SCHULTZ & JOHNSON SHOW PROFITS FOLLOW PURPOSE

• Starbucks execs took the arrest scandal as an opportunity for the coffee chain to deepen its commitment to core values.
• The hospitality industry sits at the intersection of business and humanity, and the most successful companies embrace compassion and empathy.
• Effective crisis response depends on having a robust corporate communications strategy and a clear understanding of the organization’s purpose.
• Corporate communications don’t develop on their own: companies need to invest in building a complete strategy.

Almost as soon as consumers learn a company’s name, they form an opinion of it — by default or by design. The past week has offered a master class in managing public opinion, as Starbucks’ Howard Schultz and Kevin Johnson have responded to the racial profiling incident that took place in a Philadelphia store by reiterating and reinforcing their organization’s core values. 

Since its founding, the coffee giant has instilled an inclusive culture throughout its operation. This foundational orientation shaped the company’s crisis-response strategy and saw stock prices safely through a tumultuous week. 

PURPOSE OVER PROFITS

Many of the 9 million people who watched the viral video of two men being arrested for trespassing on April 12 responded with recognition: who hasn’t hung out at a Starbucks while waiting for friends or catching up on email or charging their phones without making purchase? 

That people often treat the coffee shop as a public square isn’t evidence of eroding manners: the brand’s third-place strategy invites — even encourages — this kind of behavior. Schultz described this in the company’s 1995 Annual Report: 

What happened in Philadelphia sends the opposite message, and Starbucks customers immediately recognized it. Protesters planned actions at the Rittenhouse Square location, and Twitter exploded with #BoycottStarbucks posts. Had the coffee chain allowed public opinion to develop on its own, by default, the crisis would have deepened.

Instead, Schultz and CEO Kevin Johnson took control. Both did interviews on morning news (CBS This Morning and Good Morning America, respectively), where they called the incident “reprehensible,” echoing Johnson’s initial press release. They also took personal responsibility for what happened and promised to do better.Johnson described the incident as an “opportunity for us to provide clarity and . . . more training,” while Schulz promised that Starbucks “will transform the way [it does] business and educates [its] people on unconscious bias.” 

The beginning of this effort — and Schulz repeated that it was just the beginning — will take place when the company closes all US stores on May 29 for an all-hands training. When CBS’s Gayle King reminded Schultz that this will likely cost the company millions (we estimate the revenue losses at $6.5m), he replied that he sees “things like this not as an expense but an investment in our people and our company.” 

Schultz’s statement shows that Starbucks values purpose over profits. Indeed, throughout their responses to the event, both executives returned to the company’s “why” over and over: Johnson explained that “Starbucks was built as a company that creates a warm, welcoming environment for all customers,” and Schultz described the arrest as the “antithesis of the values, the culture, everything this company stands for.”

And Starbucks has also shown that profits follow purpose. When it partnered with Arizona State University in 2014 to provide all workers with full tuition coverage, the market rewarded the move, and Starbucks gained $2.6b in market cap. 

NOT A LOVE STORY

If Starbucks reminds investors of the benefits of a virtuous company, Chipotle’s eight-month foodborne illness outbreak should serve as a cautionary tale. Between the first outbreak of E. coli in July 2015 and the company-wide retraining that took place 7 months later, the company lost $10.5b — half its value. It’s hard to think of any company that’s lost that much money and that large a percentage of its value in such a short period of time. 

Chipotle waited until November 3 — and the closure of 43 locations in Washington & Oregon — to address the outbreak in a press release. By then, it had already lost over $3b in market capitalization. It took another full month for Ells to appear on TV, in which time Chipotle shed another $2.9b. Most of its communications efforts were frustrated by repeated outbreaks: just four days after it promised to become a leader in food safety, it had a norovirus outbreak in Boston. 

In response, Chipotle battened down its hatches, hoping to protect itself from the scandal. The problem wasn’t just that the executive team took too long to respond, though that certainly played a role. The organization also failed to acknowledge that the outbreaks directly contradicted the company’s core value proposition — “food with integrity.” 

Rather than treat the crisis as an opportunity to find better ways to ensure customer safety and satisfaction, it released “A Love Story.” On the surface, the short film promoted the chain’s commitment to fresh and sustainable ingredients, but it was really an attack on its fast food competitors. The tone-deaf video was another mistake in a long list of communication fumbles. 

INVEST IN CULTURE

Executive team members are often drafted as cheerleaders when things get tough. In the best-case scenario, they perform like Johnson and Schultz, reconnecting the organization to its core values. Alternately, they can behave like Chipotle did and treat their company’s purpose as a talking point. 

The Starbucks team would not have been able to carry out such an expertly executed crisis response had their company not done the work to create and instill its culture both among employees and with the public. Their response was not the product of an agile crisis response team but of authentic corporate communications. 

Though no executive would deny the importance of communication strategy, few organizations have robust programs in place. Sure, they have an intranet where they post policies, the chairman sends out messages to employees every once in a while, the investors get their annual reports on time, and a PR department puts out press releases when the company has something to crow about. 

These components barely scratch the surface. What about a corporate social responsibility plan? What about a culture manifesto that can offer guidance in times of crisis? Why does a company do what it does? How do its policies and procedures reflect that? What truth does an organization want to share with the world? 

Developing and instilling a strong corporate culture and then articulating it to consumers and investors is no small task. It doesn’t happen organically, and it can’t be accomplished with memos and perfunctory quarterly meetings. It requires investment and commitment. An outside perspective can help, especially if it doesn’t arrive in the form of falling share prices or disappointed customers.

SERVICE ELEVATES US

From a practical side, last week’s events have underlined the need for executives to check in with their communications plan and make sure it’s being expressed from the C-suites to the kitchens. But, more importantly, Johnson and Schultz have set a positive example for industry leaders — and business leaders in general. The hospitality industry is where the demands of running a business and the demands of being a compassionate human intersect. 

Had Starbucks not built a commitment to inclusion and diversity into its DNA, Johnson and Schultz would not have been able to handle this crisis with the humility, empathy, and care that they have repeatedly demonstrated. Corporate communications isn’t just about preserving shareholder value; it’s also about holding the company to the highest standard. 

That’s precisely what Johnson and Schultz have done, reminding those of us in the restaurant business that service isn’t beneath us: it’s above us. 

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ABOUT THE AUTHOR:

Aaron Allen is a global restaurant consultant and the founder/CEO of Aaron Allen & Associates, a leading global restaurant industry consultancy. Aaron has personally led boots-on-the-ground assignments in 68 countries for clients ranging from startups to multinational companies posting in excess of $37 billion. Collectively, his clients around the globe generate over $200 billion annually and span six continents and more than 100 countries.