Helen Edwards: Starbucks denials can't mask management failures

Helen Edwards: Starbucks denials can't mask management failures

If we accept that Starbucks' failure to pay UK tax is down to meagre profits, it still reflects terribly on the chain.

Let's get beyond the 'did-they-or-didn't-they?' Let's take Starbucks' denials at face value, and accept that its failure to pay any UK tax since 2009, and precious little before that, is genuinely due to meagre profits. Not corrupt, but inept: chasing too many prime locations, paying too much rent, roasting its beans too far from home, tolerating too many loss-making stores.

Let's regard those comparisons with Costa - cannier with property, siting its roastery in the UK, making profit, paying tax - as embarrassing evidence of the difference between the strength of the management teams.

In that scenario, without any imputed skulduggery to stoke anger, what is the rational action for a coffee-loving consumer blessed with a Starbucks on one corner and a Costa on the other?

It is to choose Costa. Nothing political, no righteous indignation, just simple self-interest. Buy your latte at Costa and some of that £2.35 comes back to you - albeit diffusely - in the form of tax contribution, either lowering the eventual burden for you, or enhancing what can be achieved with the common pool.

Vote for efficiency

The beauty of this approach is that no one has to wait for the verdict on aggressive tax-avoidance, nor engage in anything as dramatic as a veto. It is simply a vote for efficiency, a nod to the brand that somehow does enough things right to turn a decent profit, where the other, from similar sales, does not.

It's not deliberately punitive, except perhaps in the mild way of saying: 'Hey, if you're going to assume such a presence on our streets and put your brand so firmly in our face, the least you could do is make a bit of money.'

It is Starbucks' fiscal passivity that we'd be questioning: why find yourself admitting, as global chief financial officer Troy Alstead did last week, that a litany of mismanagement and poor execution has resulted in the chronic under-performance of its UK stores?

Still, consumers are not always rational and perhaps they won't vote with their feet for profit - but they have got this far, to care about corporate tax, which wasn't in the script a few years ago. While you might bet that their interest in tax will wane once austerity eases, it's also conceivable that it won't, that this is a permanent shift - a tick of reassurance that will be sought, like the absence of child labour in the supply chain.

Corporate engagement

As a marketer faced with possible consumer interest in, and enthusiasm for, taxable profits, you might want to think about how to engage with your customers on a new level.

Until now, the business of communicating the financial strength of the company has been the province of corporate affairs, with its focus on investors, and its Masonic language of hint and parry.

Perhaps it's time for corporate affairs and marketing to join up, and simplify that language into the bargain: profits stated openly on the consumer website, tax contributions laid bare, packs that identify tax status the way they list ingredients.

Profitable, taxable, loveable. That would be the aim - and it is one the hapless UK Starbucks management team should embark upon with all haste.

Helen Edwards has a PhD in marketing, an MBA from London Business School and is a partner at Passionbrand. Follow her on Twitter: @helenedw.


- With Costa as the star performer, showing a profits increase of 29.9%, Whitbread recently reported revenues up 14.2% for the six months to the end of August, and profits up almost 11%. The group's chief executive, Andy Harrison, was characteristically low key in his comments, stating that the business had enjoyed a 'bit of help' from the Olympics and that the previous year's performance had been weak.

- Debenhams, viewed by many as a dated stalwart of struggling regional high streets, announced last week that its profits for the year to 1 September rose 4.2% to £158.3m, despite the now-ubiquitous preface of 'challenging trading conditions'. It plans to plough the returns into 17 store openings over the next few years.

- Although much retail industry commentary suggests doom and gloom, ASOS also posted some impressive numbers for 2011-12. At £44.5m, profits were up 40% for the year.

- Admiral Insurance, which covers one in 10 cars on Britain's roads, exceeded expectations with a 7% rise in profits for the first six months of 2012, to £172m. This is now the eighth consecutive year in which Admiral has reported record profits.

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