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05/04/2022

Starbucks investing $1 billion in new wage hikes, training, store innovation

Marianne Wilson
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Starbucks
Starbucks is raising pay for its tenured workers and store managers.

Starbucks Corp. reported second-quarter sales that topped estimates and announced array of new employee benefits as it looks to deter a spreading union push.

The coffee giant is raising pay for its tenured workers and store managers. Employees with  two to five years of service will receive at least a 5% increase or move to 5% above the market start rate, whichever is higher. Employees with five-plus years of service will receive at least a 7% increase or move to 10% above the market start rate, whichever is higher.

Also, on August 1, Starbucks will double its planned investments in store manager, assistant store manager and shift manager pay for leaders hired on or before May 2.  The company noted that the changes are one-time investments in base pay in addition to its planned fiscal year 2023 raises this fall.

The new round of pay hikes follow Starbucks’ announcement in October that it would raise wages at least twice in 2022, bringing its average pay to nearly $17 an hour nationally.

Beginning June 21, Starbucks is  doubling the amount of training time for new store workers. It is doing the same for new shift supervisors beginning August 30, and also adding more training for workers and supervisors already in the role.

 Other enhancements include a redesigned “First Sip” barista training program, a newly designed shift supervisor program and more hands-on practice time for baristas.  

In addition, the company will introduce credit and debit card tipping by late 2022, and is planning equipment and technology enhancements. These include upgrading in-store iPads, accelerating the rollout of new ovens and espresso machines and resolving all “non-critical” repair and maintenance issues immediately.

More new employee benefits will be announced in September, the company said, including  help with student loan refinancing, additional skills recognition programs and new profit sharing initiatives. 

In total, Starbucks plans to spend $1 billion on wage hikes, improved training and store innovation during fiscal 2022, which ends in the fall for the chain.

“We are confident the investments we are making in our partners, our stores and our brand, will deliver significant returns, in excess of historical levels, resulting in accelerated long-term growth,” stated Starbucks CFO Rachel Ruggeri.

Starbucks, under interim CEO Howard Schultz, is making a concerted effort to head off a union push that is spreading among its store workers. Notably, the new benefits will not apply to workers at the approximate 50 Starbucks locations that have voted to unionize. Such changes at unionized stores would have to come through bargaining, the retailer noted.

New pay and benefits changes will apply to stores where Starbucks has the right to unilaterally make these changes,” the company said in a statement. “Where Starbucks lacks the right to unilaterally make these changes (for example, stores where there is a union or union organizing) Starbucks will provide wage increases that were announced in October 2021 and will otherwise comply with all applicable legal requirements."

Shultz, an outspoken progressive on most issues, has made no secret of  his opposition to the burgeoning union drive at Starbucks.  On the company’s earnings call on Wednesday, he told analysts that “the union contract will not even come close to what Starbucks offers.”

In a recent letter to employees, Shultz said that “we must not be distracted by the different vision being put forward by union organizers at some Starbucks stores.” On the company's earnings, he said "where Starbucks is required to engage in collective bargaining, we will negotiate in good faith."

 "Starbucks will not favor or discriminate against any partner based on union issues," he said. "And we will respect the right of Starbucks partners to make their own decisions when exercising these rights."

SECOND QUARTER

Starbucks earned $675 million, or $0.58 a share, in the quarter ended April 3, compared with $659 million, or $0.56 a share, in the year-ago period. Adjusted for one-time items, Starbucks earned $0.59 a share.

Revenue rose 15% to $7.6 billion, which the company said was a record. Revenue rose 17% in North America, fueled by a 12% increase in company-operated comparable-store sales and increases for average tickets and transactions. 

International comparable-store sales fell 8%, including a 23% drop for same-store sales in China. China has been hit with stringent lockdowns and other measures to curb an increase in COVID-19 cases.

“We are single-mindedly focused on enhancing our core U.S. business,” Schultz said in a statement. “Given record demand and changes in customer behavior we are accelerating our store growth plans, primarily adding high-returning drive-thrus, and accelerating renovation programs so we can better meet demand and serve our customers where they are. “The investments we are making in our people and the company will add the capacity we need in our U.S. stores today and position us ahead of the coming growth curve ahead.”

The company opened 313 net new stores in the second quarter, ending with 34,630 stores globally (51% company- operated and 49% licensed.) At the end of the quarter, stores in the U.S. and China comprised 61% of the Starbucks’ global portfolio, with 15,544 stores in the U.S and 5,654 stores in China.