Why Starbucks Operates Like a Bank | WSJ The Economics Of

Summary

Starbucks, a global coffee giant, has seen its prepaid card and mobile app transactions soar, amassing billions in upfront revenue. The company's evolution from a small Seattle cafe to a market leader is marked by its embrace of technology, diverse beverage offerings, and a strong company culture that emphasizes direct relationships with employees, referred to as partners. Despite challenges like unionization efforts, Starbucks remains committed to its core values and customer experience, adapting to changing consumer behaviors and expanding its reach through drive-thrus and mobile orders.

Takeaways

• 💳 Starbucks gift cards hold significant value, with around $3 billion loaded onto them between October and December.
• 🏦 If Starbucks were a bank, it would be the 385th largest in the U.S. based on the value on its gift cards.
• 💰 Starbucks uses the money from gift cards as upfront revenue before any products are purchased.
• 📈 Many gift cards go unused, which becomes a liability if not redeemed.
• 📱 The Starbucks mobile app and gift cards are crucial to the company's financial success.
• 🌐 Starbucks has grown from a small Seattle cafe to a global coffee giant, with only McDonald's being larger in market cap.
• ☕ The company's early focus on espresso and the coffee house culture has led to a wide variety of complex beverages.
• 🍵 Cold beverages, including the popular pumpkin spice latte, have become increasingly important to Starbucks' revenue.
• 📲 Mobile orders accounted for nearly a quarter of all Starbucks transactions in the U.S. by the end of 2021.
• 🚗 Drive-thrus and mobile orders have become vital for Starbucks, especially during the pandemic.
• 🤝 Starbucks emphasizes maintaining a connection with its customers and partners (employees), even in drive-thrus and mobile orders.

Q & A

How much value is loaded onto Starbucks gift cards between October and December?

Between October and December, approximately $3 billion of value is loaded onto Starbucks gift cards.

What would be Starbucks' ranking among U.S. banks if it were one?

If Starbucks were a bank, it would rank as the 385th largest in the country based on the value loaded onto its gift cards.

How does Starbucks use the money from gift cards before they are redeemed?

Starbucks uses the money from gift cards upfront as revenue, even before a single product is purchased.

What is the importance of Starbucks' mobile app and gift cards to its financial success?

The mobile app and gift cards are crucial to Starbucks' bottom line, with mobile orders accounting for nearly a quarter of all transactions in the US by the end of 2021.

How has Starbucks evolved since its founding in 1971?

Starbucks has grown from a small cafe in Seattle to a global coffee giant, becoming the second-largest in market cap after McDonald's in the restaurant industry.

What role did Howard Schultz play in the expansion of Starbucks?

Howard Schultz, the then marketing director, bought the company in 1987 and began expanding Starbucks outside of Seattle, introducing espresso to Americans.

How many different varieties of drinks does Starbucks claim to make today?

Starbucks claims to make more than 170,000 different varieties of drinks.

What is the significance of the Pumpkin Spice Latte in Starbucks' history?

The Pumpkin Spice Latte became a global phenomenon and played a significant role in Starbucks' success, despite initial uncertainty about its popularity.

How has technology influenced Starbucks' growth and operations?

Technology has played a large role in Starbucks' growth, particularly through the introduction of its mobile app in 2009, which has become a key part of the company's digital strategy.

What is the impact of mobile payments on Starbucks' business priorities?

Mobile payments have shifted Starbucks' business priorities, with a focus on mobile orders and alternate pickup options, which became especially important during the pandemic.

How does Starbucks maintain its commitment to customer connection in drive-thru and mobile app experiences?

Starbucks is committed to maintaining a connection between its baristas and customers, even in drive-thru and mobile app experiences, by tracking customer connection scores and ensuring a consistent experience.

What is Starbucks' stance on unionization among its employees?

Starbucks believes in a direct relationship with its employees, referred to as partners, and has expressed a preference for this relationship over unionization, which it views as an intermediary.