Can Starbucks' 'Hang-Out' Gathering Spot Model Survive In the Covid 19 Era?

With people avoiding travel, the office, crowds, etc, Starbucks' financials are already under pressure.

And it's appeal as a place to hang out when you have time to kill or no place else to go may be further threatened by the current environment, especially as lines lengthen due to staffing shortages and the fear of contagion. JL


David Yaffe-Bellany and Noam Scheiber report in the New York Times:

Across the service industry, employees face pressure to work even when they are sick. Starbucks employees express concern that enhanced safety measures are at odds with on-the-ground realities. The policies are putting more pressure on staff who already felt overworked. “The lean model can be quite unforgiving. Store managers are going to have a lot more difficulty managing absenteeism." Cleaning duties pull workers away from the counter, creating longer lines and larger crowds that may inadvertently increase the risk of contagion even as the company tried to defuse it.

For millions of people, visiting Starbucks is a daily ritual. But these are extraordinary times for one of the world’s most popular brands.

As the virus sickened tens of thousands of people in China, the company closed more than 2,000 stores. When it arrived in the United States, the first serious outbreak was in Washington, the coffee chain’s home state. And last Friday, Starbucks became one of the first major American companies to have an employee who tested positive for the infection.

The last few weeks have been “very challenging times for all of us,” said Rossann Williams, the executive who oversees the company’s 200,000 workers in the United States. “We’re all learning as we go.”

Starbucks has long marketed itself as a social gathering spot — a “third place” between work and home, a symbol of normalcy for millions of people who buy coffee every day. Its bustling cafes are designed to build community and promote interaction between customers and baristas.

In recent days, however, that philosophy has come up against the threat of a rapidly spreading pandemic that has made people anxious about gathering in public places and sent shock waves through the global economy.

Now cafes could start to empty out, as public health authorities urge people to work from home and avoid crowds. For service workers like the baristas at Starbucks, the threat of infection is especially severe.

To reassure the public, Starbucks has prohibited customers from using their own cups and established an intensive cleaning regimen, requiring employees to wash their hands and disinfect “high touch” surfaces every half-hour. Even stricter protocols may lie ahead if the situation worsens, Ms. Williams said, like mandatory gloves and face masks for employees or the removal of chairs and tables. She said stores in the United States could be temporarily closed in extreme cases.

The outbreak is already hurting Starbucks’ bottom line. While more than 90 percent of its stores in China have reopened, the company told investors last week that it expected sales in China this quarter to fall by around 50 percent, or as much as $430 million, from a year ago. The company said it was too early to say how the virus would affect its business outside China. Starbucks’ stock price has fallen more than 25 percent over the last month.

The virus’s toll on the company’s workers could also be significant.

“They’re the ones who are more likely to be exposed, because they’re out in the public, and also more likely to pass it on again,” said Elise Gould, a senior economist at the Economic Policy Institute.Across the industry, they are also less likely to have health insurance or paid sick leave. “It exposes the economic inequality that already exists,” Ms. Gould said.

On March 5, Starbucks temporarily closed a store near the Seattle Art Museum after an employee tested positive for the virus. The news reached senior leaders at 9 p.m. By 9 a.m. the next morning, the store had been thoroughly sanitized, and it reopened on Monday. All the employees who had worked closely with the person who tested positive were told to stay home for two weeks, with pay.

In its marketing, Starbuck has long highlighted its efforts to promote the well-being of employees, whom the company calls “partners,” such as offering health insurance to part-time workers.

Even while its stores in China were closed, Starbucks continued to pay the majority of its salaried workers, a group that includes many baristas, according to a recent securities filing.

And on Wednesday, Starbucks told its workers in the United States that it would provide up to two weeks of paid leave to any employee who was infected with the virus or had extended contact with a co-worker or household member who tested positive. (Under its previously established policy, Starbucks allowed employees to accrue an hour of sick time for every 30 hours worked: A barista working 23 hours a week would accumulate about five sick days over a year.)

Still, in interviews, Starbucks employees expressed concern that the enhanced safety measures were at odds with on-the-ground realities. While few questioned the wisdom of the new protocols, some said the policies were putting more pressure on staff who already felt overworked.

A Seattle-area employee who requested anonymity to speak frankly about the company said it was unrealistic for employees to perform the full cleaning process every 30 minutes when cafes were busy. An Atlanta-area worker who also declined to be named said the cleaning duties had pulled workers away from the counter, creating longer lines and larger crowds that may have inadvertently increased the risk of contagion even as the company tried to defuse it.

Underlying the strain at Starbucks is the company’s so-called lean staffing model, a common feature of retail and fast-food outlets in which managers seek to minimize the number of workers assigned to each store, often with the help of software that predicts customer traffic. The goal is typically to have just enough workers to cover demand, and no more, leaving little margin for error.

Like many other companies, Starbucks gives managers strict “labor budgets,” and over the years some have said they were disciplined for exceeding them.

“The lean model can be quite unforgiving,” said Saravanan Kesavan, a retail expert at the University of North Carolina. “Store managers are going to have a lot more difficulty managing absenteeism in stores that employ lean staffing compared to other stores that do not.”

Ms. Williams, the Starbucks executive, said managers were free to staff their stores at whatever level they believed was appropriate given business trends and labor budgets.

“Bonuses have nothing to do with the labor they spend or invest,” she said. “Store managers are 100 percent incentivized to drive revenue by making customers and partners happy.”

But Starbucks workers said their managers often tried to dissuade them from calling in sick or pressed them to find their own replacements if they had to miss work. Some employees said they were reluctant to stay home because of the burden it would place on co-workers and supervisors.“No one likes calling out, because everyone will be short staffed,” said Michelle Styczynski, an employee at a Starbucks in Dulles International Airport in Virginia. “The manager will sometimes be angry. Co-workers will be frustrated.”

Last year, Ms. Styczynski said, she went to work despite having a red rash up and down her arms. “I was afraid,” she said.

While Starbucks directly owns and operates most of its locations in the United States, the airport stores are operated by HMSHost, which has a licensing agreement with Starbucks.

Laura E. FitzRandolph, HMSHost’s chief human resources officer, said in a statement that employees began accruing paid sick time on their first day and that the company was offering up to 14 days of additional paid leave to any employee who receives a coronavirus diagnosis.

The fast-food and retail industries have long known that they are vulnerable to epidemics. But they have sometimes played down the threat.

Not long after the SARS outbreak in 2003, the possibility of a pandemic was the first threat to its business that Starbucks listed in the “risk factors” section of its 2005 annual report. In its most recent annual filing, however, the company placed pandemic risk far lower on the list, after weakening economic conditions, changing consumer tastes, rising real estate costs, and natural or man-made disasters.

Across the service industry, many employees face pressure to work even when they are sick. More than half of people who work at hotels and in food service do not receive paid sick leave, according to the Department of Labor. That is also true of about one-third of workers in the retail industry.

Two McDonald’s workers said in interviews that they almost always worked when sick for fear of missing a paycheck. “We have no choice,” said Fran Marion, a McDonald’s worker in Kansas City, Mo. “If I’m sick, call off, that means I have to miss half my rent, putting food on the table for my kids.”

McDonald’s said it was increasing the number of hand sanitizer dispensers at its restaurants and cleaning surfaces more frequently. It also said it would pay employees at the roughly 5 percent of its U.S. locations that the company owns for 14 days if they are asked to quarantine themselves.

And while paid-leave policies vary by franchise and location, the company said, it expects all workers to stay home when sick.

Starbucks has the same expectation, Ms. Williams said. Still, she said, she is confident that the chain will remain a gathering place, despite the growing anxiety about the pandemic.

“My gut tells me that when we get through this, people are going to want to go back to normalcy,” she said. “I do not believe that anything will ever negatively impact the sacredness of the third place in Starbucks stores. It’s never changed in 50 years, and I don’t think it’s going to change in the next 50 years.”

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