One of the best business books I’ve ever read is Pour Your Heart Into It by Starbucks Corporation (NASDAQ:SBUX) Executive Chairman Howard Schultz. It’s a great insight into why SBUX stock stays strong.
He tells the story of Starbucks coming of age with honesty and sincerity, two traits that I believe make him one of America’s all-time greatest chief executives; he’s a big reason why SBUX stock has done so well since going public in June of 1992.
Schultz has always been committed to doing right by employees, especially the baristas working on the front lines in cities across America. Treat people right and they’ll come to work motivated and energized no matter their pay scale.
As most investors are aware, the coffee business has gone crazy over the past 25 years since Starbucks went public. It’s no coincidence, then, that an $8,500 investment (500 shares at $17) in SBUX stock back in 1992 is worth $1.9 million today.
Treat People Right
In July 2016, while Schultz was still CEO, he wrote a letter to U.S. employees addressing various issues including pay. Several points could quickly have been pulled from his book which was originally published in 1997.
Here is the most striking:
“Perhaps I am sensitive to this because earning your trust as partners has always been a foundational principle for me,” wrote Schultz. “Every day, I strive to build the kind of company that my father never had a chance to work for, one that not only cares for its people but gives them opportunities to be their best selves.”
There are lots of investors who probably view these sentiments as old-fashioned or smarmy, but if you read the book you’ll know that Schultz’s dad broke his hip and ankle while working in 1961; without health insurance or any income coming in, his father was unable to support his family.
That memory burned in his psyche was a constant reminder why Starbucks had to be a company where employees could trust management to do the right thing.
That doesn’t happen very often these days.
How Not to Treat People
The polar opposite of treating people well is Restaurant Brands International, Inc (NYSE:QSR) who’ve spent the past three years ripping the heart and soul out of Tim Hortons, one of Canada’s most iconic brands.
Like many U.S. states, the Province of Ontario, where I live, is going through a period of adjustment when it comes to the minimum hourly wage companies must pay.
On Jan. 1, the minimum wage was raised to CAD$14 per hour from CAD$11.60 (a 21% increase) and it’s scheduled to rise another buck on Jan. 1, 2019, to CAD$15 on an hourly basis. By the time the second increase is factored in, wages are set to rise 29% over two years.
Small businesses in the province are grappling with how best to meet the higher wage expense, some better than others.
A Tim Hortons franchisee in Cobourg, Ontario, ironically the daughter and son of the two company founders, informed its employees on Jan. 1 that their Tim Hortons would no longer pay employees for breaks and would only cover 25% of an employees’ benefits if they worked at Tim Hortons for less than five years.
The franchisee was doing what it thought it needed to do to make-up for the higher wages (previously, 100% of the benefits were covered by management). But as a result, its employees in some cases are actually in worse financial shape as a result.
Out came the protests yet Restaurant Brands did little to quell the riots. As a result, the iconic brand is in danger of imploding and with it the chances to expand in a meaningful way outside Canada.
“In a better-run business, head office would try to resolve the problem with franchisees without airing the dirty laundry in public. The fact that they couldn’t do that says volumes to me about the state of management at Tim Hortons,” said Ken Wong, a marketing professor at Queen’s University School of Business. “But this is something that happens quite often, unfortunately, when an operating company gets bought out by a financial holding company.”
3G Capital, the majority owner of Restaurant Brands and the same people behind Kraft Heinz Co (NYSE:KHC) — and supported by Warren Buffett — are all about margins and nothing else.
Meanwhile, here in Ontario, Starbucks hasn’t faced any issues because they already pay their people more and don’t have a problem raising prices if need be to meet higher costs.
Evidently, Restaurant Brands doesn’t want to do that, and it could end up severely damaging the brand and QSR stock.
“Tim Hortons has not addressed this properly,” said John Miziolek, brand strategist and co-founder of Reset Branding. “We have an iconic Canadian brand that is being dragged through the mud.”
Bottom Line on SBUX Stock
“A fish rots from the head down.”
Restaurant Brands is handling this situation about as poorly as a large-cap company possibly could. Starbucks would never have let this type of situation get so far out of hand.
You can invest in people like Howard Schultz or Daniel Schwartz, Restaurant Brands CEO.
My money will always be on Howard Schultz and SBUX stock.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
