If it seems like it’s taking a little longer than usual to get that cup of java at your favorite coffee house, you might not just be imagining it. Rumor is, Starbucks Corporation (NASDAQ:SBUX) has reduced the number of man-hours used at many of its stores.
The company denies it has taken such action, but baristas — the folks who make and serve the coffee and food Starbucks sells to patrons — all over the country are saying otherwise.
If it’s a coincidence, it’s an uncanny one.
But why would Starbucks do such a thing, if indeed it is doing it? The obvious answer is the most correct answer: Reducing payroll expenses boosts the bottom line, in turn making Starbucks stock worth more.
There’s only so much of that type of cost-cutting, however, that can be implemented before it does more damage than good.
Name Game for SBUX Stock
As was noted, Starbucks says it’s not systematically cutting the number of hours its employees are working in any given week. It does appear, however, in May the company turned to a new computerized scheduling system that predicts each store’s activity at any certain time on any certain day. Based on those models, the number of employees needed at any given time was broadly scaled back.
As spokesperson Jaime Riley explained it, “We are not trying to reduce labor. We want our stores staffed in accordance with what they each need … Reducing overspending seems like good business sense.”
And Riley’s right — reducing overspending does make sense. What constitutes ‘overspending,’, however, is often a matter of perspective, and employees have heard ugly realities spun into positive slogans before. It’s not mass layoffs, but rather, ‘rightsizing.’ It’s not the closing of a locally run division to do the same job overseas, but rather, ‘outsourcing.’
Regardless of what it’s called, more than a few baristas have chimed in on the matter with surprisingly similar observations:
- “Although my schedules say 20 hours, since labor is being cut I can never hit the 20 hour mark. That means I don’t qualify for benefits. My husband’s 40 hours a week [at Starbucks] have turned into 29 hours a week.”
- “Add in even less people to work with but having the same volume of customers, and I am so physically and emotionally exhausted that my job is not even fun for me anymore.”
- “It looks bad on the company from a guests perspective to have three or four partners on the floor when the place is absolute chaos.”
Some store managers are complaining just as much.
Company-wide Headwind Forced Cuts From Somewhere
Although the corporate chiefs have denied such schedule-shaving is a company-wide plan, it wouldn’t be tough to take the baristas’ collective word for it. Owners of SBUX stock have been mostly disappointed in the company’s relative performance of late, as Starbucks starts to face a real saturation headwind.
Case in point: Starbucks stock is down 10% since last October’s high, as the company failed to justify the frothy valuation SBUX stock had developed based on expectations at the time.
As of October, the trailing price-to-earnings ratio was an incredible 34.5, suggesting a massive earnings growth surge was in the making. It didn’t happen … at least not on the revenue front. Even on the earnings front, the recent growth trend has been relatively lackluster.
Both are still growing, but not like they have in the past. Investors notice these things.
While top-line growth is difficult to muster, often requiring store expansion, bottom-line growth is a bit easier to come by. A company simply needs to cut expenses. One of the easiest costs to cut without an immediate adverse impact is, of course, payroll. After all, well-trained customers will continue to visit anyway, even if service levels fall, right?
There is some truth to the idea, but it’s not a long-lived truth.
Bottom Line for Starbucks Stock
Whether or not Starbucks is knowingly and intentionally cutting back on its man-hours will never be perfectly clear. But, in light of the bigger revenue, earnings and new-product picture (Starbucks has recently added more food items and more alcohol to the menu in some locations), it’s not difficult to believe the company is feeling some pressure to do whatever it takes to at least keep the bottom line growing well … even if the top line’s growth isn’t looking so great.
Problem is, it’s a last-hope cost-cutting approach that often leads to bigger headaches. Employee morale suffers, and some customers do reach a point of frustration that sends them elsewhere, forever. And when those disgruntled workers get as organized as Starbucks’ baristas have, it’s nothing to dismiss — a revolt of some sort is often brewing, which is disruptive to the bottom line.
Anybody who owns Starbucks stock may not want to blow off this red flag as just a small group of whining workers.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
