Investing

Will Starbucks Workers Cost Too Much?

Douglas A. McIntyre

Published: May 1, 2024 6:35 am

Starbucks Corp. (NASDAQ: SBUX) posted poor quarterly results, and its stock fell. When it announced its figures, Starbucks warned that labor costs could hurt results. The unionization of some of its workers could speed up the worsening of that problem.

Revenue dropped 2% year over year to $8.6 billion. Earnings fell 14% to $0.68 per share. Comparable store sales were down 4%, though the store count rose 3% to 18,065.

What about the future? Starbucks mentioned “the impacts of partner investments and changes in the availability and cost of labor including any union organizing efforts and our responses to such efforts.” The labor cost figure may be as important in raising Starbucks’ costs over time as the inflation in prices of ingredients like cocoa.

Starbucks is negotiating with its unions, represented by Workers United. At this point, hourly workers at about 400 stores are involved, which is not a large part of Starbucks’ total. Presumably, workers at other stores will join them as well, particularly if the results are good for labor.

Unions are not the only labor issue. California recently raised the minimum wage from $16 an hour to $20. There is no one with whom the coffee company can negotiate. The decision is set in stone. Twenty-two states increased their minimum wages in January. Many of the laws that triggered these increases also have future hourly increases. (See which coffee brands consumers are not avoiding in 2024.)

Starbucks may need help to draw enough new customers or raise prices enough to offset the cost of its workers in the United States. If so, its margins will be threatened permanently, affecting its stock price.

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