Monday, July 7, 2008

Starbucks Brewing Health Care Cuts?

Once a successful blend of business and community values, Starbucks is now falling on difficult times. As costs increase and earnings tumble, the coffee house chain is about to close 600 U.S. stores and is likely to go through some other gut-wrenching changes. I'm afraid curtailing employee health care benefits, or cutting them outright, is on that agenda. What follows is an earlier post exploring that possibility.

I've had one cup of coffee in my life. Just can't stand the taste of the stuff, nor the aroma. Yet despite my java aversion, I'm a regular at Starbucks, where I'll pick up a cup for my wife or meet people for the occasional meeting. I even have one of those Starbucks debit cards.
But there's another big reason why I like doing business with Starbucks: It's one of a handful of major retailers offering every staff person access to affordable health care insurance, especially part-time helpers, who make up a large portion of the Starbucks workforce.
Just a little over 40 percent of its workforce takes advantage of this benefit, according to the company. Still, the point is that every staffer qualifies for coverage and in this day and age that's a rare and golden benefit.
(I know a young actor who moonlighted at Starbucks. She was hit by a car and required serious medical help and rehab. She was very glad to have the Starbucks coverage.)
Unfortunately, Starbucks is going through some very tough financial times and I'm concerned it may be forced to dramatically curtail, maybe even dissolve, health care benefits for its part-timers.Not only would that be a shock to the Starbucks culture, but it would be a major setback for employee-based health care coverage in this country. Indeed, Starbucks and Costco, the mega store chain that also provides health care benefits to part-timers, are often hailed as the type of service employer who is doing the right thing. In return, they usually attract more talented and engaged employees.
It would be a huge step backward should Starbucks reverse course and stop providing health care to its part-time baristas, counter help and other workers.
Still, it is within the realm of possibility.
Recently, Starbucks announced declining earnings for this year, while its stock is tumbling.
Things are so choppy that founder Howard Schultz has been forced to return to the executive suite and try to get the franchise cooking again.
Despite his best efforts, investors are getting antsy and that's never good. When management is under pressure it starts looking to quickly cut costs. In Starbucks case, trimming or ending expensive health care insurance would be an option.
Starbucks hasn't brought up the possibility of cutting health care benefits, but it must be on Schultz's mind.
Only a few years ago--when Starbucks could do no wrong--Schultz was already lamenting the escalating price of health care, noting that it was outstripping what Starbucks paid for coffee. Commodity prices are higher now, but I'm betting that's still true.
Schultz is trying to revitalize Starbucks by going back to its roots of exceptional customer service and products. He's also rethinking the company's recent expansion plans and deciding whether it should be an outlet for selling Cd's and other peripheral products.
But that's nibbling around the edges.
If a turnaround does not quickly occur, management may have no choice but to shelve good intentions and rethink its philosophy of providing health care to all workers.
In the short run, cutting benefits may be one of the most effective ways to save money, improve profits and keep investors from pressuring Starbucks into selling or merging.
But in the long haul?
Well, let's just say that would be an unhealthy choice for everyone who works at Starbucks or buys its coffee.


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Anonymous said...