Starbucks (SBUX) has more to lose from giving up market share than its intensifying unionization fight, according to BTIG Managing Director Peter Saleh.
“I think the greatest risk to Starbucks at this point is a loss of market share and tarnishing their brand,” the restaurant analyst told Yahoo Finance Live (video above), later adding that “I don’t think consumers are going to push back enough to really push this to a fully unionized staff.”
Starbucks currently dominates the U.S. coffee chain market with about 40% of the stores nationwide as of 2020, according to Statista.
Union fight ‘a thorn in Starbucks’s side’
In a survey of roughly 1,000 Starbucks consumer across the country, BTIG found that only 4% of consumers said they would “never visit Starbucks again” if the unions and Starbucks failed to reach an agreement while 68% of respondents said it would have no impact on visit frequency.
Another 15% indicated they would visit less often and 13% said they would be more frequent customers depending on how the union fight plays out.
“I think those two could kind of cancel each other out,” Saleh said. “So we just don’t believe there’s gonna be a major consumer backlash here against Starbucks if they can’t reach an agreement with the union. So, at this point, I think this is a thorn in Starbucks’s side.”
More than 200 of the coffee chain’s 9,000 company-operated U.S. locations have filed petitions for union elections, 27 locations have voted in favor of a union (with two voting against unionization), and nine store election results have been certified.
Baristas have filed more than 100 Unfair Labor Practice charges with the National Labor Relations Board (NLRB) against the coffee giant amid their efforts to unionize. This week, Starbucks filed two charges against Workers United, the labor organization backing baristas, as tensions escalate.
The Seattle-based company has responded in part to the growing unionization efforts by bringing back former CEO Howard Schultz as interim CEO. Schultz has taken steps such as suspending stock buybacks so that the company could “invest more profit” into their people and stores.
In a recent town hall meeting, Schultz told employees that companies across the country were “being assaulted in many ways by the threat of unionization” while also acknowledging that the company made “some mistakes during COVID.”
Starbucks stock is down 9% over the last month. Both BTIG research and MKM Partners have lowered their target prices following the uncertainty of unionization, high probability of wage and increased investment, and the announced suspension of share repurchase.
“Following management’s calls to suspend buybacks and ‘invest in operations,’ there is a growing expectation it could lead to some near term deterioration of profit expectations,” MKM Partners Research Executive Director Brett Levy, who lowered his target price to $105 from $115, wrote to clients in a note on Wednesday.
“We reduced our F2Q and F3Q assumptions to account for the near-term fundamental challenges, which also sees us apply a more conservative valuation to the recovery arc, ahead of gaining greater visibility into the next phase of the SBUX story,” Levy added.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv
Read the latest financial and business news from Yahoo Finance
Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn
Read More:‘The greatest risk to Starbucks at this point,’ according to BTIG’s Peter Saleh
2022-04-22 12:40:11
