The impact the Taxation scandal had on Starbucks

The impact the Taxation scandal had on Starbucks

As an old saying goes any publicity is good publicity, but when consumers here that some of their favourite brands have been avoiding the taxman. From Starbuck to Amazon to Google and now Apple, brands are learning that the public will be angered by their actions.

With Amazon and Google these are brand, which consumers will be using on a daily bases, as much as it angers consumer these brands will have little or not effect in try to retain customers. The phrase “Google it” just shows the power which Google had gathered as the number one search engine.

Whereas brand such as Starbucks are located within most city centers, they could have a more negative impact and consumer may choose not to visit them no longer due to them not paying the correct taxes and using lop-holes within the system so that they have less to pay.

When the news became apparent during November/December time in 2012, tax avoidance campaigners took matters into their own hand and held protest at Starbucks cafes throughout the UK, even though the company has pledged to pay millions of pound of extra tax as a means of trying to rescue some form of customer retention.

Starbucks had sales of over £400m in 2011 alone, but failed to pay any corporation tax. “Starbucks transferred some money to a Dutch sister company in royalty payments, bought coffee beans from Switzerland and paid high interest rates to borrow from other parts of the business” (Vanessa Branford & Gerry Holt, 2013). Customer perception of brand can change very quickly and this proved to be a significant factor in Starbucks. The café based company angered current customer as well as the nation when figures were released that they had only paid £8.6million in UK tax for the past 13years.

MP’s brand companies Amazon, Google and Starbucks as “immoral” for the way in which they went about their tax avoidance scheme (Robert Booth, 2012).

Starbucks’s main competitors Costa Coffee witnessed a sale increase of 7.1% in the last three months. The large increase comes as the protesters boycott Starbucks for its main competitor Costa Coffee (Simon Bowers, 2012). To add to this Starbucks also witness a decrease in its “Buzz” score. The Buzz score measure the number of negative and positive press, which has been presented about the brands. Before the Taxation scandal Starbucks were had a Buzz score of 0.7 whereas after the news came out about the none existing tax contributions within the last two years the buzz score decrease to -13.9 (The Week, 2012).

Out of the three brand Starbucks has suffered the greatest not only has it lost market share to its main competitors but also receiving bad press left right and center. The power of social media has also had a large negative impact on Starbucks; consumer took to social media to voice their opinion and concerns over the lack of tax payments.

On October the 16^th a day after the story immerged, a significantly large number of twitter user 44% of the having head comments about Starbucks via Twitter with and 39% of these user seeing negative press being said about Starbucks (Peter Campbell, 2012).

Large companies such as Starbucks it is important that the fundamental rules of business take place and one of those means paying taxes for the profits in which the brand has generated. The brand’s image was in danger of being ruined to and extent as its received a large amount of negative press nationwide as this was one of the main stories on the news and a large number of people were talking about the brand negatively through numerous social network platforms.

Even thought this bad press followed Starbucks throughout the UK their sales have increase by 11% worldwide within the first three months of the year.

Starbucks state within their website they have found “Making a profit in the UK difficult and therefore have not been in a position to pay much corporation tax”, this will come as alarm news as Starbucks announced last year when the taxation scandal was occurring that they would pay £20million towards corporation tax within the next two years.

Starbucks are two big of a brand to let one large problem to have such a negative impact where it no longer serves a purpose within the Café industry. Costa still proves to be its main competitor and with the latest sandal this has only played right into the hands of Costa as they have continues to increase their market share whilst keep existing consumers and gain a large number of Starbucks’s old customer too on the way.

Starbucks needs to be seen as they are reacting to consumers worries and if they are not making a profit then no one will expect for them to pay corporate tax, but if they were too go through another legal battle over not paying the correct amount of tax I don’t think the law will be on its side as much this time.