Starbucks UK were caught avoiding corporation tax this year, as I’m sure you are all aware of. Tax avoidance is not illegal, unlike tax evasion, but even though they have not broken the law, it has bruised their reputation. BBC Business Corespondent Theo Leggett explains how they have avoided tax; “Much of the money it earns in this country is transferred to a sister company in the Netherlands in the form of royalty payments, leaving the UK division to report regular annual losses”. Corporation tax is set relatively high in the UK, currently at 24%, falling to 23% in 2013 (HMRC) which is the main reason why Starbucks, but also Google and Amazon have been avoiding tax.
The question that I believe needs to be asked is; How much has the tax avoidance affected the customer levels at Starbucks?
Starbucks is my favourite coffee shop and this has not stopped me going. However, they have slightly damaged my perception of the brand which has resulted in visits to Costa. This is the same for some people I have spoken to who are big lovers of Starbucks. From observation, talking to people and doing some research, my theory is that the loyal customers who frequently visit Starbucks have not stopped visiting Starbucks, as they have a love for the coffee and so this ‘unethical’ behaviour is not enough to put them off. The customers that choose Starbucks over Costa or others may have started to put Costa over Starbucks, and the customers that will go to any coffee shop, who do not have loyalty to a chain, may be put off having Starbucks in their list of possible coffee shops to visit. I’ve noticed that the Starbucks stores have had less custom than a few months ago, while the Costa’s I have visited have been flourishing in business. Therefore it is clear that this tax avoidance has affected customer levels, but I am unsure to how much, and whether the tax issues are the sole cause of this drop in customers.
My love for Starbucks was further dampened the last time I visited a store; the service was very bad, resulting in a miss order for one of my family members. This may be a rare occurrence but the store was practically empty at busy lunch time period, with only the truly loyal customers present. A fundamental point I must make is that coffee chains are fairly similar in what they offer, differentiating on taste of the coffee, which is why this unethical behaviour has hit Starbucks, as for some people, the taste of the coffee simply is not enough. It is imperative that they start paying Corporation tax in the UK to regain trust from their customers and potential customers, as Costa are planning on almost doubling their number of outlets due to their continued success.
Starbucks may be the biggest coffee brand in the world, but McDonald’s have superseded Starbucks in becoming the biggest retailers of coffee in the world. Therefore, Starbucks need to push forward in 2013 in order to regain their No.1 position.