24/7 Wall St. Insights

• Some 500 Starbucks Corp. (NASDAQ: SBUX) stores have union labor.
• That makes keeping costs in check and raising revenue a challenge.
• Also: 2 Dividend Legends to Hold Forever.

When Brian Niccol, the new CEO of Starbucks Corp. (NASDAQ: SBUX), left Chipotle to take the job, he knew the coffee shop chain was struggling. Earnings were poor. Same-store sales were stagnant. The stock had fallen. Stores were slow serving customers. A labor movement had started. He may not have known how quickly it would grow. Successful unions almost always mean higher costs.

Starbucks said it would try to build a constructive relationship with labor. According to Reuters, Niccol said in a letter on Tuesday that he “deeply respects” the right of workers to choose to be represented by a union and that he was committed to “engage constructively.”

Recently, workers at 500 stores voted to unionize. The union now represents 11,000 workers. That number is modest given the over 16,000 U.S. Starbucks locations, but union membership is growing rapidly. Lynne Fox, president of Workers United, who represents the members, recently said, “Starbucks partners have boldly demanded a voice on the job and with it, strong contracts that ensure respect, living wages, racial and gender equity, fair scheduling and more.” A living wage at Starbucks often means higher pay.

Starbucks figures show that baristas, the frontline workers, can make as little as $15 an hour. The company said the average worker makes $17.50. At $15 an hour and an eight-hour workday, the annual total is $30,000 before taxes.

Niccol must increase Starbucks profits. Increasing revenue is a start. With organized labor, the challenge will be whether he can keep costs in check.

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