Finial Paper 665 Starbucks Beverages

This paper is a formulated response to address the matter of a recent product recall involving a Starbucks product; I have prepared an analysis of the situation and the resources that are available to address the matter. In particular, I have addressed the business environment, sustainability, internal resources, communication, the company’s image, potential responses, the impact of responses and the role of external resources (third parties).

A. Business Environment

Starbucks will suffer business interruption and additional product recall costs that affect financial performance. GMA (2011) argues that the loss of profits associated with business interruption constitute the highest recall costs. In this context, Starbucks might have to shut down its production plants (roasting systems) for a specified period of time to allow the FDA to conduct investigations and to implement relevant plant modifications. This usually leads to loss of sales revenue that ultimately affects the company’s bottom line.

Secondly, Starbucks will incur recall execution costs that have an impact on the financial performance. These execution costs include the expenses incurred in destroying potentially unhealthy products and supplying others for replacement (GMA, 2011). In execution of the recall, the company has to assemble a crisis team to arrange for the removal of the recalled product from the market. This involves issuing notifications, collecting the product, storing it and destroying it (Wood, 2017). Executing product recalls also entails a number of other costs incurred in managing business reputation and the brand image (GMA, 2011).

Thirdly, litigation costs emanating from potential health risks or even the death of users affects the financial position of the company. The FDA may also sue the company for non-compliance with food and safety regulations. These types of costs are closely related with government fines (FDA fines) which are charged for non-compliance with food safety regulations. The fines can vary depending on the magnitude of reported food safety breaches. Fourth, the costs of reputation damage can have far reaching effects because all Starbucks brands are associated with the company’s name. For example, the company’s stock price might fall in response to the damaged reputation. Investors may also withdraw from the company due to the ethical concerns associated with product recalls. These types of recalls can therefore be considered as a threat to Starbucks’ position in the industry

B. Sustainability:

Corporate sustainability refers the company’s ability to balance between environmental, financial and social concerns to enhance success through maintaining an ethical and responsible framework (Gibbons, 2019). Starbucks can use the situation created by the product recall to promote sustainability using a number of approaches. First of all, the product recall can be used as an avenue to eliminate the negative health effects of Starbucks’ coffee to the consumers. In this case, the aim of the recall from the company’s perspective would be to promote the health, safety and wellbeing of the end user. This approach prioritizes community health over the financial demands of the top management

The recall may also be interpreted as an opportunity to redesign the production process and upgrade the affected products. Starbucks’ management can go beyond the health requirements of the FDA to implement environmentally friendly alternatives to the production process. For example, the company can partner with communities or join a community task force to come up with strategies that focus on food, transportation and green infrastructure.

Product and plant modifications can also be implemented in a sustainable way. For example, the employees may be encouraged to recycle by products in an attempt to reduce wastage in production. This can be implemented by setting recycling goals for employees to follow and rewarding those who come up with innovative recycling techniques (Gibbons, 2019).

C. Internal Resources

The Retail Food Safety (RFS) team which is mandated to enforce food safety standards will be involved in corrective action following the recall (Ladders, 2019). It will coordinate with suppliers and partners to make sure that new safety specifications are met. The RFS team will also analyze customer feedback to incorporate the market needs in the new design. It will work closely with the FDA to ensure that all food and safety requirements are met before the recalled product can be re-introduced to the market.

In addition to the RFS team, Starbucks should select a broad recovery team to identify the financial impact of the recall and come up with ways to recover from the recall. The recovery team should be cross-functional in nature to involve representatives from different lines of the Starbucks business. Cross -functional teams enhance functional diversity that promotes collaborative energy. The broad recovery team should organize “report out” sessions where the members explain their recommendations to the top management.

For the team to function effectively, it’s ideal to have someone from the top management acting as an executive sponsor. This individual creates a link with the top management to enable the team solve some of the toughest problems that require the intervention of the executive leadership.

D. Communication

Companies use company-controlled channels and external channels to communicate to various shareholders (Grzesiuk, 2018). Official documents, annual reports and the corporate website are considered internal sources while media reports and word of mouth from employees and customers are external channels. Starbucks will use a combination of external and internal channels to enhance credibility of the information. In this case, the stakeholders are more likely to trust external channels which are less controlled and or neutral (Grzesiuk, 2018).

All the information relating to the FDA initiated recall will be published in the company’s corporate website. The purpose of this channel is to serve opinion-leader audiences such as the press, NGOs and investors. These types of stakeholders are always actively searching for information about the company to guide their actions (Grzesiuk, 2018). For example, the press will be keen to follow through the company’s counter-reactions following the product recall. The company’s corporate website (an internally controlled channel) will not only inform the press but also interested NGOs and potential investors.

On the other hand, Starbucks will rely on external channels (employees and customers) to communicate to the members of the community, the general public and other stakeholders who do not actively look for information about the company. These channels are considered independent sources which cannot be controlled by the company. Information relating to Starbucks’ positive initiatives in food health and safety will be disseminated to the general public via external channels. The aim of this strategy will be to improve the company’s image by providing the public with information that they can trust.

E. Company Image

The product recall that was motivated by foodborne illnesses and other health concerns had a primarily negative impact on Starbucks’ image. First of all, Starbucks wants to be perceived by its customers as a company that values people by recognizing them through personalized and premium service. Additionally, Starbucks marketing philosophy identifies the company’s objective of adding a societal benefit to their brand by offering to help the communities (Haskova, 2015). Providing harmful and unhealthy products overrides the company’s objectives regarding its desired appearance the public (Greyser & Urde, 2019). Rather than valuing the customer, the recalled products subjected the customer to health risks.

The recall undermines the company’s promise to customers. The promise is underlined by Two of Starbucks’ core values. These values are; (1) “delivering our very best in all we do, holding ourselves accountable for results, and (2 being performance driven, through the lens of humanity” (Satterfield, 2015). The associated health concerns imply that Starbucks fails to provide the very best as it promises its customers. Similarly, the potentially dangerous products do not align with the objective to judge performance via the lens of humanity. The actions that led to the FDA recall portray Starbucks as a dishonest company that does not abide to its core values. This creates a negative image..

On the other hand, the decision to redesign the production plant and replace the recalled goods can be used as an opportunity to build a positive image. Starbucks can embrace sustainability in the new production plan and improve the products to ensure that their offer is the “very best”. The company can use media outlets to apologize to customers and publicize its positive responses to address the safety and health concerns.

F. Response

Starbucks can come up with a financial recovery plan to respond to the far-reaching implications of recall. This plan documents the costs that are incurred in addressing the recall with an overall aim of recovering them in due course. In this case, the team can create an initial estimate of the costs of recall to avoid surprises along the way.

As mentioned earlier, a cross-functional recovery team is usually created to recover losses that arise from the recall. Starbucks should nominate a cost recovery leader from the finance department to influence other team members to take proactive steps towards resolving the cost implications of the recall. Forensic accountants and other external financial recovery experts may also be added to the recovery team (GMA, 2011).

Starbucks may also engage relevant insurers to help address the outcomes of the recall. This applies if the company had insured product recalls of up to a certain amount (GMA, 2011). It requires a detailed and clear documentation of the issues related to the recall. A well-designed communication strategy would work in making sure that the insurer helps the company address the recall. Starbucks should file a claim with the insurer promptly to enhance prompt recovery from the financial implications of the recall.

Starbucks may also decide to share the risk of recall with suppliers who were involved in supplying products of low quality. For example, Starbucks can contact milk suppliers and inform them about the health problems that emanated from their milk and the resultant product recall. After deliberating on the way forward, the involved parties can decide on a formula that would be used to share the costs of recall.

G. Impact

The recovery team will not only help to address the financial implications of the recall but also put in place strategies to ensure that such government-initiated actions do not happen in future. In the short term, Starbucks will be in a position to implement rigorous quality control protocols to ensure that unsafe products do not get into the market. The RFS team in collaboration with the broad recovery team will enhance compliance with FDA requirements by putting in place higher quality and food safety standards that aim at protecting the health of the customer. Secondly, the responses will motivate the creation of a crisis management team that may be used for other related crises. Sharing the risk with the relevant s may affect the relationship with the supplier in a negative or positive manner depending on the supplier’s attitude. Similarly, the negotiations with the insurer may spark a conflict or disagreements in the short term

In the long term, the responses to the recall can help the company in creating a culture of quality. By revising existing quality control procedures, Starbucks can have the opportunity to embed the values that prioritize quality to the corporate culture. Additionally, the responses can aid management in repairing the company’s image by acting promptly in the best interests of the customers.

H. External Resources

Lobbyists will be involved in negotiating for reasonable terms in relation to the recall. For example, they will ask for removal of the FDA fines once the company has complied with the requirements of the FDA that include compensating affected customers. In this sense, lobbyists will be expected to persuade legislators to adjust relevant legislation such that a company that adheres to the requirements of the FDA can be exempted from FDA fees if its management can prove that the defective/unsafe products were brought to the market for reasons beyond the company’s control. The Lobbyists can also be involved in adjusting various health legislation that cause serious legal repercussions in the event that the company is sued by customers for health concerns

On the other hand, public affairs professionals will be used to drive public support for legislative changes that favor the company. The professionals will use media channels to create an understanding of the various legislation and the benefits of change to draw public support. Both the efforts of lobbyists and public affairs professionals may not address the current situation but would definitely prevent serious legal repercussions in future government actions.

References

Gibbons, S. (2019). 3 Ways To Make Sustainability A Part Of Your Business. Retrieved from https://www.forbes.com/sites/serenitygibbons/2019/02/28/3-ways-to-make-sustainability-a-part-of-your-business/#4170baed6637

GMA. (2011). Capturing Recall Costs: Measuring and Recovering the Losses. Retrieved from https://cdn2.hubspot.net/hub/288450/file-606071909-pdf/Capturing_recall_costs.pdf

Greyser, S., & Urde, M. (2019). What Does Your Corporate Brand Stand For?. Retrieved from https://hbr.org/2019/01/what-does-your-corporate-brand-stand-for

Grzesiuk, K. (2018). Communicating a Company’s CSR Activities Through Social Networks: A Theoretical Framework. Annales. Etyka W Życiu Gospodarczym, 20(4), 89-104.

Haskova, K. (2015). Starbucks Marketing Analysis. Retrieved from https://www.degruyter.com/downloadpdf/j/cris.2015.2015.issue-1/cris-2015-0002/cris-2015-0002.pdf

Satterfield, D. (2015). Core Values: Starbucks. Retrieved from https://www.theleadermaker.com/core-values-starbucks/