Criticism of Starbucks

In October 2012, Starbucks faced criticism after a Reuters investigation found that the company reportedly paid only £8.6 million in corporation tax in the UK over 14 years, despite generating over £3 billion in sales—this included no tax payments on £1.3 billion of sales in the three years prior to 2012.[3][4] It is alleged that Starbucks was able to do this by charging high licensing fees to the UK branch of the business, allowing them to declare a £33 million loss in 2011.[5] The UK subsidiary pays patent fees to the US subsidiary, purchases coffee beans from the Netherlands subsidiary (where corporation tax is lower than in the UK), and uses the Swiss subsidiary for other "miscellaneous services".[6] A YouGov survey suggested that Starbucks' brand image was substantially weakened by the controversy surrounding how much tax it pays in the UK several weeks after the allegations surfaced.[7]

Starbucks' chief financial officer (CFO) appeared before the Public Accounts Committee in November 2012 and admitted that the Dutch government granted a special tax rate to their European headquarters, which the UK business pays royalties to.[8] Dutch law permits companies to transfer royalties collected from other countries to tax havens without incurring taxes, unlike in the rest of the EU.[9] The CFO denied that they chose the Netherlands as their European headquarters to avoid tax, explaining that the company's Dutch coffee roasting plant was the reason for the decision.[8] Until 2009, the royalty rate was 6% of UK sales, but after being challenged by UK tax authorities it was reduced to 4.7%.[9] The CFO told the committee this reflected costs such as designing new stores and products, but admitted that there was no detailed analysis by which the rate is decided. The coffee they serve in the UK is purchased from the Swiss subsidiary, which charges a 20% markup on the wholesale price and pays 12% corporation tax on profits.[8] Coffee is not transported to Switzerland but the 30 people who work in the subsidiary assess coffee quality. Regarding Starbucks' frequent reports of loss in the UK, the CFO told the committee that Starbucks are "not at all pleased" about their financial performance in the UK.[8] MPs replied that it "just doesn't ring true" that the business made a loss, pointing out that the head of the business had been promoted to a new post in the US and they consistently told shareholders that the business was profitable.[3][10]

In Ireland, Starbucks' subsidiary Ritea only paid €35,000 in tax between 2005 and 2011 and the subsidiary recorded losses in every year other than 2011. Ritea is owned by Netherlands-based Starbucks Coffee Emea.[11] Their French and German subsidiaries make large losses because they are heavily in debt to the Dutch subsidiary, which charges them higher interest rates than the group pays to borrow. Reuters calculated that without paying interest on the loans and royalty fees, the French and German subsidiaries would have paid €3.4 million in tax. The Dutch subsidiary that royalties are paid to made a €507,000 profit in 2011 from revenues of €73 million, while the company that roasts coffee made a profit of €2 million in 2011 and paid tax of €870,000.[9] Protesters, who were unimpressed by the company's offer to pay £20 million in tax over the next two years, staged demonstrations in December 2012 in affiliation with UK Uncut.[12] In June 2014, the European Commission antitrust regulator launched an investigation of the company's tax practices in the Netherlands, as part of a wider probe of multi-national companies' tax arrangements in various European countries.[13] The investigation ended in October 2015, with the EC ordering Starbucks to pay up to €30 million in overdue taxes, which the EC regards as illegal state support for corporations.[14] A pair of economists from the KU Leuven noted that the Commission did not forbid Starbucks' tax construction as such, pretending that Starbucks is a Dutch company and effectively rewarding the Dutch state for its lenient tax policy.[15]

Starbucks' footprint in the United States, showing saturation of metropolitan areas

Some of the methods Starbucks has used to expand and maintain their dominant market position, including buying out competitors' leases, intentionally operating at a loss, and clustering several locations in a small geographical area (i.e., saturating the market), have been labeled anti-competitive by critics.[16] For example, Starbucks fueled its initial expansion into the UK market with a buyout of Seattle Coffee Company but then used its capital and influence to obtain prime locations, some of which operated at a financial loss. Critics claimed this was an unfair attempt to drive out small, independent competitors, who could not afford to pay inflated prices for premium real estate.[17]

While relations with independent coffeehouse chains have been strained, some owners have credited Starbucks with educating customers on coffee.[18]

Starbucks workers in seven stores have joined the Industrial Workers of the World (IWW) as the Starbucks Workers Union since 2004.[19] In line with a Starbucks Union press release, since then, the union membership has begun expanding to Chicago and Maryland in addition to New York City, where the movement originated.[20][21] On March 7, 2006, the IWW and Starbucks agreed to a National Labor Relations Board settlement in which three Starbucks workers were granted almost US$2,000 in back wages and two fired employees were offered reinstatement.[22][23][24] According to the Starbucks Union, on November 24, 2006, IWW members picketed Starbucks locations in more than 50 cities around the world in countries including Australia, Canada, Germany, and the UK, as well as U.S. cities including New York, Chicago, Minneapolis, and San Francisco,[25] to protest the firing of five Starbucks Workers Union organizers by Starbucks and to demand their reinstatement.

The Reverend Billy leading an anti-Starbucks protest in Austin, Texas in 2007

Some Starbucks baristas in Canada,[26] Australia and New Zealand,[27] and the United States[28] belong to a variety of unions. In 2005, Starbucks paid out US$165,000 to eight employees at its Kent, Washington, roasting plant to settle charges that they had been retaliated against for being pro-union. At the time, the plant workers were represented by the International Union of Operating Engineers. Starbucks admitted no wrongdoing in the settlement.[19] A Starbucks strike occurred in Auckland, New Zealand, on November 23, 2005.[27] Organized by Unite Union, workers sought secure hours, a minimum wage of NZ$12 an hour, and the abolition of youth rates. The company settled with the Union in 2006, resulting in pay increases, increased security of hours, and an improvement in youth rates.[29] In March 2008, Starbucks was ordered to pay baristas over US$100 million in back tips in a Californian class action lawsuit launched by baristas alleging that granting shift-supervisors a portion of tips violates state labor laws. The company plans to appeal. Similarly, an 18-year-old barista in Chestnut Hill, MA has filed another suit with regards to the tipping policy. Massachusetts law also states that managers may not get a cut of tips.[30][31] A similar lawsuit was also filed in Minnesota on March 27, 2008.[32]

Starbucks has been accused by local authorities of opening several stores in the UK in retail premises, without the planning permission for a change of use to a restaurant. Starbucks has argued that "Under current planning law, there is no official classification of coffee shops. Starbucks, therefore, encounters the difficult scenario whereby local authorities interpret the guidance in different ways. In some instances, coffee shops operate under A1 permission, some as mixed use A1/A3 and some as A3".[33] In May 2008, a branch of Starbucks was completed on St. James's Street in Kemptown, Brighton, England, despite having been refused permission by the local planning authority, Brighton and Hove City Council, who said there were too many coffee shops already present on the street.[34][35] Starbucks appealed the decision by claiming it was a retail store selling bags of coffee, mugs, and sandwiches, gaining a six-month extension,[36] but the council ordered Starbucks to remove all tables and chairs from the premises, to comply with planning regulations for a retail shop.[37] 2500 residents signed a petition against the store,[38] but after a public inquiry in June 2009, a government inspector gave permission for the store to remain.[39]

A Starbucks in Hertford won its appeal in April 2009 after being open for over a year without planning permission.[40] Two stores in Edinburgh,[41] one in Manchester,[42] one in Cardiff,[43] one in Pinner and Harrow, were also opened without planning permission.[33] The Pinner cafe, opened in 2007, won an appeal to stay open in 2010.[44] One in Blackheath Village, Lewisham[45] was also under investigation in 2002 for breach of its licence, operating as a restaurant when it only had a licence for four seats and was limited to take away options. There was a considerable backlash from members of the local community who opposed any large chains opening in what is a conservation area. To this date, the Starbucks is still operating as a takeaway outlet.

Shark fin protestors at Maxim's HQ, Hong Kong 2018-06-15 also protesting Starbucks giving their regional license to Maxims

Environmental protestors in Hong Kong in June 2018 extended their campaign against Maxim's Caterers to also target Starbucks. This is due to Starbucks awarding regional licences to Maxims in Hong Kong, Macau, Singapore and Vietnam.[46] On June 15, 2018 protestors targeted Maxim's headquarters in a demonstration that also highlighted Maxim's being a regional licensee for Starbucks.[47][48]

In October 2013, China Central Television accused Chinese Starbucks of over-pricing. The report compared the price of a tall (12 fl. oz., 354 mL) latte in Beijing, Chicago, London, and Mumbai. It was found that Beijing stores charged the most while Mumbai stores charged the least. It was also found that a tall latte cost 4 Chinese yuan (approx. USD $0.67) to make, but it sold at 27 yuan (approx. USD $4.50).[49][50]

In April 2016, a class-action lawsuit was pressed against Starbucks after multiple reported incidents of the company purposely underfilling their latte beverages to reduce milk costs.[51][52] After two years of legal proceedings, the lawsuit was dismissed.[53][54]

In October 2006, the British NGO, Oxfam, accused Starbucks of financially wounding Ethiopian coffee farmers by violating Fairtrade agreements. Specifically, Oxfam stated that Starbucks was depriving Ethiopian farmers of $88 million a year[55] by depriving the Ethiopian government of trademarking a number of its local coffee beans. Starbucks responded to the accusations by stating Oxfam's claims were misleading, and wished it would stop deceiving the public.[56] An analysis by SFK Inc., a supply-chain risk management firm, revealed that both Starbucks and Oxfam had validity to their claims. The firm found that the demand for Starbucks coffee exceeded the supply of Fair Trade coffee available, and that Starbucks made efforts to purchase Fair Trade coffee, when available. Additionally, it was found that Starbucks paid premium prices for Ethiopian coffee at the time, prices higher than market value.[56] The analysis further criticized not Oxfam or Starbucks, but the Fair Trade brand specifically, stating it as more of a "quick fix" to ease consumer guilt. While the firm acknowledged that the Fair Trade cause is noble, it was, however, lacking when pertaining aspects of regulation and supply-chain custody. The analysis further found that the Fair Trade brand comes with many miscellaneous fees, such as certification, inspections, and marketing, stating less of the money from the sale of Fair Trade makes its way to the farmers producing the product.[56]

SFK Inc. concluded that given the socio-political uncertainties of certain developing countries, external agreements within the government of such countries potentially opens the doors for corruption when farmer cooperatives are excluded from negotiation on their own behalf. The firm recommended that the coffee farmers produce directly for Starbucks, but non-exclusively, through a local subsidiary established by the brand. Such an agreement would allow Starbucks to fulfill its CSR goals, while ensuring Ethiopian specialty brands are recognized, and farmers are not subject to profit cuts from erroneous fees related to regulatory and bureaucratic procedures.[56] The solution was criticized by opposition, stating such a solution would provide Starbucks a monopoly advantage on Ethiopian coffee, and did not fit the requirements for Fairtrade, specifically. While the analysis acknowledged the criticism, it also stated that farmers were still able to export any part of their crop through the traditional channels, and that while the solution did not meet the specific requirements of Fairtrade, it did align with its ultimate goal: protecting farmers.[56] In May 2007, both Starbucks and the government of Ethiopia signed a licensing, distribution, and marketing agreement, recognizing the importance and integrity of Ethiopia's specialty coffee names.[57] These initiatives allow farmer cooperatives to earn more from its coffee brands, and enable poor growers to capture a greater share of the retail price.[57]

In November 2015, Starbucks introduced solid red seasonal cups, unlike previous seasonal iterations that were decorated with winter or Christmas-oriented imagery (such as reindeer and ornaments), but no overtly religious symbols. The cup design was discussed extensively on social media, with some citing it as another example of the "War on Christmas", calling it "cup-gate", and others expressed puzzlement over the outrage generated by a simple cup.[58][59][60] A man named Joshua Feuerstien then released a video suggesting that customers tell the baristas that their name was "Merry Christmas" so that baristas were forced to write it on the cups and shout "Merry Christmas" when calling off the drinks. This also started the trend #MerryChristmasStarbucks.[61] Donald Trump, on the campaign for presidency, was one of the first to declare the "War on Christmas" in one of his tweets.[62] This created a more politically charged meaning behind the controversy, due to Starbucks' reputation as a liberal corporation. The conservative tweets that attacked the release of the cup came during the campaign for the 2016 presidency and was seen as an attack on the liberal message of inclusion.[63] As a response to Feuerstein's video, people began the hashtag #ItsJustACup as a counter to the view that Starbucks "hated Christmas."[64]

On Monday, March 16, 2015,[65] Starbucks launched a marketing campaign to promote conversations about race between customers and employees.[66] This marketing campaign also called for baristas to write the hashtag #RaceTogether on customers' cups – similar to how Starbucks is already known for writing customers' names on each cup. It was characterised as a "fiasco" by some media outlets,[67][68][69][70] to the extent that Starbucks' vice president of public relations deleted his Twitter account.[71] On March 22, Starbucks CEO advised his employees there is no longer a need to write #racetogether on cups. Reuters reported that "Starbucks said the phase of the campaign that involved messages on drink cups was always scheduled to end Sunday."[59][72]

Quotes by artists, writers, scientists, and others have appeared on Starbucks cups since 2005 in a campaign called "The Way I See It".[73] Some of the quotes have caused controversy, including one by writer Armistead Maupin and another by Jonathan Wells that linked 'Darwinism' to eugenics, abortion and racism.[74] Disclaimers were added to the cups noting that these views were not necessarily those of Starbucks.[75]

In January 2012, a Starbucks executive stated that the company supports the legalization of same-sex marriage. This resulted in a boycott by the National Organization for Marriage, a political organization that opposes same-sex marriage, who received 22,000 signatures in favor of their boycott.[101] When another shareholder (who had been quoted by NOM before) mentioned during a meeting that recent earnings had been "disappointing" since the boycott began, CEO Howard Schultz responded: "If you feel, respectfully, that you can get a higher return than the 38 percent 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."[102] In addition, 640,000 people also signed a petition thanking Starbucks for its support.[103] (As of June 26, 2015, same-sex marriage in the United States is legal in all states following the Supreme Court ruling in Obergefell v. Hodges.)[104][105][106] Muhammadiyah, the second largest Muslim group in Indonesia with 29 million members,[107] and Perkasa, a group with 700,000 members, have called for a boycott of Starbucks over its support of gay rights.[108][109][110]

On January 27, 2017,[111] President Donald Trump signed an executive order to indefinitely suspend the entry of Syrian refugees into the United States and suspended entry into the United States of nearly all citizens of seven countries until "extreme vetting" measures could be implemented.[112] The same day, Starbucks' Chairman and CEO Howard Schultz wrote a letter to Starbucks' employees, stating in part, "There are more than 65 million citizens of the world recognized as refugees by the United Nations, and we are developing plans to hire 10,000 of them over five years in the 75 countries around the world where Starbucks does business. And we will start this effort here in the U.S. by making the initial focus of our hiring efforts on those individuals who have served with U.S. troops as interpreters and support personnel in the various countries where our military has asked for such support."[113] As a result of Schultz's letter, supporters of President Trump's executive order supported a boycott of Starbucks, with some saying that Starbucks should give more help to American veterans.[114][115]