Starbucks: The Value of Free Education

Ryan Bhandari |

starbucks social responsibility, starbucks millennials, starbucks stock price, starbucks howard schultz, starbucks profit

“Companies should not have a singular view of profitability. There needs to be balance between commerce and social responsibility…The companies that are authentic about it will wind up as the companies that make more money”

-Howard Schultz, Starbucks CEO

In a corporate world driven more and more by pressure to create shareholder profits, it’s unusual for a publicly traded company to announce a policy that will negatively affect its profitability in any way. But even with today’s corporate attitudes toward social responsibility, Starbucks (SBUX) is acting early to take advantage of a unique opportunity to brand itself as a corporation with higher moral standards. If Starbucks’ mission to improve its public image through social responsibility proves to be successful, other companies may follow suit.

Earlier this week, Starbucks announced a comprehensive new benefit for all of its employees: paid education. Through a partnership with Arizona State University’s Online Studies Program, Starbucks employees (full and part time) can choose from at least 40 different undergraduate degrees to pursue—all on the company’s dime.

 

Those who enroll in the online program as juniors or seniors will receive free tuition whereas freshmen and sophomore enrollees will still be eligible for scholarships up to $6,500. Clearly, with the costs of tuition skyrocketing and the average college graduate leaving school with $30,000 in debt, this seems to be a very generous offer.

Starbucks CEO Howard Schultz says 70% of Starbucks’ 135,000 eligible employees do not have a college degree, so this new employee benefit could cost a hefty sum of money to the coffee chain. Starbucks has not released an initial projection for the total cost of the program, but Schultz did say that the benefit is roughly equivalent to $30,000 per employee that decides to enroll.

Starbucks’ History of Social Responsibility

The new benefit is just the latest in Schultz’s campaign for more social responsibility at the corporate level. Starbucks has continued to improve its comprehensive health care coverage and as a result, the coffee giant offers one of the best employee health plans from any company.

In 2010 alone, the company spent $300 million on health benefits for its employees, more than it spent on actual coffee beans. Yet despite, Starbucks spending so much on health care, shareholders still enjoyed a considerable gain of nearly 40% when shares appreciated to $32 from $23 in 2010. While other companies like Papa John’s (PZZA) and UPS (UPS) were looking for ways to cut health insurance cost from employee benefits during the implementation of the Affordable Care Act, Starbucks continued to cover all of its “partners.”

“Starbucks will continue maintaining benefits for partners and won’t use the new law as an excuse to cut benefits or lower benefits for its workers,” Schultz told Reuters in 2013.  

Schultz has also resisted shareholders’ demands in the past if he felt they violated basic moral principles like equality. In March 2013, he famously told disgruntled investor Tom Strobhar to take his business elsewhere if he wasn’t satisfied with Starbucks’ position on gay marriage. Starbucks had endorsed Washington’s 2012 bill to legalize same-sex marriage and as a result, the National Organization for Marriage instituted a boycott on the company.

Strobhar voiced concern over Starbucks’ performance during the first quarter after the boycott. To which Schultz famously countered, “The lens in which we are making that decision is through the lens of our people. We employ over 200,000 people in this company, and we want to embrace diversity.”

He added, “If you feel, respectfully, that you can get a higher return than the 38% you got last year, it’s a free country. You can sell your shares of Starbucks and buy shares in another company. Thank you very much.”

Consequently, the company did not taper its stance to cater to those who don’t share the same values. And while the boycott did manage to keep Starbucks’ stock price hovering around $55 for most of Q1 2013, Schultz’s decision to stand firm seemed to pay off as shares proceeded to appreciate as high as 45% to $81 in November before pulling back.

Influence of Millennials on Corporate America

While many will applaud the actions of Starbucks, it’s also important to take note of their motivation. Why invest so deeply in your employees? There are certainly some altruistic motives, but Schultz is a smart businessman and he understands that if he wants to remain CEO, he has to prepare his company to be successful in the future. So what makes social responsibility and a commitment to employee wellbeing so essential for Starbucks’ future success?  

In May 2014, the Brookings Institution released a report on the millennial generation. (People born between 1982 and 2003). What Brookings found is that millennials are more concerned about corporate responsibility than any other generation in history. The survey found that 89% of millennials said they are more likely to buy from companies that supported solutions to specific social issues.

Also, 84% of millennials--which accounts for more than $1 trillion of U.S. spending—reported considering a company’s involvement in social issues when deciding where to shop. The bottom line is that millennials want to buy from corporations that focus on social responsibility and “making the world a better place.”

And since millennials are poised to comprise 36% of the adult population by 2020 and almost 75% of the workforce by 2025, it may be a good idea to start vying for their support right here and right now in 2014. Brookings believes that we will see a major change in corporate culture as more millennials enter the workforce and become concerned consumers and employees.

In the report, authors Morley Winograd and Dr. Michael Hais write, “the surest way to ensure the failure of a firm’s economic performance in the millennial era that is now emerging is to focus solely on profits, because a company’s future ultimately rests on the loyalty of its customers to the values the company and its brand represent.”

A Win-Win for Starbucks

For Starbucks then, it makes perfect sense to continue to brand themselves as a socially responsible company. When millennials purchase a coffee from Starbucks, they can feel good about the money they are spending because they know that it’s going, at least in part, to the education of its employees or “rebuilding the American Dream for (Starbucks’) employees” as Schultz put it.

And because cost of education is such a pertinent issue to millennials, Starbucks has the chance to establish itself as the epitome of social responsibility to this growing generation.

When taking into account the report from Brookings, Starbucks has positioned themselves beautifully for long-term success and profitability. By continuing to act in a socially responsible manner, they are all but insuring that they remain popular with the newest generation primed to be dominant in the future. And even though Starbucks’ motives may not be completely altruistic, it shouldn’t deter the rest of us from applauding its actions and commitment to the wellbeing of its employees. 

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
UPS United Parcel Service Inc. 116.35 -0.08 -0.07 2,088,702
SBUX Starbucks Corporation 57.21 -1.30 -2.22 16,870,730
PZZA Papa Johns International Inc. 86.21 -1.10 -1.26 639,002
HRTQY Hero Motocorp Ltd ADR n/a n/a n/a 0

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