The coffee giant announced Wednesday, Jan. 24, it will spend $250 million to raise employee wages and offer family and sick leave benefits, following Wal-Mart Stores Inc.'s (WMT - Get Report) similar announcement a week ago. The decision to offer an extended benefits package was "accelerated by recent changes in U.S. tax law," the company said in its announcement Wednesday. That includes $120 million allocated to wage increases, based on regional costs of living and local laws.
Starbucks and Walmart employees, however, won't be the only ones reaping the benefits, experts say, as the retail and restaurant industries at large will get a cash boost from the federal tax cuts signed into law in December. Even if the costs of these worker benefits strain profit margins, chains like Starbucks likely will realize business growth by improving employee retention and brand marketing.
This could be the start of an entire industry shift, according to Brianna Cayo Cotter, the chief of staff for PL+US, an advocacy organization for paid family leave. "The [Starbucks] news today, so close on the heels of Walmart's announcement about extending paid leave to the hourly workforce, reflects the beginning of a tectonic shift in corporate America," she said.
Starbucks may be spending more cash on the benefits package, but they'll likely save money by retaining more employees, according to John Gordon, principal at Pacific Management Consulting Group. "What's nice is that as these companies are increasing benefits, they're moving from a tax rate in the mid-30s to the high-20s," he told TheStreet. "And it's so hard to get employees to stay right now for restaurant operators."
Employee retention, for instance, has long plagued the restaurant industry. In 2016, the hospitality sector, which encompasses restaurants, had a turnover rate of 70%, according to the National Retail Federation.
In spite of the federal tax cut, Starbucks suffer too much from losing some cash in the first place, Gordon added, pointing to the Seattle-based chain's increasing EBITDA margins in the past three years. "Starbucks is already doing better than a lot of others in the space," he said. "Last year, they had a company-operated EBITDA margin of 22.6%, compared to 21.4% three years ago."
Starbucks' new family leave policy will allow full-time and part-time "partners" — that's what the coffee company calls its employees — to accrue one hour of sick leave for every 30 hours worked. An extended parental leave policy will now allow all non-birth parents up to six weeks of paid leave. Since the end of 2016, Starbucks has granted six weeks of paid leave for birth parents.
Companies like Chipotle Mexican Grill (CMG - Get Report) and Panera Bread Company, owned by the German JAB Holdings, according to Gordon, could be pressured into enacting similar benefits packages because like Starbucks, because they also have high margin rates. According to Glassdoor, Panera, for instance, does not offer paid maternity leave.
Walmart's new family leave changes, announced on Jan. 11, is more comprehensive, but is extended only to its full-time employees. Under its new policy, full-time hourly workers get 10 weeks of paid maternity leave and six weeks for parental leave. Before, only eight weeks of maternity leave and two weeks of parental leave were available to full-time workers.
Ninety-four percent of low-wage working people — such as retail workers — have no access to paid family leave, according to PL+US. The U.S. is the only industrialized country without a federally mandated paid parental leave policy.
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