Earlier this month employees at a Starbucks (SBUX 0.36%) location in Buffalo, New York, voted to join a union, making it the only company-owned store in the country to do so. While it's just one location now, it could set off a domino effect and inspire other Starbucks outlets across the country to follow a similar course of action.
The workers' actions could certainly set off a cascade effect throughout the chain. And any negativity it creates around the stock (its price is down 11% since reaching an all-time high in July) might cause investors to ditch their shares.
But that would be a mistake. Here's why.
Image source: Getty Images.
What impact will unionizing have on the business?
Starbucks has had to deal with the possibility of stores unionizing before. What's more, many employees of the company's licensed stores already belong to unions. In the latest case, the workers who voted to unionize pointed to inadequate staffing and poor training as reasons for the decision.
For what it's worth, Starbucks' management team plans to negotiate in good faith with Workers United, the union representing the Buffalo location. Finalizing a deal that satisfies both parties' needs, so that everyone can move forward, is the overarching goal.
It's possible that this will become an issue at other stores in the U.S. While there are reports of various locations requesting to unionize, the issue of understaffing coupled with surging demand as economies reopen is not unique to Starbucks. It's an industry-wide problem.
Alleviating that concern is the fact that Starbucks has historically been a top place to work in the restaurant sector. The company provides its store associates with a wide range of benefits that are not usually provided in the industry, including health insurance, a 401(k) retirement plan, parental leave, and tuition assistance. And in October, management revealed plans to raise wages for its baristas from a current average hourly rate of $14 to $17 in 2022.
"That's why this investment in wage[s] and ensuring we staff our stores with the very best and most talented green-apron partners we can is so important. This is the right time to make that investment, and we're confident that that investment is going to return significant value to shareholders," CEO Kevin Johnson said on the fourth-quarter earnings call. Focusing on taking care of employees is a primary goal for management, even more so given the situation at the Buffalo location.
Starbucks is a proven winner with attractive characteristics
There are three big reasons that it would be a huge mistake to sell your shares in this outstanding business because of the latest news.
First, Starbucks has long been at the forefront of incorporating technology into its operations. The company's top-notch loyalty program, begun in 2009, has amassed 24.8 million members in the U.S. Leaning into its digital infrastructure has allowed Starbucks to develop a deeper connection with customers while gaining valuable insights. In China, the rewards program now has 17.9 million members.
Next, speaking of China, it's Starbucks' largest growth opportunity in the next decade. Despite same-store sales decreasing by 7% in Q4 compared to the prior-year period, management is extremely optimistic about the future there thanks to a burgeoning middle class. Of the 1,173 total net new stores Starbucks opened in fiscal 2021, 664 were in China, demonstrating the nation's significance to its overall success.
Finally, while it's true that the pandemic added substantial downward pressure on consumer mobility -- reducing the number of occasions that people could drive past and stop at a Starbucks throughout the day -- in the latest quarter, transaction counts in the U.S. jumped 19% year over year. Also, capitalizing on a possible shift in consumer behavior by innovating the menu, as with the growing choices of cold beverages and food options, will help Starbucks attract more afternoon business.
Don't get me wrong: The unionizing situation is a real concern for investors. But it's important to realize that this is a problem many restaurant and retail businesses face. Regardless, Starbucks continues to be a leading place to work.
Given the company's leading digital platform, penetration in China, and rising consumer mobility, it's an easy decision for me to remain a long-term shareholder.
