The coffee chain, which has paid only £8.5m in UK corporation tax since launching here 14 years ago, will also review future tax arrangements after being dragged over the coals by campaign groups such as UK Uncut and suffering a consumer backlash since the figures were revealed.
The repercussions from the decision to pay extra tax will be watched closely by other brands such as Amazon and Google, which have also been named in the row. Manny Amadi, managing director of ethical business consultancy C&E Advisory Board adds that that many will see the “pseudo tax offer as a marketing trick” but that many businesses will learn from Starbucks’ experience.
He says: “In this climate in which UK consumers want to believe that “we are all in it together” in terms of facing the tough economic times, any brand that does not align its tax strategies with consumer and stakeholder expectations is exposing itself to strong reputational risks – and that can of course damage even the strongest of brands.”
Starbucks’ BrandIndex score – a measure aggregating categories such as Buzz and Reputation – improved slightly following the announcement last week and full-page ads to inform consumers, according to YouGov’s data tool. But this was short lived and the negative press surrounding the move dubbing it a PR stunt has continued to have a damaging effect. The brand’s Index score fell to -23.2 on 10 December from -21.7 on 6 December when the tax payment was announced. In October it was positive.
Sarah Murphy, Director of YouGov BrandIndex, says the tax avoidance story has had a “corrosive” effect on the brand but that it’s too early to tell what impact the tax payment will have on “healing the wound”.
Starbuck’s move to pay more tax than it is legally required to do is part of a shift towards “perception becoming everything”, according to Tim Bleszynski, managing director of The Alternative, a branding agency focused on ethical business.
“There’s been a quantum shift in consumer influence gathering for a while. Regardless of whether these companies are doing anything illegal, the perception is that it doesn’t seem right or fair. It’s evidence that the existing model of capitalism is increasingly finding itself out of step with public perception,” he says.
Will Hutton, economic author and chair of The Big Innovation Centre agrees and says the move is a “wake up call” for marketers and businesses that think they can just “gain customers” through whatever means.
Hutton says that Starbucks decision to look at its tax practices is the beginning of an important change in the way firms approach UK tax arrangements. Many will now realise that they can’t avoid payment “without being a victim of embarrassing revelations or exposing themselves to reputation damage”, he says, regardless of the legalities of their actions.
Francis Ingham, director general of the PRCA, says the move demonstrates how far consumer action has come in recent years, adding that he suspects there will be even more “ethics-related hits” on businesses in 2013.
Starbucks declined to comment on its recent sales figures and whether the furore over tax has impacted on its sales performance. Rival Costa, however, has seen a 7.1 per cent rise in like for like sales during the last three months. Speaking to journalists at its third quarter results Costa CEO Andrew Harrison said it is “hard to disentangle the Starbucks effect” on sales but conceded data showed that its rival “has taken a knock”.
There’s an oft-repeated quote that says “integrity is doing the right thing even if no-one is watching” and this rings true in business more so now than ever.
Starbucks has found out the hard way that consumers are watching everything it does and its move to make an additional tax payment shows its realisation of just how much power consumers have over businesses.
However the decision is rife with contradiction and has served to confuse consumers even more over what Starbucks’ position on tax is.
What is clear is that whether Starbucks has made the right decision or not, other brands, both those embroiled in the tax avoidance story and those unconnected, will be waiting and watching how Starbucks fares.
Starbucks tax avoidance timeline
- 8 December: UK Uncut hosts protests in Starbucks UK stores.
- 6 December: Starbucks runs full page ads in UK newspapers. An open letter to consumers from UK MD Kris Engskov, explains the decision to pay £20m in tax is an effort to rebuild trust.
- 3 December: Starbucks says it will review its tax arrangements and admits its brand has been damaged.
- 16 October: A Reuters investigation claims Starbucks has payed only £8.5m in UK corporation tax since 1998 and none since 2009 despite generating £1.2bn in revenue in the UK over the last three years.