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Starbucks tax offer too little, too late

Feb 03 2013 16:12 Sapa-AFP

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London - Despite pledging to pay millions of pounds in extra tax in Britain, Starbucks faces a battle to restore its reputation over its fiscal stance, with analysts saying the offer is "too little too late".

With 760 Starbucks outlets dotting Britain, coffee lovers need not travel far to find the familiar green signage and grab a frothy latte or a flat white.

But surveys suggest British consumers may be losing appetite for the US chain following the revelation last year that it has paid just £8.6m in British corporation tax since 1998, despite generating £3 billion in revenues.

The revelations sparked a stream of negative publicity plus protests outside coffee shops which analysts say hit the brand hard, though Starbucks itself insists "UK customers have remained loyal".

Under the weight of pressure from lawmakers and consumers, the company pledged in December to pay an additional £20m in corporation tax over two years.

But Sarah Murphy, director of market researchers YouGov BrandIndex, said the offer "has done little to slow down negative sentiment surrounding the brand."

BrandIndex has tracked public perception of the coffee giant over several months. Its "Buzz" index gives companies a score based on what people have been hearing about the brand, with zero representing equal levels of positive and negative.

In early October Starbucks' Buzz score stood at +1.9, but this plummeted to -28.4 following the tax headlines, and reached -45.2 in mid-December.

"That was quite a significant decline," said Murphy, adding that measures of perceptions of Starbucks' quality and value also sank during that time.

In November, Britain's parliamentary accounts committee grilled top executives from Google, Amazon and Starbucks over their tax affairs.

The apparent peak in negativity surrounding Starbucks in December came after the committee's chairman Margaret Hodge slammed companies involved in tax avoidance schemes as "totally immoral".

Since then, Murphy says the brand "does seem to be making a slow recovery", but that the company "did too little too late."

Social media agency Yomego identified similar patterns. It tracked online conversation over the same period and found negative comments about Starbucks increasingly outweighed positive.

Some 95% of comments on Starbucks UK's Facebook and Twitter pages made reference to tax evasion, analysts said.

Yomego managing director Steve Richards said: "The outrage over tax avoidance can't help but have an impact on a company's reputation in social channels.

"The old adage that 'bad news travels fast' has never been more true. Now news has so many channels to travel through, with the potential to multiply as people comment on and share stories."

But does negative chatter cause consumers to shop elsewhere?

Restaurant manager Julia Stypik said she's "not a huge fan of Starbucks... There's much better coffee and plenty of competitors."

However this did not stop her frequenting a busy London branch of the chain one lunch-hour.

On the tax issue, she told AFP: "I think they have been very clever but this should end at some point. It's unfair. Everyone has to pay taxes."

Some critics argue Starbucks is being unfairly targeted; Britain needs to tighten up on loopholes which allow companies to pay less corporation tax by moving profits abroad.

Starbucks has acknowledged paying no corporation tax for three years on sales worth £400m owing to fees paid to other parts of its business. Executives insist its British division is unprofitable.

Despite operating within the law, the multinational has borne fierce criticism from lawmakers, including Prime Minister David Cameron who told the World Economic Forum in Davos last month that tax-avoiding companies must "wake up and smell the coffee".

The swipe was ill-received by Starbucks, according to the Sunday Telegraph which claimed it threatened to pull £100m of British investment, though a source close to the company told AFP "no threat was made".

A Starbucks spokesperson said: "Starbucks agrees with the prime minister that all businesses should pay their fair share.

"In the UK, we employ 9 000 people, contribute £300m a year to the economy and are foregoing tax deductions that will make the Exchequer at least £20m better off."

Starbucks says it remains "fully committed" to opening 300 new stores and creating 5 000 new jobs by 2016.
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