July 16, 2009

Starbucks has joined the list of large companies that have adopted the corporate version of stealth technology, by renaming one of its Seattle stores "15th Avenue Coffee & Tea" and otherwise giving it the appearance of a neighbourhood pub. It won't be the first large company to have rebranded part or all of its goods and services to create the feeling of an independent, and it won't be the last.

This tactic will cut directly and deliberately into the independent market niche. How can it not? It is the latest in a long line of Starbucks business tactics which happen to target independents disproportionately among its competitors, such as the willingness and deep-pockets ability to operate at a loss until the independent competitor simply runs out of money. Some will call these tactics "anti-competitive". Others will simply label them "good business".

Perhaps it will turn around the staggering profit drops that Starbucks has seen in recent months. In the fourth quarter of 2008, Starbucks profits dropped a staggering 97%. Second quarter profits reported at the end of April 2009 still showed a drop of 77 percent. From a history of growth so meteoric it was parodied repeatedly on The Simpsons, Starbucks is now closing low-performing stores almost as rapidly as it was initially opening them. Ironically, among the stores closed is the fabled one in the Forbidden City. It seems that a significant percentage of the coffee-buying public see Starbucks latt├ęs as an unneeded luxury item.

When we look back at this period of time, will we see the rise, fall, and potentially reinvention of Starbucks as perfectly symbolic of its country of origin, its environment, and its times?

While I am at it, I may as well also address the persistent Internet rumour that alleges that part of Starbucks profits go to fund the Israeli army. Let's start by citing Starbucks' official response:
Starbucks is a nonpolitical organization and does not support political causes. Further, political preferences of a Starbucks partner at any level have absolutely no bearing on Starbucks company policies.
This one is much trickier than it appears on the surface, and even Snopes is reluctant to tackle it fully. Starbucks is a autonomous corporate entity whose profits go toward expansion, market research, and most recently a rebranding testing. As such, none of its profits go directly to any Israeli causes, Zionist or otherwise: although of course the question of influence peddling is always open whenever powerful business meets politics. (Consider the parallel question of big oil money in the United States.)

Yet by definition a part of Starbucks' profits (to the tune of $9,740,471 USD in 2008) do go to its CEO Howard Schultz, who is nearly solely responsible for Starbucks' early success and rapid growth. In 2006, Forbes Magazine ranked Schultz the 354th richest person in the United States with a net worth of $1.1 billion USD (probably a bit lower now, after the Starbucks/stock market fall). Most of this money has originated with Starbucks.

Schultz also happens to be Jewish. Just as every Christian attending church is expected to tithe 10% of their income to church-sponsored activities, so is every self-sufficient Jew expected to donate a minimum of 10% of their income to charity (tzedakah), as well as a minimum of 1/60 to pe'ah, the transparent, open giving from the profit derived from goods which originates in agriculture ("when you reap the harvest, you shall not reap all the way"). The rabbinical teaching is that tzedakah money belongs not to the earner but to the recipient: creating an obligation not only to give, but to give it to appropriate causes that can best use it. Although many Jews in the United States don't give to primarily to Jewish causes, the 1998 Israel 50th Anniversary Tribute Award given to Schultz by Aish HaTorah does suggest that he personally prioritises conservative Jewish causes.

(From a Christian perspective, Aish HaTorah might best be considered an organisation which evangelises Judaism and Torah principles to the Jewish people. As with almost every conservative religious structure, no matter what the religion, it can be considered right-wing. In the case of conservative Jewish values, it is difficult not to have links with Zionism. Some aspects of Zionism such as settlement, in turn, have proven a constant sticking point in any Middle East peace agreement: which indirectly requires a continued high percentage of GDP to support a defensive military. Since Aish HaTorah has also helped establish the media monitoring organisation HonestReporting.com, I must admit that I am curious whether this blog too will soon be dubbed as having an anti-Israel bias, if it has not been already.)

Thus the wording of the Starbucks statement deliberately obscures the intent of the question. Every Starbucks employee is labelled a Starbucks "partner", from lowest barista right up to the CEO: but most Starbucks employees don't have a voice in Starbucks operations and policy. Nor is any Starbucks employee in a position to donate as much to their chosen causes as Schultz, simply because no Starbucks employee earns so much. Practically, this means that a significant percentage of Starbucks gross profit does go, indirectly, to the personal causes espoused by Schultz.

Under the letter of the law, Schultz is separate from the company he has built, and his charitable choices are his own. After all, it is his money, to do with as he wishes. Were the corporate veil not in place, the principal shareholder and the company would be one and the same -- but the corporate veil does exist, the corporation is considered an independent entity: and thereby hangs a technicality.

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