It could have been Google, Amazon, Vodafone or a host of others - but they have kept their heads firmly in the sand. Would the best response have been nothing at all?
Seven: Starbucks has strong brand equity and associations for being fair in its dealings with the community. The bigger the brand and the more hypocritical its activities, the more it is targeted in crises like this.
Eight: Social media is an awesome tool to engage in a dialogue with consumers but it’s a nightmare when that dialogue becomes dysfunctional or downright hostile. Take a look at Starbucks’ UK Facebook or Twitter page. The company is trying to continue its 12 days of Christmas social media campaign despite being swamped by hundreds of message of disgust, rendering Starbucks’ social media sites useless at present.
Nine: Physical locations have always been a better target for protest. How do you stage direct action against Amazon? Starbucks is a sitting duck.
Ten: When it comes to ‘social’ purchases that involve meeting others or being seen in a location, consumers tend to be far more “ethically minded” compared to less visible purchases. Nobody knows you bought your shoes on Amazon but everyone knows where you are buying your coffee or suggesting a rendezvous.
Eleven: It’s easy to switch from Starbucks. How do you show your disgust with Vodafone or Apple’s tax policies if you are a customer? Smash your own phone up? In Starbucks’ case, the ability to switch brands is as simple as walking eight yards across the road to a Costa or a Pret.
For these eleven reasons, it’s going to be a long, cold Christmas for Starbucks.