Starbucks, one of the world’s most famous coffee chains, has been in hot waters for the last few months, particularly due to an ongoing consumer boycott of Starbucks’ perceived stance on Israel’s genocide of Palestinians. The Seattle-based Coffee Giant has seen its shares plummet 9.4% since their Mid-year highs, erasing more than 11 Billion USD in value, representing a historic low for the company. (As of 9th January 2024, when this article was written)
Starbucks’ rise to global dominance can be attributed to its strategic investment in innovative cold beverages, commitment to delivery services, successful mobile app integration, and implementation of a successful customer loyalty program, which reportedly accounts for 54% of revenue. Additionally, the company’s extensive retail footprint, with almost 35000 stores worldwide and 9000 in the US alone, contributes to its overall growth.
Starbucks was founded by Jerry Baldwin, Zev Siegl, and Gordon Bowker in 1971. However, Howard Schultz, the former CEO and Chairman, transformed Starbucks into a major player in the coffee industry in 1987 by expanding its operations in international markets. Controversies surrounding Starbucks, particularly relating to Israel-Palestine conflicts, have, to a good degree, stemmed from Howard Schultz’s Public Stances as well; we will get to that in a bit.
While it is not entirely accurate to draw a strong correlation between recent boycotts and a decline in market share, it is evident that the boycotts are playing a major role. It is important to remember that market corrections for large corporations are nothing new, and rise or fall cannot be entirely attributed to one singular factor. However, an objective look at the data gives us a pattern. The pattern shows that Starbucks now expects its net profit to be lower by 21%, 17%, and 7% for the fiscal years 2024, 2025, and 2026, respectively, compared to earlier(Pre-Boycott) forecasts.
Videos have been circulating on social media platforms, showing empty Starbucks stores in London, Australia, Dubai, and elsewhere. There was also an announcement regarding closing all 18 Starbucks stores in Morocco, citing operational issues. However, the franchise overseeing Starbucks operations in Morocco later denied the notion of the brand’s departure from the North African state, attributing the situation to a “reorganization of business.”
The correlation is further established by the recent statements of McDonald’s CEO Chris Kempczinski, who stated in a LinkedIn post that “Misinformation” about McDonald’s support for Israel is hurting sales for the fast food giant, especially in Middle Eastern countries. This comes in the backdrop of viral videos showing McDonald’s franchises giving away free meals to Israeli soldiers. Chris Kempczinksi further clarified that “Local owner-operators proudly represent McDonald’s” and that actions taken by local franchises do not reflect the belief of the overall company.
So, it’s reasonable to assume that a strong correlation exists in the case of Starbucks as well. The boycott has been a messy ordeal for the coffee giant, with both pro-Palestine and pro-Israel supporters boycotting. It started when Starbucks Workers United (representing Starbucks workers who want to unionize) tweeted on X, “Solidarity with Palestine!” soon after Hamas’ attacks on 7th October 2023. This made prominent Jewish organizations boycott Starbucks. Subsequently, Starbucks and its former CEO Howard Schulz contacted the Orthodox Jewish Chamber of Commerce (OJCC) to reassure them.
One significant aspect of Starbucks’ potential connection to Israel lies in its largest private shareholder, Howard Schultz, who owns 2.9% of the company’s total outstanding shares. In 1998, the Jerusalem Fund of Aish HaTorah gave him ‘The Israel 50th Anniversary Friend of Zion Tribute Award’ for “playing a key role in promoting a close alliance between the United States and Israel.” In 2002, Israel’s Foreign Ministry praised him for being key to the country’s long-term PR success through his provocative speeches accusing Palestinians of terrorism, calling intifada resistance anti-semitism, asking Americans to back Israel against a common enemy, and sponsoring fundraisers for Israeli causes.
On the other side of the boycott, Starbucks’ actions to suppress pro-Palestine workers and their subsequent connections to OJCC has angered Palestine supporters, which primarily has been hurting its sales in the last few months. In light of this, Starbucks has made public comments stating that “neither the company nor Schultz provides financial support to the Israeli government or army.”
In the past, The Palestinian Boycott, Divestment, and Sanctions (BDS) National Committee has issued stern warnings to Starbucks regarding acquiring Israel-based company SodaStream. The BDS National Committee is the largest Palestinian civil coalition leading the boycott against Israeli products and services.
With the tension brewing and consumer boycotts continuing, Starbucks has been trying to increase foot traffic in the stores with varieties of holiday deals and specials, which are generally exclusive to particular times of the year. Recently, the company announced that it would allow customers to bring their cups for all visits, including drive-through and mobile orders, officially stating, “It is to minimize cup waste in landfills.” Some individuals suggest that this move is a deliberate strategy by the company to prevent potential backlash against consumers seen with Starbucks products. Post-pandemic consumer behavior regarding cafes has also shifted, with consumers opting for cold, on-the-go beverages more. Currently, 80% of Starbucks’ revenue comes from cold on-the-go beverages. So this move is no surprise as Starbucks desperately tries to win back those consumers.
Starbucks faces an incredible challenge from multiple fronts. Some suggest their decline is due to how they treat their workers, with their recent messy battle with unions and boycotts. Others suggest hypergrowth could be one of the reasons for the decline (as in the case of Subway), which led Starbucks to lose much of its customer recognition. In the words of former CEO Howard Schultz’, “Stores no longer have the soul of the past and reflect a chain of stores versus the warm feeling of a neighborhood store.”
Whether for one distinct reason or many, the simple truth is Starbucks is declining slowly, much akin to its late 2000s decline when hundreds of outlets were closed to optimize costs and transform the business. The decline is more permanent this time as cultural shifts and changing perceptions drive it. Only time will tell how Starbucks will fare, but the future of the coffee giant looks grim.
Tanannum Azad Arufa and Sabit Ibtisam Anan are passionate researchers in sustainability, business growth, and emerging technologies. Reach out to them at tanannumazad@gmail.com and sabitanan007@gmail.com