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Starbucks, Stick with Selling Coffee

Starbucks may be run by a limousine liberal, but there is no escaping the cold hard fact that it has flourished because of good old fashioned raw capitalism. And if it wishes to continue its success, it had better stick with brewing coffee rather than meddling in things it does not do well: politics.

Like millions of SBUX shareholders, I received an auto-generated email from Starbucks CEO Howard Shultz. As soon as I read the catchy opening: “Dear Starbucks Friend and Fellow Citizen,” I decided to delete it. I knew what was coming and I had better things to do with my day. Then a friend sent the letter to me. He was angry. So angry that he told me he was going to divest all of his SBUX shares. I’ll tell you in a moment my advice to him, but I decided to read the Shultz note.

It does not really say anything. Pablum rich and devoid of specifics, its reads like someone in the Obama Administration’s policy team had penned it.  You can read the entire note here. In a nutshell, Shultz is turning U.S. politics into commercial gain. Starbucks has made billions doing this for liberal global causes and now it is turning that machine inward, toward U.S. politics. It is going to flop, politically. But what a clever capitalist.

Taking politics out of investing, SBUX can be a good investment. They brew a fairly good cup of joe that people will pay a lot of money to buy. Their financials are also pretty good and, to his credit, Shultz has turned the company around during the past few years. The rest, however, is marketing and Starbucks is very good at it.  Starbucks cannot afford to offend anyone, so they take this mushy center position on the federal budget debate.

I took a quick look at Starbucks’s lobbying registrations for this year and, guess what, they have hired lobbyists to focus on LOWERING taxes for the company including dealing with foreign taxes (2d quarter report here). They have done so in other areas of tax law for prior years. The question I kept asking myself, with all that money invested in DC law and lobbying firms, why would the Starbucks CEO engage in political machinations that will surely upset conservatives and Republicans that they need in the House Ways & Means Committee or in Leadership?

The fact is that the U.S. political system is not broken. It works quite well. Politics, as business, is a contact sport. Policy differences and debates are a good thing, and not for the faint of heart. It is the best political system in the world. If there are problems with the system is that it needs people in power that focus less on power grabbing for the federal government, and more representation of the people through less taxes, less meddling in the markets, and devolving power to the states.

The thing is, their lefty customer base may not want to hear this, but SBUX investors and the Board do not want to pay more taxes, quite the opposite. U.S. corporate tax rates are way too high. They more taxes we pay, the less jobs there are to create and the less money is left on the table at the end of the year to reinvest into the business. These folks should stick with brewing and selling coffee. Politics and DC lawmaking is clearly not their forte.

Judging from their lobbying registrations, going back several years, they could have engaged in a much different manner and won much-needed support that they will need to get their tax proposals through. But I am not going to give them that advice, at least not for free.

As far as my angry friend, my advice to him was to hold SBUX stock for a bit. Somewhat expensive right now. Maybe even worth shorting it, but that is out of my realm of expertise. Starbucks knows this, they need Republicans spending a lot of money at their establishments and buying their stock. And I would bet there are Republicans throughout the company who, in the end, are having the last laugh.


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