Grounds for Joy

There’s a reason why part-time workers covet jobs at Starbucks: the company offers them health care coverage and other generous perks. But amid rising competition, can even this hegemonic juggernaut continue such benefits?

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When not performing in local theatre productions, Rachel Shapiro is brewing up Café Veronas, Komodo Dragon blends, and decaf mochas at a Starbucks store in Bucktown. As a part-time employee-she works 20-plus hours a week-Shapiro can craft a flexible schedule that allows her to audition for shows and perform at odd hours.

She’s also entitled to a discount on all drinks and a free bag of roasted coffee beans every week. But all of that pales in comparison with the one Starbucks perk that few other companies provide their part-time workers: affordable health care insurance. For Shapiro, that medical coverage came in handy last summer, when she was hit by a car. “The emergency room visit and physical therapy afterward cost thousands of dollars,” says Shapiro, who’s now fully recovered. “But it ended up costing me a couple hundred.”

Health care coverage is a big reason why young local artisans-and a growing number of people from other walks of life-are eager to work at Starbucks. About 80 percent of the workers at the company’s 217 area stores are part-timers. Anyone working more than 20 hours a week is entitled to a reasonably priced health care insurance package that can also include dental and vision coverage. For the company’s top-of-the-line health insurance, a part-time worker pays around $800 annually-much less than the thousands of dollars an individual policy would cost.

As a result, Starbucks is the company to watch, according to workplace and health care experts, when it comes to the brave new world of providing health care benefits to the nation’s growing army of part-timers. If the Seattle-based company can continue to offer affordable insurance-while also expanding, making money, and keeping its stock price strong-then the coffee giant could prompt other corporations, especially those in the burgeoning service sector, to provide health care insurance to their part-timers as well.

“In the decade to come, the demand for good employees who can work flexible schedules is not going to go away,” says Dave Fortosis, senior health care consultant with Hewitt Associates in Lincolnshire, which advises employers on human resources matters. “And a lot of those folks are planning to work for benefits.”

It’s a tall financial order-or a “venti,” in Starbucks-speak, a lexicon in which employees are “partners,” and counter workers “baristas.” In fact, the company notes that it spends more on employee health care coverage than on coffee beans (which are skyrocketing in price this year). But so far, Starbucks’ brass is committed to staying the course.

“Health care costs are going through the roof,” concedes Sheri Southern, vice president of partner resources for Starbucks North America in Seattle. “So we keep asking ourselves, How do we keep doing it?”

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While the company is wrestling with how to do it, it already knows why it is offering the insurance. One overriding motivation for maintaining benefits is to attract the kind of workers Starbucks wants on its payroll. Technical skills are not the issue, because making the actual drinks is not as complicated as one might expect, even for the more exotic sounding brews. A barista’s job typically comes down to blending the coffee with the right flavoring.

There’s also a lot of competition for the java buck. McDonald’s, White Hen, Dunkin’ Donuts, and smaller coffeehouses are targeting Starbucks by offering upscale brews. As a result, what often separates Starbucks from its rivals is its near-maniacal pursuit of providing customers a friendly and efficient buying experience. Managers stress that workers cheerfully greet customers, whip up their drinks, and send them off with a jolly farewell in less than three minutes. And the baristas don’t just tell customers to have a “good” day; they want them to have a “great” day.

That need for employees to be smart and personable is one reason why Starbucks is tapping the local artist colony for help. It’s a group inhabited by young people, many only a couple of years out of college, who seek to perform, write, paint, and otherwise create but who also need a steady income to pay the rent, buy groceries, and, of course, afford health insurance. (Starbucks workers typically start out earning about $1 above the minimum wage, which is $6.50 an hour in Illinois, plus tips.)

Starbucks’ Sheri Southern notes that many of the company’s part-time employees have an arts background (in the Chicago area, Starbucks has held exhibitions showcasing the crafts, paintings, and other works of its employees) but that each outlet tends to draw people of all backgrounds from its surrounding neighborhood. Undoubtedly, in some downtown or Near North Side cafés the number of artisans-turned-baristas is likely to be higher than in far suburban locations. At the Bucktown Starbucks where the actor Shapiro works, for instance, the employee ranks include a dancer, a painter, and even a tattoo artist.“God knows a huge percentage of performers are working for them,” says Anne Libera, artistic director of Second City’s training center in Old Town, who adds that it’s a natural fit because aspiring entertainers are good at connecting with people. “It’s their job to be energetic and charismatic,” Libera notes. “And they’re smart. The people who choose to work at Starbucks are college educated. Some of them, when they leave the performing arts, go on to law school.”

 

Despite the generous perks, Starbucks may find that its growth plans will hinder its effort to provide health care benefits to part-timers. Currently, the company has 8,900 outlets in 35 countries, and it has ambitions to have 25,000 to 30,000 worldwide (with 15,000 in the United States). In fiscal 2004, Starbucks added 1,344 new stores, and it has a target of 1,500 for this year. Opening more stores, however, means more employees and higher benefit costs. Last year, health care costs for U.S. corporations grew by 9 percent. That was down from low double-digit increases of the previous few years but still a sizable chunk of change, no matter how many customers are willing to pay up to $5 for a cup of flavored coffee.

As a result, Starbucks is now looking into ways to contain its benefit costs. Among the initial steps: providing employees with a better understanding of how to use their plans and take advantage of lower-cost options for treatment. More drastic measures have yet to be taken, but other companies have already chosen to dramatically raise employee copay amounts or have curtailed coverage to hold down costs. Starbucks could do the same if costs continue to spiral, say experts.

Still, not everyone who straps on a green Starbucks apron is eligible for health care benefits. One way the company is expanding without adding significantly to personnel costs is through the licensing of its Starbucks stores to other retailers and companies. The Starbucks in local food stores, in bookstore chains, and at O’Hare International Airport, for example, are not owned by Starbucks. Those who work at them are employed by the companies that rent the brand. “Licensing enables Starbucks to get into places like airports and other stores in a more cost-efficient way,” says Sharon Zackfia, an industry analyst with William Blair & Co. in Chicago.

Starbucks is also developing different store concepts, including stand-alone outlets, “urban cafés” (it’s working with the company started by the basketball great Magic Johnson to take Starbucks into minority neighborhoods), and wi-fi “hot spots"-outlets that have Internet capabilities. The products being sold are not limited to coffee, either. Breakfast and lunchtime snacks are on the menu. And Starbucks is also looking to boost non-food and drink revenue by selling CDs of recording artists like Ray Charles and Joni Mitchell.

Although other chains are willing to sell high-end coffee and ape selected Starbucks business strategies, they have not been eager to follow Starbucks’ lead on health care benefits. There are a few exceptions that provide health insurance to part-timers, including the Dallas-based Container Stores and some unionized operations. But the large fast-food chains, discount retailers, and the vast majority of independent restaurants and stores that rely on part-time employees are not likely to offer benefits anytime soon, say industry experts. Overall, only 20 percent of the 25 million part-time workers in the United States have medical coverage, compared with 84 percent of full-time employees, according to a 2004 survey by the U.S. Bureau of Labor Statistics.

“Starbucks’ benefit package is certainly unusual,” says Zackfia.

It appears the rank-and-file baristas concur. Although the Starbucks culture is the subject of backlash and ridicule on a couple of Web sites, including one called “I hate Starbucks” and another entitled “Starbucks Gossip” (which says it exists because “someone has to monitor America’s favorite drug dealer"), the anonymous employee carping doesn’t take aim at the benefits package. Mostly, it focuses on issues like shabby treatment by bosses, pain-in-the-butt customers, and self-loathing arising from having to work there. There’s also a running commentary on whether the Starbucks workers should be putting out an employee tip jar when customers are already digging deep to pay for their lattes and espressos. Compared with the more militant ramblings seen daily on sites for big companies like Sears and Motorola, such gripes are pretty mild stuff.

Rachel Shapiro has no complaints. Starbucks has played a role in every step of her acting career. A native of New York City, she started working at Starbucks in college, and later, while appearing in Off and Off Off Broadway shows, she kept on pouring at the company’s bustling Rockefeller Center store. Now, while continuing to sling java at the Bucktown store, she’s getting steady stage work in Chicago theatre. And who knows? Should Hollywood be her next adventure, there are plenty of Starbucks in Tinseltown, too.

Robert Reed is host of the WBBM Evening Business Wrap-up, heard weekdays at 6:30 p.m. on WBBM Newsradio 780.

This article was originally published in the May 2005 issue of Chicago magazine.

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