Starbucks didn’t lose money after its race scandal—and may even profit from it

No storms on the horizon.
No storms on the horizon.
Image: Reuters/Nacho Doce
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If Starbucks was shaken by the aftermath of arrests at a Philadelphia store, you couldn’t tell from its quarterly earnings call.

After CEO Kevin Johnson briefly discussed the controversy in his opening remarks yesterday (April 26), pledging that Starbucks would learn from the incident—in which a store manager called the police to arrest two black men for trespassing—the subject that consumed media coverage for a week was dropped. In its place was talk about its China expansion, digital marketing, and waste reduction plans.

Starbucks reported a 2% increase in same-store sales over the second quarter last year. Revenues grew 14%, to $6 billion.

The arrests weren’t brought up again until more than an hour into the call, by an analyst wondering what impact the controversy might have on this year’s sales compared to last year. None, Johnson said. “We are not seeing an impact on comp sales as a result of Philadelphia,” he said.

Further, he said, the company may actually profit from the experience, which will include shutting down 8,000 stores for an afternoon next month to conduct racial-bias training. “Our approach to this will pay long-term dividends to Starbucks,” he said.

The apparent disconnect between seemingly seismic real-world events and their impact to a company’s bottom line can be startling. For an ever more stark example, consider Facebook, a company that appeared to be on the verge of an existential threat after the Cambridge Analytica revelations followed months of negative attention for its role in the 2016 elections. A #deleteFacebook movement was born.

But yesterday Facebook reported that, after a slight dip, users in the US and Canada rushed back to the social network and both revenue and profit soared.

Not all companies can shrug off bad headlines as easily as Starbucks and Facebook. Almost two years after a fake-account scandal was revealed at Wells Fargo, the bank is still struggling to recover. And perhaps not surprisingly, ticket sales at Southwest Airlines have slumped after an engine exploded in mid-air, killing a passenger (the company says the lag in sales was expected because it halted its normal promotions in the wake of the death, and predicts sales will perk up once it resumes marketing.)

If there’s a pattern, it may be that customer behavior is shaped by the size and frequency of their interactions with the company. Buying a latte from Starbucks or logging on to Facebook are daily habits that have little cost, but provide a high level of satisfaction, and patrons of those companies may not see perceive that abstaining from their product is worth the inconvenience.

There’s a much higher cost to taking out a mortgage or buying an airline ticket—and customers are rightly more deliberate and discriminating with those decisions.