Coffee restaurant chain Starbucks (SBUX 0.53%) made news in December when a restaurant in Buffalo, New York, became the first in the company to vote to form a union. Fast-forward to today, and unions are popping up all over the country.
Unions can be a tricky topic and can have a wide-ranging impact on a company. However, investors need to be aware of how unionization could impact Starbucks over the long term. So should unions worry shareholders?
What's going on?
I wrote about the Buffalo unionization in January as something that didn't mean a lot but could potentially become a talking point if more stores started following the path to unionization.
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Workers recently held a vote for a store in Mesa, Arizona, and they voted overwhelmingly in favor of forming a union. There are now elections requested for more than 100 stores across 26 states, a significant increase from just a couple of stores back in December.
Unions help workers band together to negotiate compensation, benefits, and work policies with their employers. Unions are ultimately a numbers game, becoming more powerful as more people join them. As unionization gains momentum throughout Starbucks, you could potentially see stores form unions at a faster rate.
Why it matters for investors
There are both pros and cons to unions, and they are a personal matter for the workers who decide whether to join. Here, I'm looking at what unions could mean for Starbucks and its investors.
Studies have indicated that unions tend to increase operating costs for companies. A 2014 study by the U.S. Bureau of Labor Statistics estimated that nonunionized private companies paid workers $29.83 per hour in wages and benefits. A union worker costs companies an average of $46.50 per hour, a 55% difference.
If most Starbucks workers decide to unionize, it will likely pressure the company's profit margins and force it to raise prices to consumers. Starbucks routinely increases the prices of its goods; its U.S. and North America same-store sales grew 18% year over year in the fiscal 2022 first quarter, with six percentage points of that from price increases.
But there could be a limit to how much customers will pay; coffee is a competitive business, even if Starbucks is a brand that consumers typically love. If Starbucks must absorb or raise prices to compensate for union-driven cost increases, it could either turn off consumers or hurt its financial results.
What to do now?
I will echo the sentiment I had in January, which is that it's still a bit early to panic. There are 15,500 stores in the United States, so even if all 100 potential stores unionize, it's a tiny portion of the company's footprint. Even if this becomes an increasingly more significant issue over time, it's unclear how much it will impact the company.
However, investors should always be vigilant about the companies they own stock in. Even if it ends up being nothing serious down the road, investors should be aware of what's going on in the company.
In the meantime, Starbucks shares are down 25% since the beginning of the year. Analyst estimates are calling for $3.24 in earnings per share for 2022, valuing the stock at a price-to-earnings ratio of just over 26. The stock has averaged a P/E of 30 over the past decade, so it's a solid opportunity to buy shares until Starbucks gives investors a reason to sell the stock.
