Starbucks Got a Few Things Wrong in Managing Crisis, Expert Says

Starbucks Corp. (SBUX) got a couple things wrong in its initial response to a case in which two black men were arrested in one of its Philadelphia stores, a crisis-management expert said.

"The initial statement from the company ignored the racial profiling element and used the word 'disappointed.' It fell short," Dorothy Crenshaw, the principal of Crenshaw Communications, who worked with Starbucks 10 years ago, told TheStreet. "It failed to mention the words racial profiling at first, which is what it [the situation] was."

Starbucks apologized on April 14 on Twitter and said it's reviewing its policies and will work with "the community and police department to try to ensure that these types of situations never happen in any of our stores."

Two black men were arrested while waiting for a friend at a Philadelphia Starbucks after a Starbucks employee called the police. Customers filmed the incident and it went viral. A similar incident also came to light at a California Starbucks, where a black man was denied use of a bathroom. This week the brand's approval rating plunged, according to YouGov Brand Index, which tracks brands' reputation; Starbucks' Buzz score fell from 13 to -9 on Thursday.

"Most people are unimpressed by the company's follow-up," Neil Saunders, managing director of GlobalData Retail, said in a statement. "While most people will take no action, the sizeable minorities saying they will use Starbucks less or boycott the chain for a bit is worrying. It underscores that the incident is likely to have a material impact on Starbucks revenues - even if only in the short term."

According to research conducted by GlobalData, 72% of those questioned by the firm said the company handled the situation either "quite or very badly," while 12% said Starbucks dealt with the response "very well or quite well."

Through it all, though, Starbucks' stock hasn't taken a hit. In the first day of trading after the news broke, Monday, April 16, the stock closed at $59.43. It closed Thursday at $59.22.

Since Starbucks' initial response to the Philadelphia arrests, the company has amped up its response, including more forceful apologies from both current and past CEOs, Kevin Johnson and Howard Schultz respectively, and a plan to conduct in-house training on May 29 at all 8,000 of its company-owned stores in the U.S. Those stores will close for a half-day in the afternoon.

Crenshaw said, "Schultz has a knack for saying the right thing," and she praised the company for its training plans. "They needed a response that incorporated the entire Starbucks partner organization, and it represents real financial commitment. I don't think people understand what goes into closing for a half-day for a company of its size," she added.

According to a Morningstar analyst and a separate calculation by TheStreet, respectively, the training could cost the company between $6 million and $8.7 million in lost sales.

The gold standard for handling a company's public crisis effectively stemmed from the so-called Valentine's Day Massacre in 2007 involving JetBlue Airways Corp. (JBLU) , said Crenshaw.

On Feb. 14, a forecast ice storm that was supposed to fade, worsened. While many carriers cancelled their flights, JetBlue continued flying, as best as it could. That day, only 17 of JetBlue's 156 scheduled departures left John F. Kennedy International Airport, which caused ripple effects throughout the system and displaced crew and aircraft, reported the Harvard Business Review. It took six more days for normal operations to resume, but not until thousands of passengers had been angered and displaced by cancellations and delays of more and more flights. Some passengers spent 11 hours on the tarmac.

JetBlue was clearly in the doghouse.

Its CEO then, David Neeleman, took all the right steps, according to Crenshaw. First, he apologized immediately and often, taking to the airwaves to declare himself "mortified" and "humiliated," and he used humor when appropriate. Part of his problem-solving strategy was to create a passenger bill of rights, which set guidelines on how to treat customers under various circumstances, such as flight cancellations and delays, and to offer a set timeline for dealing with customer complaints. After the dust cleared, the airline had retained most of its customers.

So the lesson for Starbucks and all companies, because most will have a crisis at some time, is to get out in front of customers right away with a sincere apology, let them know you understand their anger and frustration, and maybe throw in some dough or coupons. Then, following Neeleman's playbook, think of what you can do for the industry, and put that in place, too.

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