Starbucks Proves Its Image Is Mostly Made of Teflon

Sarah Halzack

28 Apr 2019, 05:37 AM IST

(Bloomberg Opinion) -- In the past year, there has been plenty of chatter about Starbucks Corp. that has had little to do with its lattes.

Last April, the arrest of black patrons at one of its Philadelphia cafes put it at the center of a heated debate about racism in America. That wouldn’t be great for any restaurant chain, but it was an especially tough spot for Starbucks, which has sought to portray itself as a leader on diversity issues.

More recently, the chain’s former CEO Howard Schultz has been exploring a run for president, generating backlash from liberals who see the bid as a billionaire’s vanity project that will end up spoiling the chances of the eventual Democratic nominee. And he hasn’t exactly been shy about citing his Starbucks experience as a credential.

Here’s the good news for the coffee giant: It appears that the shadows cast on its business by those developments faded pretty quickly. Market research firm YouGov has found that the company’s “buzz score,” a measure of consumers’ perception of a brand, has rebounded to roughly where it was before the Philadelphia arrests. And its score is often above the industry average.

Starbucks Proves Its Image Is Mostly Made of Teflon

The resilience of the Starbucks brand shows that if the company can solve its more ordinary restaurant industry problems, it will be extremely hard to outgun. Its latest quarterly results, reported Thursday, showed signs it is doing just that.

Most notably, Starbucks’s China business perked up a bit in the quarter, with comparable sales growing 3 percent from a year earlier. That remains a slower pace than was typical for the chain in its so-called second home market not long ago. But it is commendable that it notched this improvement as a homegrown competitor, Luckin Coffee Inc., comes on strong with more stores and steep discounts. The upstart this week filed for a U.S. public offering, potentially giving it fresh capital to ratchet up the fight.

The company also made progress on some measures in its Americas division, with operating income surging 12 percent from a year earlier, demonstrating the power of its cost-savings initiatives in its supply chain. It also bumped up its guidance for Americas operating margin for the full year, now expecting it to be up slightly instead of down slightly.

And comparable sales rose 4 percent from a year earlier in the Americas, thanks to the popularity of new iced beverages such as its Nitro cold brew and its Refreshers line, meant to be a healthier alternative to an afternoon Frappuccino. As has been typical lately, though, that Americas growth comes with an asterisk. It is being driven entirely by “ticket,” or higher prices and people buying more items per order. Transactions, a proxy for traffic, were flat from a year earlier.

The coffee chain’s recent delivery expansion through a partnership with Uber Eats should help boost transactions. But it’s difficult to declare Starbucks’s problems solved if, despite myriad efforts — a revamped loyalty program and new workplace procedures aimed at improving customer service — it can’t deliver transaction growth in its biggest market.

At least, though, it doesn’t have to fix those issues while also worrying about mopping up lasting damage from cultural and political imbroglios. The Starbucks brand, despite its turns in the divisive news spotlight, remains extremely powerful. The company just needs to fine-tune the menu and marketing that supports it.

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.