Will Unions Batter Starbucks Profits?

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After years of anger and ugly relationships between unions wanting to organize workers in U.S. stores and Starbucks Corp. ( NASDAQ: SBUX ) management, the two have decided to sit at the bargaining table. If other recent union negotiations, like those between Detroit’s automakers and the UAW, are any indication, the costs of hourly wages at Starbucks will soar.

It isn't hard to make a strong case that Starbucks underpays workers. That is especially so of those at the bottom of the hourly pay ladder. Glassdoor says these people can make as little as $15 an hour. Depending on how many family members they have, this figure could put them below the poverty level. The company does pay many employees benefits. ( These are the fastest-growing brands in each state this year. )

The worst of Starbucks' union friction was under long-time CEO Howard Schultz. At one point, his anti-union activities earned him a seat at a congressional hearing that included exchanges about the company's labor actions. The invitation may have been justified. Eric Blanc, a professor at Rutgers University, told The New York Times , “The scale of the union-busting campaign and its verbosity is unmatched in modern labor history. The fact that the workers were able to overcome that is truly historic.”

What's Next?

Workers United, representing 10,000 Starbucks workers, has begun negotiations with the company. This may be partly because senior management has changed. Laxman Narasimhan replaced Schultz several months ago.

It is impossible to say what higher wages or benefits will cost Starbucks at the bottom line. The UAW settlement cost Ford billions of dollars. However, more workers were involved at Ford, unless the Starbucks negotiations expand to tens of thousands of workers.

In the most recently reported quarter, Starbucks had revenue of $9.25 billion. That was up 8% from the same period a year ago. Net income rose 20% to $1 billion. Both figures are healthy, but they show that the company does not have a substantial operating margin on a percentage basis.

Starbucks meetings with union members will cost it at the bottom line.

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