HOW STARBUCKS CAN CUT COSTS THAT COMES AS A RESULT OF INCREASING WAGE BILL
Executive summary
The proposal is all about finding the solution to curbing the ever increasing labor costs caused by an increase in the minimum wage bill. It is a proposal that focuses on Starbucks one of the largest beverage multinational company which has resorted to just increasing the minimum wage despite the high costs of labor. Thus, the proposal seeks some cost cutting alternatives that can be adopted by Starbucks so that as it increases the minimum wage, it does not incur a lot of costs. The alternatives are meant to cushion the company to remain profitable.
Introduction
All business organizations are struggling to observe the wage bill laws. It is mandatory for business firms to pay their workers not less than the stated amount of money by the wage bill regulators. This is so to protect the workers against the exploitation by the fraudulent employers who want to maximize their profitability without taking care of well its workers. The idea of minimum wage bill is one-way government regulates the operations of business firms to ensure that there is a fair play with9n the corporate world. However, the concept of the wage bill has become a burden to some of the business organizations, especially during the hard economic times. Firms are finding it hard to adhere to this law because the costs are becoming so high in that their profits are reduced. Starbucks is one of the firms that have found itself in such a dilemma, it is adhering to the minimum wage laws but in a real sense, its profitability is going down (Monica, 2015). This research proposal aims to find the solution for Starbucks on how this company can deal with the problem of high labor cost caused by the increase in the minimum wage bill. Don't use plagiarised sources.Get your custom essay just from $11/page
Purpose
The main purpose of this proposal is to find alternative solutions on how Starbucks can cut down the labor costs that are caused by ever-increasing wage bill which comes as a result of adherence to the wage bill law and over demanding employees.
Problem statement
Like any other business firm, Starbucks is bounded by the law to observe the minimum wage bill law, as the company strives to observe this law, its labor costs are going up thus, shrinking its profit margin. This calls for alternatives of reducing the labor costs so that the company can have better profit margins.
Hypothesis 1:
The rise of the labor cost in Starbucks is as a result of the increase in the wage bills. While the company strives to adhere to the wage bill laws, its labor costs increases and this creates a challenge of high costs of labor.
Hypothesis 2:
Using alternative methods cost minimization would help Starbucks to cut down the labor costs that come as a result of the ever increasing wage bill.
Research objectives
The objectives of this research would be;
- Cutting down the costs of labor
- Adherence to the minimum wage law
- Increasing the sales volumes in the shops
- Motivating the employees to work harder
- Reducing workers’ turnover rate
Significance of the study
This study is very important because it is going to help Starbucks company to stabilize its operations by minimizing the effects of the increase in the wage bill. The company would use the recommendation from the study to know the best alternative it would adopt in reducing the labor cost; this would boost its profitability. The study would help the company on how best it would great its employees so that they can work hard to give their full potential and also reduce their turnover which could have been an additional cost. This study would help Starbucks to be one of the companies complying with the minimum wage laws thus, its reputation would be high hence more investors would have confidence in it.
Scope of the study
The scope of this study is limited only to Starbucks Company and it would involve employees, the managers, the creditors and the suppliers of Starbucks. The study would only focus options that would help Starbucks in reducing the costs of labor that is coming as a result of increases in the wage bill.
Limitation of the study
One of the limitations of this study would be a time constraint. The company has limited time since it is required to come up with solutions that would curb the already risen labor costs. Therefore, the researchers would not have enough time to inquire into various alternatives since they have to give out alternative solutions that would help the company. Secondly, Starbucks is a multinational company; therefore, the researchers may have inadequate resources to conduct the study since the participants would be all over the world that the researchers need to interact with while conducting the study.
Literature review
A minimum wage is the lowest remuneration an employer can legally pay his workers. In other words, it is the price floor below which workers cannot give their labor. The idea of minimum wage bill is in existence to protect the employees from being exploited by the employers. It is enshrined in the minimum wage law which is a body of law that prohibits employers from hiring workers for a price less than the stipulated hourly or daily wage. Therefore, all organizations are required to observe the minimum wage law by paying their employees as per the law (Hartung, 2016). Minimum wages are always revised with time because of the increasing living standards so that the employees can still meet their needs given the fact that the inflation rate is also increasing (Baertlein, & Ramakrishnan, 2016). Business firms are required to adhere to the minimum wage law and this is becoming a challenge to most of the firms since the costs of labor are becoming unbearable.
Starbucks is one of the firms that is observing the minimum wage bill, the company planned to increase its wage bill by 15% from the year 2016 to 2024. The plan was reached basing on the fact that its employees were complaining of low pay and thus this has been affecting the volume of sales in its shops (Jamerson, 2016). The workers were demotivated by the low pay and thus, the company has taken a step of increasing the wages for the employees to motivate them and counter the low sales volumes. As much as the company is increasing its wage bill, it would suffer from the costs of labor would be quite high.
Starbucks the coffee giant operating costs rose more than 18% in just a year. The main reason attributed to this was the rise in the wage payments to the employees of Starbucks. Starbucks passed the bill to raise the to the minimum wage of $15 in an hour. Stores in Los Angeles, New York, and San Francisco have done so (Jamerson, 2016). However, Starbucks CEO Howard Schultz raised concern for the increase of the wages stating that this would lead to high costs of labor. The higher minimum wage would make it difficult for the small firms to be competitive since many workers would prefer to work with Starbucks (Hartung, 2016). Consequently, big corporations should worry about the steps taken by Starbucks because of their franchisees are small business operators (Monica, 2015). To counter the high labor costs, Starbucks announced that it’s going to raise the price of some of its coffee brands beverages and also acquire new technologies that would replace human labor.
Research design and methodology
This study is going to take a descriptive research design. This is where various alternatives of reducing costs would be described so that to find which of the alternatives would suit in Starbucks. A qualitative study would be appropriate for this study. The researchers would be interacting with the respondents as they discuss the advantages and disadvantages of various options that can be used in the company to reduce the costs of labor. When conducting the study, the researchers would sample a population of 50 respondents who represent the entire populations. These respondents would be subjected to either phone interviews or face to face interviews. For one to qualify to be on the list of the respondents he/she should be either Starbuck employee, manager supervisor or any other manager from other companies most especially from beverage and drinks industry.
Data collection methods
In collecting data, the researchers would mainly use interviews as stated. The researchers would interact with the respondents and during the interaction; they would be recording down some important points. The researchers would also be recording the conversation with the respondents so that they can refer to them later while they would be interpreting the data. The questions that would be asked during the interviews would revolve around how Starbucks can still remain to be a profitable company even if the minimum wage bill is increasing its labor costs.
Data analysis
Most of the data that would be collected in this research would be qualitative data. Therefore, some of the data analysis tools that would be appropriate are; labeling, coding, indexing and categorizing. The researchers would be comparing notes of various interviews they conducted and come up with results that would help the company.
Time frame and budget
This study would take a period of three months. The first month would be preparations for the study, the second month would be fieldwork and data collection and the final month would be data analysis and interpretation. The Cost budget of the research would be around $30,000 with the main expense of traveling, accommodation food and communication.
References
Baertlein, L & Ramakrishnan, S. (2016). Starbucks to raise wages for U.S. workers in October. Retrieved from
Hartung, A. (2016). JPMorgan Chase And Starbucks Minimum Wage Increases — Just Following Trends. Retrieved from https://www.forbes.com/sites/adamhartung/2016/07/13/starbucks-and-jpmorganchase- minimum-wage-increases-just-following-trends/#179e2d9f6088
Jamerson, J. (2016). Starbucks to Raise Wages Up to 15%. Wall Street Journal. Retrieved f4om https://www.wsj.com/articles/starbucks-to-raise-wages-up-to-15-1468247939
Khetarpal, S. (2017). Minimum wage code bill 2017: Base pay will differ for states and geographical areas. Retrieved from
http://www.businesstoday.in/current/economy- politics/code-on-wages-bill-2017- minimum-wages-will-differ-for-states-and- geographical-areas/story/259744.html
Monica, P. (2015). Minimum wage hikes don’t hurt Starbucks. Retrieved from http://money.cnn.com/2015/07/24/investing/starbucks-earnings-minimum-wage-dunkin/index.html