Perks for part timers - Starbucks Corp - includes related information

Business & Health, Sept, 1996 by Alicia Ault Barnett

This coffee powerhouse is bucking conventional wisdom by brewing some of the best benefits packages in the country--and making it pay.

Walk into any of the more than 800 Starbucks coffee shops and you'll experience a carefully engineered marketing environment. The subdued lighting, muted music, mellow aroma and cheery employees are all meant to make you feel coddled and unrushed as you stop to enjoy a steaming latte or an ice-cold frappuccino.

Starbucks Coffee Co. puts a huge premium on customer service, knowing that when you plunk down a couple of bucks for a cup of coffee, the way you're treated may well determine how eager you are to repeat the experience.

That people-first philosophy extends to Starbucks' 15,000 employees, 12,000 of whom work part time. They're all referred to as "partners" and indoctrinated into the company philosophy from the get-go. New hires attend 24 hours of training before they're put to work--and usually end up liking their jobs. Not because they earn great wages or can get their fill of free espressos and a free pound of coffee a week but because any Starbucks partner, whether full or part time, gets premium perks. Among them: paid vacation and sick leave, subsidized health benefits, stock options and a 401(k) plan. Hardly any other U.S. company is as generous with its part-time workers (See the box on page 50). While many retailers and other firms with large part-time workforces might view the Seattle-based company's efforts as West Coast feel-good philanthropy that's too costly for them, Starbucks has shown that its strategy makes good business sense. The proof of its success is in its annual report in black and white. For the fiscal year ending Oct. 1, 1995, Starbucks had sales of $465 million and earnings of $26 million, or 36 cents a share--up from sales of $248 million and earnings of $10.2 million the prior year. The company has grown from 17 stores in fiscal 1987 to 842 now, and the numbers keep growing.

Analyst Michael Moe, who follows the restaurant industry for San Francisco-based Montgomery Securities, expects Starbucks to have sales of $700 million for fiscal 1996 and robust profit growth as well. The company's operating margins have continued to rise despite its generosity, going from 5.3 percent in fiscal 1991 to 8.6 percent last year. Same-store sales--a more exacting measure of retail health--have risen a steady 9 percent in each of the last two years, suggesting that focusing on customer loyalty has paid off. Moe estimates that the c average Starbucks customer visits a store 15 to 20 times a month. Starbucks' progressive benefits policy has not only not made a dent in profits; according to the firm, it has also kept employee turnover to an unbelievably low 55 percent in a business where it's not unheard of to have 100 to 400 percent turnover.

THE MAN BEHIND THE PLAN

Like the Starbucks store design, its treatment of its workers has been thoroughly orchestrated according to a plan hatched by CEO Howard Schultz. If you understand Schultz, you'll understand Starbucks. The company, named for the coffee-swilling first mate in Moby Dick, has been in business since 1971, when it opened its first outlet in Seattle's historic Pike Place Market.

Schultz, who has won national acclaim as a visionary, humanitarian and an astute entrepreneur, is the son of a truck driver and a receptionist. He grew up in public housing in Brooklyn, N.Y., watching his parents struggle to make ends meet and care for three kids without health benefits or a pension plan, and credits his boyhood experience with creating his drive to help workers find security. He bought the company for $4 million in 1987 and immediately extended a full, company-subsidized health benefits package to part-time workers. Says Stacy Stallings, Starbucks' benefits manager, "Schultz thought it was the right thing to do."

A FLAVORFUL PACKAGE

Health benefits are available to anyone who works at least 20 hours a week, with eligibility beginning 90 days after an employee's starting date. Starbucks pays about 75 percent of the premium; staffers pay most of the remaining 25 percent, although the actual amount varies according to salary level. Premiums are based on six eligibility categories: partner only; partner plus child; partner plus children; partner plus spouse or domestic partner; partner plus spouse and child; or partner plus domestic partner and child.

Starbucks extended health benefits to domestic partners of the same sex in 1993 and to unmarried heterosexual couples a year later. No proof of partnership is required; couples simply sign an enrollment form guaranteeing that the information they supply is true. Employees and their dependents are offered a two-tiered managed care plan administered by Aetna, which Starbucks switched to in 1993 when it began to self-insure. The deductibles, co-pays and benefits are the same for all Starbucks employees. About 5,400 U.S. workers and 800 Canadian employees are enrolled, some 15 percent of them with dependents.