Starbucks brand suffers over tax claims

The Starbucks brand is suffering in light of accusations of tax avoidance as key brand metrics plummet and negative sentiment on social media spikes.

Starbucks
Starbucks brand suffers over tax avoidance claims.

A Reuters investigation has claimed that Starbucks has payed only £8.6m in UK corporation tax since launching here in 1998 and has paid none since 2009. The newswire claims that despite generating £1.2bn in revenue in the UK over the last three years, Starbucks declared no profit here, which means it is not eligible to pay corporation tax.

MPs are also reported to be calling for a consumer boycott against Starbucks.

Starbucks has seen its scores on YouGov’s BrandIndex plummet in the days since the accusations were raised in the media. It Buzz score, which measures the negative and positive comments consumers have heard about a brand in the past week, reached its lowest ebb for four years falling to -13.9 from +0.7.

Its reputation score has also fallen to -3.9 today (18 October) from 4.6 (12 October) while its overall Index score, which includes six measures such as reputation, impression and recommendation, has dropped to -3.9 from 1.7 over the same period.

Consumers are taking to social media to voice concerns over Starbucks tax payments. On 16 October, a day after allegations emerged, 43 per cent of UK Twitter users heard comments about Starbucks via Twitter with 39 per cent of these being negative. Today (18 October) 48 per cent of the comments heard about Starbucks on Twitter are negative.
Before the media coverage, just 5 per cent of UK Twitter users had heard comments about Starbucks, and of these just 14 per cent of comments were negative compared to 44 per cent being positive.

Kris Engskov, managing director of Starbucks UK, posted a blog on the chain’s website yesterday in an effort to clarify the issue. He says that Starbucks “does pay tax” and points to £160m paid in National Insurance contributions.

Engskov claims that the competitive nature of the UK market, high rents, and investments in coffee, store design and customer experience have an impact on profit and the corporation tax it generates.   

He says: “The truth of the matter is, the one tax that has been debated in the media, corporation tax, is based on the profits we make in this country – and regrettably we are not yet as profitable as we’d like to be.

“Is our ambition to be much more profitable, and therefore pay more corporation tax? Absolutely right, and that is why we are making long-term investments in the UK, creating new jobs, opening new stores and delivering new and innovative products for our customers.”

Despite claiming that the UK operation is not profitable, Starbucks has consistently lauded its UK business for outpacing the rest of its European business.

ANALYSIS UPDATE: (25 October)

The impact on Starbuck’s brand, is not expected to be long-term. YouGov associate director Sarah Murphy says negative stories will “diminish consumer perception” of Starbucks. However, she adds it is unlikely a “megabrand” like Starbucks will be badly hit in the long-term.

This is a view shared by many observers who claim that Starbucks and other corporations accused of legal tax avoidance such as Amazon, Ebay, Google and Facebook will not suffer brand health damage.

Tim Bleszynski, managing director of The Alternative, a branding consultancy which focuses n cause marketing and social purpose, says that while the corporation tax issue might be something for the industry to debate, for consumers it is less important.

He adds: “The reason brands do so much and work so hard to have fans is so that when something like this happened their fans are more likely to ignore or forgive it

“Consumers are less agitated because they are more interested in the service a brand gives. If they continue provide it to the high standard expected [taxation] doesn’t become a big issue for consumers. However if they start to negate on core brand values or promises and break a bond of trust, it will start to have an effect [with consumers]”

Sue Unerman, co-author of Tell The Truth: Honesty Is Your Most Powerful Marketing Tool, and strategy director at MediaCom agrees that the tax scandal is unlikely to damage Starbucks in the long-run. She told Marketing Week: “The promise Starbucks makes consumers is about coffee and this doesn’t change that. That’s what’s people trust. It’s not like a politician standing up for family values and then having an affair.”

VIEWPOINT – Rosie Baker

Strictly speaking, Starbucks, and the other global firms that have been named here, are doing nothing illegal. But it does leaves a bitter taste in the mouth and many might argue their actions are immoral.

Kris Engskof, UK managing director unconvincingly defended its tax arrangements in a blog post, claiming Starbucks hopes to increase the corporation tax it pays in the UK – not a tough ambition since it currently pays zero.If Starbucks, as its annual reports claim, has made zero profit in the UK for 14 years it would have shut up shop long ago and focused on more profitable territories.

While this episode alone might not cause long-term damage to Starbucks or stop many of its millions of customers from buying their daily mug of coffee, it will plant a seed of doubt. Next time the brand is at the centre of a contentious issue, it might not escape so unscathed.

Sarah Murphy, associate Director of YouGov notes that while Vodafone’s reputation recovered fairly quickly after a concerted campaign by UK Uncut last year, the brand has never recovered the levels it achieved before the saga began. Vodafone’s issues are many layered, and its declining brand perception is not wholly attributable to its tax practices, but it can’t be ignored as a contributing factor.

Starbucks should take note. Its mission statement to “be a force for positive action” and claim “the world is looking to Starbucks to set the new standard. We will lead” looks a little hollow at the moment.

Starbucks paid no UK corporation for three years, despite generating revenue of of more than £1.2bn in that time.

EBay is said to have paid only £1million in corporation tax despite generating sales of nearly £800m in 2011.

Google is accused of paying just £6m UK tax on revenues of £3.95bn in 2011.  

Amazon earned £3.3bn in the UK in 2011 but paid no corporation tax

Facebook is alleged to have paid only £238,000 in UK tax in 2011 on estimated revenue of £175m

Vodafone paid no UK corporation tax in 2011 on profits of 1.3bn by offsetting profit against CapEx.

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