As Starbucks faces a rising wave of employee unrest, its new chief executive is abruptly shifting how the coffee chain splits its profits between workers and shareholders.
In a letter Monday to employees, customers, investors and others titled, "On the Future of Starbucks," Howard Schultz announced that the company would suspend stock buybacks immediately. It was his first act on his first day back in the top job, which he has held twice before.
Schultz said stopping buybacks would allow Starbucks "to invest more profit into our people and our stores -- the only way to create long-term value for all stakeholders." When a company uses its funds to repurchase and retire its own stock, the share price often rises, rewarding investors and executives who typically hold large amounts of stock.
During Schultz's last stint as chief executive, between 2008 and 2016, Starbucks spent more than $6 billion on buybacks. Last month, Starbucks announced that he would return as CEO on an interim basis, replacing Kevin Johnson, who took over from him in 2017. Schultz helped turn the Seattle company into a global powerhouse.
Now, Starbucks is under pressure from a growing effort to unionize its stores, which it has resisted, as workers push for better wages, hours and benefits. Starting late last year, a handful of stores have voted to unionize, the first in the company's history. Over 100 locations in more than 25 states, out of nearly 9,000 company-owned stores across the country, are planning to hold elections.
Starbucks spent $10 billion on buybacks in 2019 but paused at the start of the pandemic. It recently resumed the practice, spending $3.5 billion on buybacks in its most recent quarter, which ended in early January. In October, Starbucks said it would spend $20 billion on buybacks and dividends over the next three years. That program is now suspended under Schultz, less than six months after it was announced.
Labor advocates and others have criticized stock buybacks for redirecting funds that could be reinvested in a company's operations, be used to hire workers or cover higher wages and bigger benefits. Last week, President Joe Biden's annual budget proposal called for a special tax on buybacks and a ban on executives' personally selling stock for three years after a buyback.
Companies in the S&P 500 repurchased a record $882 billion last year, and analysts at Goldman Sachs forecast that buybacks would exceed $1 trillion in 2022.
Although Starbucks has recorded robust revenue and profit growth during the pandemic, its shares are down more than 20% this year.
"Our company, like many companies, is facing new realities in a changed world," Schultz said in the letter Monday, citing "pinched supply chains, the decimation caused by covid, heightened tensions and political unrest, a racial reckoning and a rising generation which seeks a new accountability for business."
Schultz said in his letter that he planned to travel to stores and manufacturing plants in search of "ideas about how to build this next Starbucks." In September, he visited store managers in Buffalo, N.Y., where the first company-owned store would vote to unionize a few months later. He told them that the company had let them down by failing to help them address operational issues at their stores, and that he was not anti-union but "pro-Starbucks," The New York Times previously reported.
Starbucks is not the only corporate giant facing a growing push to unionize. On Friday, workers at an Amazon warehouse on New York's Staten Island voted to form a union, the first at the company in the United States.