Nasir Pasha & Matt Staub

How Starbucks Turned Coveted Employer to Employee Complaints [e274]

Nasir and Matt talk about the changes at Starbucks that have led to many disgruntled employees and customers.

Transcript:

NASIR: Welcome to our podcast where we cover business in the news and add our legal twist.
My name is Nasir Pasha.
MATT: And I’m Matt Staub.
NASIR: And we are talking about our second favorite food item, I would say, right? After pizza. Would you say? Coffee.
MATT: Is that a food?
NASIR: No, uh… that’s true.
MATT: I guess you could freeze it and then eat it, but it seems more like a beverage.
NASIR: Well, you know what I mean – at least we talk about it. I know you and I tend to talk about coffee a lot for some reason, too. It seems like it comes up. I don’t know if it’s on the podcast or otherwise. Or we’re just happy to be drinking coffee at a coffee shop.
MATT: Well, it’s possible. I mean, I don’t like Starbucks – which is what we’re going to talk about today – and I think I’ve mentioned that many times how it’s more of a convenience. Basically, if I need coffee and it’s the only option available, that’s the only time I go there. Even when people want to meet at Starbucks, I’m always reluctant and try to go somewhere else.
NASIR: Try to go somewhere else.
MATT: I don’t really necessarily try. I mean, now, I oftentimes just suggest where we should go.
NASIR: It’s not that I don’t like Starbucks nor do I like it. it’s just that I have had great coffee and there’s a difference but I’m also very tolerable to different degrees of quality.
MATT: Yeah, that’s the thing. I will say, I mean, I only drink iced coffee.
NASIR: That makes a big difference.
MATT: Their cold brew that they’ve had this last year – maybe more than that – is actually not bad. I’ll give them that.
NASIR: Okay, we’ll give them that.
MATT: Yeah, I can drink that. I don’t drink hot drinks so maybe that’s the problem.
NASIR: Maybe they’ll be a successful company now that they have some good iced beverages.
MATT: Yeah, I was looking up the numbers for how many stores they have. We can get to that in a bit.
NASIR: How many stores do they have?
MATT: More than 23,000 in 2015.
NASIR: Wow.
MATT: Looks like about half of that…
NASIR: Half of them are right next to each other.
MATT: They’re on the same block, basically.
NASIR: Yeah.
MATT: About half of that looks like to be US locations but that number is a year older. I don’t know. It’s somewhere in there. But it’s quite a bit, obviously.
Let’s get into this.
First, it all kind of stems from this – I assume it’s a barista who started this post – basically saying the morale at Starbucks amongst the people working there is at a low – maybe an all-time low – or at least it’s sinking because a slew of issues, the first of which being the hours that the baristas are working there. I think it’s well-documented that Starbucks offers benefits to its employees which I think has been a huge selling point for a long time now. It’s something they’ve gotten a lot of praise for. But, if you work there for the requirement to get those benefits or you have to work at least 20 hours a week so obviously the workers want to do that, but I would guess that most of the people working there probably see this as a full-time job just because, if you’re working a minimum 20 hours a week during the day, I mean, it’s tough to work two part-time jobs – just from a logistics standpoint – to make it all sort out.
The problem that it looks like a lot of these workers are having are it’s very difficult to work more than 25 hours a week there based on the scheduling that’s been done in recent months or I don’t know how long it’s been going on but that seems to be the case.
NASIR: I think for a little bit now.
And so, one of the reasons we’re talking about this is because this barista – like you were saying – Jaime Prater, he started this campaign on this website. I’ve never heard of it. it’s called coworker.org and it’s basically an open letter to Starbucks where you can get multiple signatures. Right now, they have 9,145 signatures of basically this letter explains kind of some of the grievances they have. Also, some of these employees give reasons as to why they’re signing. It’s actually pretty interesting. I’ll just read a couple here.
The first is McKenna S. McKenna S, if you’re listening, shout-out to you.
“As a shift supervisor, I have maybe a half to two-thirds the staff I need and we’re all extremely overworked and overwhelmed. Then, I’m told that we’ve over on labor. Mobile orders have increased sales and created more need for labor.” And that’s true. I know now, when I order I do that mobile ordering which is pretty cool. “Yet, the company is cutting labor. It creates a vicious cycle without adequate staffing. We are unable to process transactions quickly enough to earn the labor we have. The nightmare needs to end or a lot of great talent will move on.”
Another one I thought was interesting, this is from Preston J. Shout-out to him.
“This will have been my fourth year working as a barista. I have ‘fallen in like’ with my work at Starbucks because, if you’re intentional, you can really excel at it. The fact that experience doesn’t have monetary value really soured my view of the company.” What he’s referring to is I guess they were given one or two raises a year on average and that has decreased to once a year which, frankly, that’s not uncommon in the industry.
MATT: Right.
NASIR: But, if that’s true that somehow experience doesn’t equal to money value, then of course that makes sense that an employee would have agreements for that.
MATT: What I’m trying to decide if these workers, these people, are just complaining or if they have a legitimate gripe but it’s probably somewhere in the middle.
NASIR: Yeah.
MATT: My view is you work at Starbucks, on one hand, they’re getting these benefits. They’re guaranteed a minimum 20 hours a week which at least that’s some work and they have the benefits. But I do understand their pain and the complaining in this and that.
Yeah, if you’re only working 25 hours a week which is barely over the minimum to get the benefits, it is going to be difficult to pay all of your bills because (1) you’re not working a full 40 hours per week and (2) when you’re working 25 hours at one job, you’re going to have to find another job to give you another what? 15 to 20 hours and allow for flexibility in your scheduling and working two jobs at once. We saw how that worked for Michael Scott at The Office when he was trying to work two jobs at once.
NASIR: That was an epic failure.
MATT: Yeah, it didn’t work well. And so, I do understand why they’re complaining about it. I don’t know. I’m kind of in the middle. I don’t know your take. There’s more to it which we’ll get to discussing but I don’t know if you have a different take than I do.
NASIR: They’re a profitable company and they’re actually doing pretty well. And so, I do like the idea of really rewarding workers and one thing that people do like about Starbucks that I know for certain is that people like the quality of service. Being able to go into a coffee shop that you go to regularly and they know your name, they know your order, I’ve heard a lot of people that develop those kind of relationships with their baristas. But I do hear, just from my personal perspectives hearing people not having the same experience that they used to have with Starbucks and it is starting to lose a little bit of that shine that it may have had in the past.
MATT: Yeah, I’m looking through what they call their special blend. What was the name? Yeah, special blend – all the different benefits and paid offers. It’s quite a long list that they have on here. I mean, you have your base pay, bonuses, benefits, 401K pay, stock, purchase plan, perks for partners for higher level people. That’s quite a bit. In that industry, it’s going to be difficult to find something as good as that.
NASIR: I agree. And so, like, they may already be beating – as far as remaining competitive – they already have some great aspects to them. First of all, a lot of companies don’t start their benefits at 20 hours. Sometimes, it’s higher. Frankly, unless there’s a law requiring certain benefits, you don’t have to provide those and you can change it however you want. They also mention that. For example, Starbucks doesn’t provide sick leave unless it’s required. As we know, in California, it is and in certain cities around the country it also has specific requirements. Those kinds of things may not meet its competition but, if they’re all part-time workers, then maybe. Of course, the fact that they’re pushing people to get into part-time and below 20 hours, obviously, that’s a cost saving for them and that’s frankly a common tactic by many employers.
MATT: Yeah, the change from two raises a year to one, I don’t see any problem with that. Like you mentioned previously, I think that’s more than fair.
One comment that this person said I have issue with, “Starbucks is more profitable than it’s ever been. US revenues were up 12 percent in the first three months of 2016. I’m not seeing that. My hours are continuing to be cut back. That’s the frustration; that’s where people see the disconnect.”
Doesn’t that make perfect sense if there’s less work?
NASIR: Yeah.
MATT: To me, that makes exact sense based on if they’re more profitable because there’s less labor hours. But I don’t know…
NASIR: True. And so, in a way, I think the barista is basically – or I think they’re saying – that they should get a cut in that. They should somehow be rewarded from that revenue. But you’re right, it seems as though these kinds of cost changing measures is what is increasing the revenue and Starbucks is a publicly traded company, I believe so. I think they’re traded on the NASDAQ, yeah.
MATT: Yeah, it was SBUX.
NASIR: SBUX?
MATT: I’m trying to remember.
NASIR: That sounds right to me. Yeah, it is.
I mean, they produce dividends and their dividends have been going up at pretty much every year about a cent or two. You’re right. they seem to be doing well and it may have something to do with the fact that they’re making some cost changes.
The thing is, we know that Starbucks in general has been hurt in the recession. They definitely pulled back some of their stores and they’ve also pulled back in certain regions. They’re definitely not expanding as they used to be. I know, just in Houston, it’s ridiculous. You have some of the busiest Starbucks in Houston are right across from each other. That’s just how the market is. It’s definitely still popular.
MATT: I was looking at the different things here, it looks like they are continuing to grow after a few years of kind of plateauing in terms of adding new stores or losing them, but it could be some other larger issues at play. I guess, by whatever ranking systems used for customer satisfaction, they’ve dropped in that or dripped – actually that doesn’t make sense.
NASIR: No, it sounds right.
MATT: They’ve closed… I forget they had these Teavana Tea Bars.
NASIR: Oh, that’s right.
MATT: And its standalone bakery locations. Of course, there’s some lawsuits – a lawsuit accusing them of underfilling its lattes.
NASIR: Did we mention that? I forgot if we talked about it or we considered talking about that. That was an interesting…
MATT: It could just be people asking for room. That’s just a common thing. Me, personally, the coffee shop I go to, oftentimes, they don’t fill it all the way up. Like I mentioned before, I get iced coffee. People put something in it. I don’t and I don’t really care.
NASIR: No, but this is an issue of quality control. I have heard people complain about them not filling it to the top or what-have-you. That’s what this whole lawsuit is about. Again, these kinds of things may have something to do with the fact that maybe they’re starting to skim on the labor force and so the quality of the workforce isn’t as good as it used to be or they’re overworked or what-have-you and mistakes happen.
MATT: There’s also another complaint about too much ice in the cold drinks.
NASIR: Which you can ask for no ice or low ice or whatever.
MATT: I mean, it could be these greater issues at play. You mentioned towards the beginning of it’s a shift in how they’re going about doing business – maybe some cost cutting. It just happens when businesses, especially ones of Starbucks’ stature and how many locations they have, I mean, sometimes, you have to do certain things in order to keep growing. They’ll be fine with profitability, it looks like, but it’s just the change that needed to be made. I mean, to me, I know the company culture has always been important to them but I think the people, the baristas will continue to work there – one reason being that benefits package – and, if they quit, other people will get slided in and continue to work there. I mean, I don’t know how to make… I can make a regular black coffee but I don’t know how to make any of the other things, but I can imagine, if I had trained for a week, I could probably make all of the drinks that they make there. I have no idea how to do it right now.
NASIR: Yeah, and not to minimize their work, I’m sure it doesn’t take that long to train. I bet you they do have some sort of turnover. There’s not that many types of people that can work part-time. You’ll have more students, more of those that are just entering entry-level workforce people, individuals that need a job or are doing something else otherwise. And so, those types of workers do tend to have more turnaround.
MATT: Yeah, and they had this college achievement plan.
NASIR: Yeah, exactly. I think we covered that, too. I think they were going to pay for tuition or something like that. It was not quite tuition. What was it? I can’t remember. I think we covered it, right?
MATT: Yeah, I think we did as well. To me, they’re doing some things now but it seems like they do care about their employees.
NASIR: I agree. I think they do a lot more than what most companies do, but you can definitely see that there is some cost savings efforts. I mean, they just changed their loyalty program. The only reason I know about this – that people are upset about it – is because my wife complained as well. Anyone who goes to Starbucks and participates in their rewards program knows about this. By the way, if I’m wrong, please correct me because I’m probably going to mess it up but this is my understanding. Before, you would go to Starbucks, whether you spent a dollar or $50.00, you would get a star and you’d collect a certain number of stars – whatever it was, it’s like ten or whatever.
MATT: I think it was twelve. I’m reading this. According to this, it was twelve.
NASIR: Okay, twelve. Then, you would get a free drink. For example, if you were going in there and you were getting a drink and maybe you have some pastry or a sandwich or whatever, what my wife would do – and what many people would do because they understand and they expect it – is you would actually separate the transactions so technically it would be more than one visit. With two items, you would get two stars and two transactions and that’s how you’d build up your stars. If you get a certain number of stars, then you get a gold card and somehow you’re the greatest person in the world. And so, there’s other benefits. That’s how it used to be.
Now, I remember when this happened because I started looking at their terms of service, how they actually managed to do this, but they did change the rewards program and obviously since there’s not really a contract, you didn’t really lose what you already had but they did change how you gained these stars. Basically, it’s based upon the dollars amount that you spend.
Before, whether you spent $2.00 on a coffee or $10.00 on a coffee – I don’t know how much the most expensive one is – you would get one star. Now, basically, one dollar equals one point or something to that effect. To get a free drink, you basically have to spend about $62.00 or so.
MATT: Yeah, I think it might be two stars per dollar spent, 125 point, roughly $62.00 which is a little over $5.00 for twelve visits. I mean, I get the most basic thing there. Well, maybe not the normal Starbucks but I’ve paid $5.00 for a coffee before – maybe that was probably in Vegas or something.
NASIR: I guess that’s an 8 percent discount. That’s not crazy. That’s not bad.
MATT: Yeah, I get why people are upset. Obviously, people were exploiting the rewards system which is fine. I have no problem with people doing that. It’s the way it’s set up so they have to shift and change, but it’s not that much different. This isn’t Southwest Airlines where it used to be – I don’t know if you remember the old rapids rewards – it was like eight flights and you get one free. Now, it’s like spend 100,000 and you get a free flight so it’s vastly different from what it used to be. To me, twelve visits versus $62.00 over twelve visits isn’t that big of a difference. I can see why people are upset about it. I mean, I’m fine with both sides in this situation and I don’t go to Starbucks so…
NASIR: Well, according to Starbucks – and this is interesting, too – I mean, this has to do with any time you have any kind of rewards programs and rewards programs, don’t take them lightly. I know even small shops have those cards where you stamp them or whatever but then there’s always a transition period when you get rid of that program, if it’s temporary, for example, you have to allow some time period where people can still use those stamps and so forth. So, there’s some regulations that come with that.
But, anyway, Starbucks’ response to kind of the blowback was kind of interesting because it’s their position that the new program pretty much reflects it’s actually somehow better for the customer. They say somehow it reflects the number one request we heard from members, more stars awarded based on what you buy, and then say that, if customers simply continued to engage as they currently do instead of engaging more as we believe they will, the vast majority of customers will earn just as many rewards as fast as they would have before.
MATT: That’s easy to prove. Just look at your rewards customers. If they’re spending more than the $5.00 in change per visit, then they’re benefiting from this new reward system. If they’re spending under it, they’re not. That’s really all it is.
NASIR: That’s your perspective. JDubs on Twitter says…
MATT: I was going to read that one, too. It was hilarious.
NASIR: Oh, you were?
“That is such a lie! Don’t spin it like it’s customer-based. BS! It’s corporate greed based.”
MATT: I was going to say, “Yeah, @BigJDubs had a problem with this corporate greed.”
To me, this is consumer greed but that’s fine.
NASIR: Well, @LindsayMills also said, “Starbucks rewards program changes are complete BS in my humble opinion.”
MATT: Just her opinion, it wasn’t a humble opinion.
NASIR: Ah, yeah, I missed the acronym. IMO.
MATT: Just real quick, I want to hear your take on this. I’ve never done it and I get kind of annoyed when people do it sometimes. It just depends on the situation but what do you think of people that have a bad experience and then immediately will just tweet at the company complaining about their experience in hopes to get a free whatever?
NASIR: It’s a good question for me because I’ve gone through phases where I fight to the teeth for every little stupid thing. I don’t do it publicly on Twitter or Facebook. That seems a little weird to me. But, honestly, if you do have a bad customer experience and you call and you just explain very calmly, you know, depending upon the company, nine out of ten times, they will give you something for free.
MATT: Yeah.
NASIR: In a way, I feel like, in the past, I felt like I had more time back then, now I feel like I don’t know what I’ll be thinking but, in the past, it’s like it made sense to go through that because, you know, you feel vindicated in a way you felt that you were somehow treated incorrectly and so there’s some kind of remedy to that and most companies – most good-sized companies – will be very responsive. Everything from if you had a bad food experience to even airlines I’ve had issues with. If you kind of run up the line with it, even with the ones that are notoriously difficult to work with, they’ll eventually give in and provide you with some positive response.
MATT: To me, I have the philosophy that it all just kind of evens out. If I go to a restaurant or pick up get-to-go and they forget something, it’ll even out because I’ll go some other time and get something extra.
NASIR: No, that never happens. By the way, if I do get the wrong order, I just call the manager – and this is a standard in every restaurant, this is some advice for everybody – if you get a bad order, just call the manager – the same day is better – and they’ll say, “Oh, when you come in, we’ll give you a gift card.” I’ve done it many times. As you guys know, you go through a drive-thru – a drive-thru I haven’t done in a while but – like a carry-out or whatever, you open it up and you get something completely wrong, you’re already home. That can be frustrating, especially with people that have dietary restrictions. That’s where it’s come up for me. That’s kind of a huge annoying issue, you know. Anyway…
MATT: You’re wrong about this because I’ve had countless times where I’ve gotten something free by accident. I’m not joking – I can’t even count the number of times that’s happened in my life.
NASIR: I cannot count them either because I can’t think of one time that it’s happened. Oh, sometimes, I order fries and you get an extra onion ring, is that what you mean?
MATT: No, but that’s happened to me before as well.
NASIR: That’s happened to you before, too. By the way, usually, typically, when you get any type of compensation or gift card or whatever, it’s usually for more than just the item that you’ve lost and they also compensate you for you know…
MATT: Oh, here you go, you love fish tacos. There’s this one place my wife and I go to, one time, we both ordered the fish tacos so we got two orders. We got our thing and they gave us three orders. We just got a free order of fish tacos which you would have loved because that’s what you like.
NASIR: Yeah, I do enjoy fish tacos. So, what are you saying? So, you’re never going to complain. You’re just hoping that thigs are going to even out in the long run? That’s not a bad approach, I suppose – less stressful.
MATT: If there was a way to go back and I could track the number of times that I lost money on something as opposed to gained, I think my gains exceed my losses. I think it’s fine.
NASIR: I’m surprised. I wouldn’t say that myself.
MATT: I could be wrong as well.
NASIR: I’d honestly like to hear some other third-party perspective if you guys have any opinion on that because I have the opposite opinion but that’s fine.
MATT: Good.
NASIR: Sauce versus crust – classic.
Anyway, Starbucks, generally, they’re doing what they do. Some of these things are so common in the corporate world. I mean, I’ve had these conversations regarding benefits and cutting workforce and we’ve talked about it with the new minimum wage for exempt workers, right? We talked about one of the results of that change. Just as a reminder, through executive order or through the Department of Labor, they issued minimum wage for exempt status. That means exempt from overtime and things like that. One of the ways that companies may try to change or try to avoid paying overtime is to have those workers work part-time or less than 40 hours a week and then hire another worker and that may happen and that may also have an unintended effect where workers may say, “Well, working less than 40 hours a week, then you’re not a full-time employee under our standard. You don’t get the same kind of benefits,” and that happens, too.
MATT: Yeah.
NASIR: By the way, this is kind of a misunderstanding. A lot of people think that full-time is defined by 20 hours or more. The reality is it depends upon what we’re talking about because what’s the significance of whether you’re a full-time and part-time? Often, it’s benefits and we’re talking about benefits. That distinction of what’s considered full-time may be employer-specific. Some employers may say you only get health benefits or certain benefits – sick pay or vacation pay – depending upon local rules or whatever if you work 30 hours or more or 35 hours or more. And so, there’s really no standard in that respect.
Now, there are other implications like, for example, there is FTE, there is full-time equivalent so all these do come into play and there are some kind of standards of what is considered full-time or part-time under certain statutes but, generally, there’s no standard rule for that definition. Just a little tidbit there.
MATT: People that are still listening, that’s some good advice.
NASIR: Yeah, I stopped listening myself. That’s fine.
MATT: Ah. Well, this is our 4th of July episode I guess.
NASIR: Hopefully. Hopefully that’s when it comes out.
MATT: Well, it’s not going to come out on the 4th of July.
NASIR: Yeah, yeah, it won’t come out on the 4th.
MATT: Yeah.
NASIR: Anyway, all right, thanks for joining us.
MATT: Yeah, keep it sound and keep it smart!

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