It is an old saying that, whatever you subsidize, you get more of. And coffee giant Starbucks (SBUX) is about to see as much for itself, with a new plan to encourage its baristas by offering direct cash payments and enhancing tipping to reach certain metrics. Investors, already concerned about labor costs, are less than pleased, and sent shares sliding fractionally in Thursday afternoon’s trading.
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The new plan calls for baristas and shift supervisors to be eligible for bonuses of $300 for meeting certain targets at stores. The unionized baristas, meanwhile, will be out of this pool until Starbucks and the union actually reach an agreement. Further, Starbucks also plans to offer up more opportunities for customers to improve Starbucks’ business by offering tips. Customers ordering and paying through the mobile app can tip, as can those who scan the app at the register.
Counting on tips seems like a bit of a long shot for customers that are likely hit with tipping fatigue. Offering up a quarterly bonus that might be a week’s pay for some baristas also seems a bit like a plan better described as too little, too late. But it will be exciting to see how it all works out in the end. Even if it does not work out at all.
Coming to Coachella
Meanwhile, Starbucks is set to hit the Coachella Valley Music & Arts Festival in a big way with the Unicorn Frappuccino. Starbucks plans to sponsor Coachella this year, offering up cold brew, matcha lattes, and the Unicorn, specifically geared toward the Instagram crowd.
The downside, though, is that Starbucks right now does not plan to capitalize on this trend at all, only offering the rainbow beverage at Coachella, and only at Coachella. Starbucks has no plans to put the drink into wide release, which seems a bit like leaving money on the table. After all, how many local Instagram presences in the making, and assorted wannabes, would cheerfully put down cash for a drink that made the rounds at Coachella?
Is Starbucks Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on SBUX stock based on 13 Buys, 11 Holds, and three Sells assigned in the past three months, as indicated by the graphic below. After a 2.46% rally in its share price over the past year, the average SBUX price target of $100.26 per share implies 10.98% upside potential.
