This is the third in a three-part series on the reinvention of Starbucks.
Part 1: Starbucks works to keep pace with its customers.
Part 2: Laxman Narasimhan takes the helm of a changing Starbucks.
Today: After a critical self-assessment, Starbucks pursues a labor course correction.
Nearly three years after employees jolted Starbucks awake with their embrace of a union, a revised executive team has a different and far more self-critical read on why the organizing effort caught fire—and why the chain is now revamping its personnel policies.
But the only way to fully gasp it, new CEO Laxman Narasimhan contends, is by understanding what had happened the year beforehand.
Indeed, he’s doubtful industry outsiders can understand it even with that heads-up. The changes rocking Starbucks, or any other restaurant operation at the time, were invisible to anyone on the customer side of the counter. Even visitors from corporate were initially oblivious.
Executives now admit they missed a severe deterioration of working conditions within the Buffalo, N.Y., stores where the organizing drive began in August 2021. Some say the units, with their torn carpets and dirty breakrooms, were among the most deplorable the chain had ever left in operation.
Layer on that the unprecedented effects of the pandemic. Outsiders may not realize, says Narasimhan, how fearful all restaurant employees were when they were pronounced essential workers, meaning they were expected to risk contracting COVID-19 to keep America fed or, in Starbucks instance, caffeinated. For an hourly wage, they were expected to brave exposure to a potentially lethal affliction.
Not all were lucky enough to avoid catching it. Ditto for family members who required their care. Even if they and their homes remained COVID-free, daily reports of infection and death counts were a reminder of the risk they were expected to take.
“Callouts soared,” Narasimhan says during an interview in Starbucks’ Seattle office, often growing emotional in what he says was his first full recount to an outside party of what happened. A manager might find out at 5 a.m. that half the team wasn’t coming into work that day.
“What happens if 50% of the staff doesn’t show up? People have to do more work,” says Narasimhan. “So, you hire more people. So, what happens? People end up with fewer hours.”
Unit-level employees were still risking COVID by dealing with to-go customers and delivery drivers, but now they were getting less pay for risking exposure. Why brave a shift under those circumstances?
“It’s a vicious cycle,” Narasimhan says.
A harder job?
What he did not mention, but baristas have since Day One of the union drive, was how demanding their jobs as coffee mixologists had become. Built-to-order drinks were growing ever more-complicated, with more ingredients and craftsmanship required. Baristas felt they were braving serious illness, while customers wanted their fancy drinks to be precisely the correct shade of pink.
Staff dissatisfaction grew. While Starbucks’ home office may have been slow to notice, union officials were keyed into the situation, having organized another, much smaller coffee chain in Buffalo not long beforehand.
Though they denied it at the time, organizers had a gameplan for capitalizing on the staffs’ dismay. Union “salts,” or workers who took a job at a Starbucks specifically to talk up the benefits of organizing, found a sympathetic audience.
Workers United, an arm of the well-funded Service Employees International Union, or SEIU, lined up unionization legend Richard Benziger and star local organizer Jaz Brisack to advise the baristas who wanted to organize. The union was betting it’d found a long-sought opportunity to organize a major quick-service restaurant chain.
Meanwhile, a decidedly pro-union president had moved into the White House. Under President Biden, the federal agency that regulates unionization, the National Labor Relations Board, was purposely re-constituted with pro-union veterans of the labor movement. The revised Board would field nearly 400 accusations filed by union and barista representatives that Starbucks had engaged in unfair labor practices. Regional offices of the agency have issued 120 complaints against Starbucks on the bases of the allegations.
Starbucks workers, members of Workers United, and their supporters picket the Starbucks Reserve Roastery in the Chelsea neighborhood of New York. | Photo: Shutterstock.
Living with the union
Starbucks executives say the operation is ready to live with a portion of its more than 400,000-person workforce being represented by the newly formed Starbucks Workers United, or SWU. Indeed, the company recently sent a letter to Lynne Fox, president of Workers United, with a request that union contracts be hammered out with all organized stores by the end of 2024. It read as part olive branch, part challenge.
Instead of fighting the union, the company says, it’d prefer to work with it while updating personnel practices to address the staff dissatisfaction that ushered it in.
“If a partner wants to vote for a union, that’s their democratic right,” says May Jensen, SVP of partner (Starbucks’ term for employees) and labor relations. “Let’s move on. But how can we make it better? Fix our stores, make it easier to be a partner?”
Starbucks didn’t have a labor-relations executive before Jensen was hired. Now she has a team.
“Some of our employees are going to belong to a union. Some are not. We will accept whatever they want to do.”
“This was never about busting the union,” Narasimhan says. “Some of our employees are going to belong to a union. Some are not. We will accept whatever they want to do.”
Yet the SWU and its parent organization have not let up in charging that Starbucks is unlawfully anti-union, a characterization the NLRB has supported in many of its decisions.
Now the Supreme Court of the United States will decide if Starbucks is indeed anti-union. It agreed on Jan. 12 to hear an appeal from Starbucks of a lower court's decision that the chain rehire seven employees who were fired by a Tennessee unit. The baristas claim they were terminated because they supported unionizing. Starbucks maintains that the workers violated corporate rules and work policies.
A lower court ordered Starbucks to rehire the group, which came to be known as the Tennessee Seven. The nation's highest court will rule on whether the court considered all the factors it should have before issuing the order. In the process, it will set the standard of what a federal district court will need to weigh before granting an injunction against an employer.
Accepting responsibilities
The volume wasn’t dimmed by an extensive report that was put together for Starbucks’ board of directors by a third-party researcher and sent to every shareholder. A 31-page summary was also posted on an online forum used by employees.
It concluded that Starbucks blundered repeatedly in its handling of the union drive, but that the company never set out to silence SWU or roll back its victories.
The report is part of what headquarters staff members say is a fresh perspective under Narasimhan, who was hired as CEO after Kevin Johnson abruptly announced his retirement in the midst of the union turmoil. Former CEO Howard Schultz initially replaced Johnson and went on an unofficial speaking tour across the chain. Yet the union drive continued, building to what are now about 375 organized stores.
Recent months have been marked by considerable soul searching and outright acknowledgement from leadership that naivete, surprise and prideful dismissal had facilitated the restaurant industry’s first unionization of scale. But they are adamant that management, be it the old or the new, never aimed to thwart the union.
Executives say their goal now is not to influence a staff’s vote on whether to join union, but rather to encourage every eligible employee to cast a ballot. As of early December, the staffs of 88 stores had voted against union representation. Employees at 19 unionized stores have petitioned the NRLB to hold a second election in hopes of booting SWU, though without success. The Board says it is holding off on de-certification votes because of what it characterizes as anti-union behavior on Starbucks’ part.
Changing policies
Meanwhile, the chain is overhauling its management practices in what executives characterize as a course correction.
Initially, those actions were highly visible. Starbucks suspended payment of a shareholder dividend to give a pay raise in 2022 to every barista working in a store that didn’t unionize (a court later directed corporate to give union members the same bump.) The new starting wage would be $15 an hour, and the average scale would rise to $17.50.
Another pay hike, this time of 3%, was scheduled to take effect Jan. 1.
Recent steps have been less trumpeted to the public. Training procedures for unit-level managers have been updated to cover what they can and should do under federal regulations if employees show interest in unionizing. The new policies are intended to avert the panic that led some supervisors to act rashly and inappropriately when talk of unionizing arose among their charges. They lacked a gameplan because Starbucks had never anticipated the possibility of being unionized.
“The company was naïve,” says Narasimhan. “So, mistakes were made.”
Indeed, he continued, even high-level executives acted on emotion because they had no delineated policy or past experience with unions to guide them. “No wonder Howard said some of the things he did,” the CEO says, referring to some off-the-cuff utterances that landed his predecessor in significant controversy. Among them was a cryptic comment about how internees in Nazi concentration camps shared their blankets despite the freezing cold.
The report drafted for Starbucks’ board on the origins of the organizing drive spelled out what management should do on a corporate-policy level to assure employees they are valued and truly partners.
Among those steps is redrafting Starbucks’ Global Human Rights Statement, or GHRS, the chain’s Magna Carta on employee, customer and investor relations. The report recommends the statement of principles be updated to expressly state the company recognizes employees’ right to communicate with one another about unionizing, without fear of retribution, and to opt for collective bargaining.
On the practical side, the chain is tweaking operations to make the job more appealing and less wearing. A big part of that is switching to scheduling technology that maximizes workers’ hours but in accordance with their preferences. Executives explain that many baristas hold down multiple jobs or have other calls on their time, like school or family commitments. They may want to work more hours at Starbucks, but without conflicting with those obligations.
Tech changes afoot
The plan also calls for adopting an updated payroll system and flagging repeated complaints from a team or unit.
A number of tweaks are being made in operations to ease crewmember stress. Adding a cold foam topping to drinks has become popular among customers, who now spend $1 billion annually for the option. To whip up the foam, baristas have been using a blender located in a set position that may be several steps away from where they perform the rest of the prep. Now, units are switching to portable blenders that the workers can carry to their station as needed.
Similarly, adjustments are being made to handle the rising demand for cold beverages, which now account for 76% of Starbucks’ sales. The ice for the drinks is lugged bucket by bucket from an icemaker to a behind-the-counter bin that may need to be filled 75 times a day to meet the volume. The chain is switching to a system where nugget-style ice produced remotely is channeled via pipeline to the drink-making area on demand, eliminating the need for an employee to haul buckets of ice all day.
“We’re seeing more transformation behind the counter than ever before.”
“We’re seeing more transformation behind the counter than ever before,” or the area Starbucks calls “edges and ledges,” says Jon Liechty, SVP of U.S. retail operations.
Some of the innovations are marked departures for the brand. In 2007, Schultz famously issued a memo that rued the chain’s drift away from the artistry of mixing beverages as customers watched. To re-instill the romance, the three-time Starbucks CEO lowered or changed out the coffee brewers so that baristas were no longer hidden from customers’ view.
But convenience has skyrocketed in importance to customers, according to management, even as orders have grown more complex.
Now the chain is installing automated coffee makers that can brew a cup at a time from whatever bean variety the customer wants. All employees have to do is press the appropriate button.
Depending on the device’s position, they might not be seen doing even that. The device is called the Clover Vertica, a reference to its tower design.
There’s also a significant reduction in waste, executives point out. Because the new machine prepares a cup at a time, a whole batch of coffee and the grounds from which it was made don’t have to be dumped if the java sits too long. At a unit, an employee cited that eco-friendly benefit as the major payoff and the source of her enthusiasm for the change.
Romance vs. convenience
Finding a balance between the craftsmanship Schultz demanded and the convenience customers and employees increasingly want is “a big challenge,” acknowledges Narasimhan.
“We will never be the most convenient,” he says. “We want to be a special experience conveniently delivered.”
Simultaneously, he adds, “How do we ensure we deliver the best experience to our partners?”
At Schultz’s suggestion, Narasimhan started with Starbucks by working at least a portion of every day in stores, and he vows that he’ll manage the company from its units, not by sitting behind a desk. Even while in his office, he’s reminded of the stores. All of its furnishings are standard unit issue, from the lamps to the table that serves as a desk.
He also requires every member of Starbucks’ C-suite to work in a store at least four hours per month so they don’t lose contact with what’s happening in the cafes and what the job is like for employees.
“The amount of time he’s spent behind the counter, there’s no way that doesn’t have an impact on where we’re making investments.”
Narasimhan got a strong taste of the experience when he started working in the stores. As he admits, baristas had to help the CEO elevate his drink-making to Starbucks’ standards.
“The amount of time he’s spent behind the counter, there’s no way that doesn’t have an impact on where we’re making investments,” says Liechty.
Long-timers like Liechty say a new employee-centric attitude is evident in the home office. Narasimhan doesn’t dispute the contention.
“I am so partner-driven,” he says, audibly choking up. “At the end of the day, they are all my children.”