... ask MNers to boycott Starbucks?

[legoballoon]

Personally, I won't be spending any money there again.

When I read the 'we pay our fair share of tax' statement, I almost choked on my (home made) hot chocolate. It's one law for the rich, another for us now is it?!

I think we should support small, UK-based independent coffee shops. Let's support businesses that generate wealth that is shared by local people.

"The UK stores are profitable from an operating perspective but the UK operations are not profitable as a whole. As a shareholder I would want this to be acknowledged by management because why the heck would I want to invest in a company that thought it was ok to continue operating in a market where they were making a loss overall."

So why did they in fact decide to open 300 more outlets given the UK operations are not profitable?

In the Evening Standard coffee chain roundup Pret comes out streets ahead for wages paid, tax paid, organic ingredients and recyclable cups.

Coincidentally it's my fav chain & the coffee is the best!

Icb, if each of 300 stores makes £1000 profit, and central costs (uk Managing director, uk finance director, uk property director, uk marketing director and an office to be simplistic) are £400,000, the uk company will make a loss of £100,000. If the next 300 stores make the same profit per store and only need an additional central spend of, say £50,000 for a couple of junior staff in finance and marketing, then the uk company will make a profit of £150,000.

Very simplistic (and low) numbers but that's the rationale - each outlet makes a contribution but the total contributions don't cover central costs in the first example and more than cover them in the second.

ICBINEG, because hope springs eternal? Because they're gambling that the stores will bring about profitability in the long term? Just because what they're doing may not on its face make business sense (and whether it does or not remains to be seen) that doesn't make it crooked.

Thank you HipHop for that link - I was hoping someone would link to it as I have no idea how to do it myself. Costa (whom so many people have said would now have their custom in place of EVIL Starbucks) actually comes out LOWER than Starbucks in an aggregation of a whole bunch of (admittedly rather arbitrary) "ethical" factors.

I actually prefer Costa's coffee to Starbucks' and will continue to choose Costa over Starbucks if given a choice for that reason alone. But I'd be curious to see if there is a bandwagon heading to Pret now...

The 'costs' Starbucks is deducting from profits include a multi-million pound charge to itself for the use of its own logo.

This isn't about legitimate business profit and loss, it's about accountancy tricks that allow a multi-billion pound corporate to do business in the UK without bothering to pay any taxes. They leave that burden to the customer and the worker.

ye...es...they could be opening more stores:

a) because they are delusionally optimistic of the economic recovery (unlikely given they appear to be fairly sensible in business terms otherwise)
b) because they are (with the thousands of outlets they already have) juuuust at the tipping point of making a profit in the UK (unlikely because they have been expanding steadily huge losses for some time now)

or

c) because they are making a fuck load of money and want to make more. (very very very very likely because they are long lived experienced multinational business)

Surely Occams razor applies here? If a business is doing something for some time and then does it decides to do it MORE, that probably means there is a little something in it for them?

I can't really believe anyone really thinks otherwise.

But if Starbucks US (or wherever the logo is) didn't charge other operating companies for use of the logo then it would be understating it's own profits as far as the tax authority of that country was concerned.

It's = its, bloody autocorrect.

MrsReiver I am local and will be opening a local shop for local people staffed mostly by Tubs and Edward. It will shut at twelvety oclock.

This thread has turned into an accountancy tutorial

Cinnabar's previous explanation on the brand/logo:
"Question: brands are valuable to companies and it's important that their value is maintained (because a good brand means more people buy your goods and services). But where do brands naturally 'live'? They don't have physical form, so you can't point to something tangible and say 'there it is'. Come that that, what is a brand anyway?

Most groups of any size in the B2C market (less important for B2B) recognise that they need to actively manage their brand to maintain its value. That means maintaining the registrations of intellectual property that can be registered (trade marks being the most important in the context of brand). Often groups will centralise the ownership of all the registered IP worldwide into one company, which is expert at registering and maintaining that IP. That's not enough, however, to support a brand. You need to run advertising campaigns, agree marketing strategies, develop a brand message. And enforce your brand strategy around the globe.

So where do you think Starbucks should manage its brand from? There are 200 odd countries in the world in which Starbucks operate - are you seriously suggesting that it makes sense for Starbucks to expect every single local market to manage its little chunk of the global brand? Of course it doesn't. It only makes sense to do it centrally. The UK isn't the 'natural' home for the Starbucks brand. There isn't really a 'natural' home for any global brand.

So if you accept the basic premise that global brands need to be managed cetrally, and that the UK is no more the natural home for the brand that France, or Germany, or Australia, or anywhere else, then don't be surprised if the brand isn't managed here.

Should we be surprised that the UK Starbucks company is paying to use the brand name in the UK? No, of course not. Undoubtedly sales are increased by using the Starbucks name compared to not using it.

The transfer pricing rules require that Starbucks UK pays the arm's length price to use the brand. No more, no less. That's all it's doing, people, paying the market rate to be able to put the name Starbucks above the door. "

ICBINEG - so what you are saying is that all the UK Starbucks coffee shops (300) cannot cannot pay for their management and the rent of an office?

So that they have to open another 300 to make it worth their while?

I find that hard to believe.

You can be generating positive cash flow but be making a loss in your statutory accounts because of e.g. Transfer pricing laws, depreciation, amortising profit etc.

Interestingly, many people on this thread seem to think Starbucks coffee is rubbish and people only buy it because of the logo - seems pretty valuable to me.

gabsid NO I am saying precisely that that would be a stupid argument in response to someone else who did suggest this as a reason why SB would open new shops while making a loss.

The real reason is transparently that they are NOT making a loss. I mean like duh!

Still don't get why people are trying to argue otherwise..

merry I don't think anyone has said that they hate the coffee AND STILL DRINK IT.

Everyone has said they can't boycott because they never drink SB coffee as it is foul.

gabsid The thing is that Starbucks wants to continue to operate in the UK even though they make a net loss. They are making an operating profit and obviously think in the long run they can make a net profit from their UK subsidiary.

ICBINEG You might find that they are planning to open another 300 stores in the UK because this will increase their operating profits to the point where they exceed their administrative costs. Looking at their financials their operating income on 398 million of sales was 78 million - about a 20% gross margin. This is with around 600 stores. Extrapolate this to 900 stores and sales would be 597 million with an operating profit of 119 million. Deduct from this their admin fee and you are looking at a profit (119 minus admin costs of 107 million) of 12 million. Also there are cost savings to be factored into the decision. Adding 300 stores isn't going to increase their management costs by 1/3.

No, I think they have implied that other people buy Starbucks coffee because of the branding.

There is a difference between the marginal profit created by opening another shop which may generate positive cashflow and fund further expansion and the profit reported for statutory and accounting purposes.

Can I just say I really liked the post upthread at 09.11 by absy.

I thought it explained people's current antipathy towards Starbucks extremely well, in the sense of Why them, Why now?

I am disappointed that no one else is joining me in boycotting shops specialising in penis related items. Or cats.

I am enjoying CinnarbarRed and want2bSupermum's posts. Can't wait for the next instalment on 35 tax gap.
My knowledge of Corporation Tax is reasonable.
As has been previously posted, there are many many firms that don't pay Corp Tax. I have seen plenty of 'creative accounting', in my time.
But it doesn't sit well with me. It's not RIGHT. You can't blame these companies. But it certainly should be tightened. Will it be tightened? Probably not. This is nothing new and nothing has been done about it ,so far......

I'm happy to boycott lots of things.

Facebook for example; in fact I shall suggest my entire family boycotts Facebook. The kids would love me

I can't boycott cats, because my cats wouldn't like it, but dh won't mind me boycotting penis-related items, I don't think.

Excellent MaryZ. Good old DH!

I have also successfully boycotted oven cleaning products for quite some time now.