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The Worst Starbucks Corporation Headline in 2015

By Asit Sharma - Jan 5, 2016 at 4:20PM

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Starbucks' worst headline of 2015 arose from a fiasco that started with the best of intentions. Here's what it tells us about the company.

Will 2016 favor Starbucks Corporation (SBUX 1.19%) with a stream of headlines as laudatory as those the company basked in over the past 12 months? The global coffee empire dispatched numerous achievements with ease last year and received well-deserved positive press coverage throughout 2015.

This shouldn't imply that Starbucks didn't stumble occasionally. Many readers will remember the spate of unflattering headlines Starbucks garnered with the launch of its ill-fated "Race Together" campaign in March. This initiative, in which the organization asked its employees, known as partners, to write the phrase "Race Together" on customers' cups, was an extremely visible failure. It sparked an immediate backlash, and the company was briefly but intensely ridiculed, particularly on social media, for its heavy-handed attempt to catalyze a national conversation on race relations. 

As part of the planned outreach, Starbucks also urged baristas to use a number of canned, uncomfortable conversation starters to be displayed near Starbucks registers, such as "In the past year, I have been to the home of someone of a different race ___ times." You can get a flavor of the campaign in the company-provided graphic below:

Image source: Starbucks Corporation.

Catalyzing conversation and controversy
The Race Together campaign represented a rare PR failure for a company that routinely generates enormous customer goodwill. In retrospect, given the difficulty or race relations in the U.S., it seems clear that prompting dialogue around this delicate topic in the rather clumsy way envisioned by the coffee retailer was almost certainly doomed.

Being accosted to engage in an emotionally deep, layered, and often volatile topic, perhaps during a peak hour while waiting for the coffee that will wake you up, seems like a recipe for an extremely uncomfortable transaction. And Starbucks fielded fair enough criticism for using frontline workers earning barista-level wages to be the mouthpieces of the company's first sallies in a complex national discussion.

Yet with several months of hindsight, it's also clear that the campaign, however ill-conceived and rolled out, reinforced Starbucks' position as a company that's changing the definition of what it means to be a corporate citizen. Starbucks didn't seem to lose any brand momentum from this endeavor. On the contrary, its traffic, revenue, and comparable store sales kept increasing versus prior periods after March. This indicates that a majority of customers likely supported the values behind the campaign (more on this in a moment).

And the waves of Starbucks customers who took to outlets like Twitter to protest the experiment also indicate that it's possible to to vehemently decry an idea while remaining quite loyal to a brand. Perhaps that's the escape valve social media gives us in regards to the products we consume and identify with most.

Is it the potential for doing good or for profit that is at play here?
It may be easy to cynically interpret the manner in which Starbucks weaves its stated values together with corporate actions. From its decision to offer funding to partners seeking college degrees to its hiring of thousands of U.S. military veterans, Starbucks' grand initiatives almost invite inspection through a jaded and dismissive lens.

But CEO Howard Schultz believes that profit and values are inextricable, at least for Starbucks, at this moment in its evolution. In a very fine, longer analysis of the Race Together debacle published in Fast Company earlier this year, Schultz comes across as an executive who understands and readily acknowledges that a public corporation's first obligation is to profit in service of its shareholders. Indeed, Starbucks' earnings and stock price have certainly reflected as much since Schultz's return to the CEO position in 2008.

I would add that Schultz and fellow executives also grasp that a growing number of customers, millennials heavy among them, intertwine their own values with purchase decisions. In the coming years, the view once taken for granted, that a corporation should only exist to make a profit, may see drastically diminished popularity. If so, this will be due to the tendency in a born-digital customer to view each transaction as a function of social alignment and identification, versus simple need fulfillment.

Just as Starbucks was far ahead of every other multinational retailer in evolving an affinity-based, mobile payments ecosystem, it's quite possible that it's jolted ahead of its peers in understanding that a company can take risky positions vis-a-vis the social issues it espouses and actually increase, rather than endanger, quarterly profits. How far ahead is Starbucks? Regardless of your opinion on the ill-fated "Race Together," take a moment to tick off the number of publicly traded companies you can recall that were outspoken in promoting racial dialogue in the U.S. in 2015. For me, after Starbucks, the list gets really, really short.

Asit Sharma has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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