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- Kevin Johnson’s response to the arrest of two black men at a Philadelphia Starbucks is an “instructive playbook” for other CEOs dealing with crisis.
- Johnson flew out to Philadelphia on Monday to speak with the two men.
- Starbucks will close 8,000 of the company’s U.S.-based locations to train 175,000 employees and address implicit bias, promote inclusion and help prevent discrimination.
Starbucks is just the latest brand to find itself under scrutiny in the public eye. However, the company’s response to a viral video of two black men being arrested in one of its cafes last week, is what sets it apart.
On Thursday, a woman posted the video online and said that staff at a Philadelphia Starbucks had called police because the men had not ordered anything while they waited for a friend to arrive.
On Monday, Starbucks CEO Kevin Johnson was on the ground in Pennsylvania meeting with them.
“That’s very rare,” Aaron Allen, founder and CEO of global restaurant consulting firm Aaron Allen and Associates, told CNBC. “And it sends a message not just externally, but a strong message internally.”
Allen said that for the majority of companies, the initial inclination is to “batten down the hatches” and stall for time to figure out a solution.
One sign of the success of its strategy is that Starbucks stock has remained relatively stable throughout the whole incident.
“I agree Starbucks and Kevin Johnson have done a good job in responding to this incident,” Denise Lee Yohn, a brand leadership consultant, told CNBC via email.
She noted how quickly Johnson took responsibility for the incident, committed to reviewing the company’s culture and practices, provided clear statements to employees and customers and flew out to meet with the two men who had been arrested.
“These steps provide an instructive playbook for other leaders facing crises like this,” Yohn said.
On Tuesday, Johnson went one step further. The company announced that it was closing all of its company-owned restaurants in the U.S. during the afternoon of May 29 to conduct a racial-bias education program.
Some 8,000 of the company’s U.S.-based locations will participate so that nearly 175,000 employees can attend the training program that will address implicit bias, promote inclusion and help prevent discrimination.
“The CEO was slow to address race, which remains a big stain on Starbucks’ brand trust,” Eric Schiffer, chairman of Reputation Management consultants, told CNBC via email. “But, the closing of Starbucks stores for racial-bias training is the single smartest move they can make. It shows through action, not talk that they get it and they value doing the right thing over earnings and customer cash.”
Starbucks isn’t the first restaurant brand to close stores in order to host a company-wide training session. Chipotle Mexican Grill shuttered its stores for an afternoon to conduct mandatory food safety training after a series of foodborne illness incidences tattered its reputation.
Still, some question how effective this racial-bias training session will be for the brand.
“For [Johnson] to decree implicit bias training is a start, but [it is] unclear if it will really be all that helpful,” Rosalind Chow, an associate professor of organizational behavior and theory at Carnegie Mellon’s Tepper School of Business, told CNBC via email. “The evidence on the effectiveness of such training is pretty poor.”
Chow suggested that it would be much better for Starbucks to institute new policies that are enforced across the board. For example, if the company says that people who do not make purchases must be asked to leave, then it doesn’t matter what the race of that person is, they will be asked to leave regardless.
“Large chains with tens of thousands of employees face this challenge every day,” David Henkes, principal at Technomic, told CNBC via email. “Front line workers are the face of your brand, and when they do something that gets negative press, especially when it goes viral, all the training and processes that are in place get put under a microscope, and the brand gets a black eye.”
“I’ve been impressed with Kevin Johnson and their communication strategy and think they’ve been doing what they can to be proactive,” Henkes said.
While experts have found Starbucks’ efforts exemplary, how customers view the brand is slightly different and, perhaps, a closer measure of how the cafe chain’s sales will be affected.
Over the weekend, Starbucks dropped to its lowest consumer perception level since November 2015, according to a report by YouGov Brand Index. The company’s “buzz” score — a measure of positive or negative sentiment around a brand — dropped from 13 on Friday to -8 on Tuesday. (Scores range from -100 to 100 and are gathered from people who have made Starbucks purchases in the last 30 days.)
The last time Starbucks saw a score this low was when it faced backlash for launching solid red cups for the holiday season, causing some customers to claim the brand has waged a “war on Christmas.”
While buzz slipped dramatically, other metrics that YouGov Brand Index monitors saw less of a dive. Purchase consideration, the percentage of customers who would consider making a purchase at a specific restaurant the next time they decided to buy food or a drink fell from 28 percent on Friday to 25 percent on Tuesday.
In addition, the company’s reputation score, how proud or embarrassed the respondent would be to work for the brand, dropped from 14 to 4 during the four-day period.
© 2018 CNBC LLC. All Rights Reserved. A Division of NBCUniversal
- The $7.15 billion deal with food giant Nestle will help Starbucks return value to its shareholders.
- The deal gives Nestle the rights to sell Starbucks’ products, including single-serve coffees and teas as well as bagged beans, around the world.
- Nestle has agreed to take on about 500 Starbucks employees who work in the consumer packaged goods segment as part of the deal.
Starbucks CEO Kevin Johnson said Monday that its $7.15 billion deal with food giant Nestle will help return value to its shareholders
“This will increase the $15 billion we have committed to [return to shareholders] … to $20 billion over the next three years, cash returned to shareholders in the form of dividends and buybacks,” Johnson said Monday on CNBC’s “Squawk on the Street.”
When asked by CNBC’s Jim Cramer about why the coffee chain was not funneling the proceeds from the deal into growth initiatives rather than doing stock buybacks, Johnson highlighted the growth the company has seen.
“We have had great success over the five years or so with K-cups on the Keurig platform,” Johnson said. “This opportunity brings Starbucks coffee to the Nespresso platforms globally and there are more households in the install base of Dolce Gusto and Nespresso than Keurig.”
The deal gives Nestle the rights to sell Starbucks’ products, including single-serve coffees and teas as well as bagged beans, around the world. Nestle will continue to pay royalties to Starbucks after the initial fee.
“For Starbucks, the deal will help to drive brand recognition outside of its core North American and European markets as Nestle ramps up expansion using its distribution capacity,” Neil Saunders, managing director at GlobalData Retail, told CNBC via email.
Starbucks has struggled with slow sales in the U.S. for several quarters and relinquishing its retail business to another company allows it to focus more on its cafes.
In addition, Nestle has agreed to take on about 500 Starbucks employees who work in the consumer packaged goods segment as part of the deal.
“While Nestle’s coffee business is immense, its product line didn’t really align with the U.S. consumer market and Nestle lacked the star power that Starbucks brings,” David Henkes, principal at Technomic, told CNBC via email. “In my mind this is really about giving Nestle a much better foothold in the U.S. coffee market and creating a counterweight to JAB Holdings, which through its acquisition of Keurig/Green Mountain, Mondelez’s coffee business and others has come to be the primary coffee source for millions of consumers each day.”
JAB Holding, a privately held company and investment arm of the wealthy Reimann family, owns such brands as Keurig Green Mountain, Krispy Kreme Doughnuts and Peet’s Coffee & Tea. The company, which has been steadily building a coffee and breakfast empire over the last five years, scooped up Panera Bread for $7.5 billion last year.
Nestle has made plans to focus on higher-growth areas like pet care, infant nutrition and coffee. It sold its U.S. candy business to Italy’s Ferrero for about $2.8 billion in January.
“Look, we are excited about pet food, too,” Mark Schneider, CEO of Nestle, told CNBC. “This is one of the other growth categories we are very much involved in that market. So a lot of interesting things underway there.”
Lovers of chalupas and crunch wraps have spoken: Taco Bell is now bigger than Burger King.
The Mexican-themed chain eclipsed its burger rival in U.S. sales last year, becoming the fourth-largest domestic restaurant brand, according to a preliminary report by research firm Technomic. McDonald’s, Starbucks and Subway Restaurants held on to the top three spots.
Taco Bell’s systemwide sales — the total sales of restaurants that carry the brand — jumped 5 percent in the U.S. to about $9.8 billion in 2017. The company, owned by Yum! Brands, has made inroads with indulgent fare, along with $1 items that appeal to budget-strapped millennials.
The ranking change also underscores the surging popularity of Mexican-inspired fare. Last year marked the first time that Taco Bell has overtaken Burger King, the data showed.
McDonald’s, Taco Bell, IHOP and other chain restaurants have hidden health gems in their menus
Though Burger King has fared better than many restaurants brands in recent years, it hasn’t kept pace with its biggest burger rivals — McDonald’s and Wendy’s Co. — or chains like Taco Bell. Its domestic sales rose just 1.5 percent in 2017, according to the Technomic report, which will be finalized in March.
Burger King faces a “resurgent McDonald’s,” David Henkes, senior principal at Technomic, said in an interview. Upscale burger chains, such as Shake Shack Inc., also are threatening its market share.
Taco Bell, meanwhile, has drawn customers with wacky new foods, including fried-chicken taco shells, and a marketing campaign dubbed “Live Mas.” In January, the chain introduced $1 nacho fries.
“They certainly continue to do pretty well, and bring out some interesting and new menu items,” Henkes said. “They’ve done a good job of connecting with the millennials and Gen Z.”