What comes to your mind when you're about to go to Starbucks? It's probably your favorite drink. For me, it's the Iced Latte. Tied in #2 are the Frappucino and the classic brewed coffee. Anyway, when you order something in Starbucks, you probably loaded one of these...
Shop on Amazon
Shop on eBay
(As an Amazon Associate and eBay Affiliate, I earn from qualifying purchases.)
From October through December, approximately $3 billion worth of value gets loaded in these cards. That's a lot of money. If Starbucks were a bank, it would be the 385th biggest in America. Starbucks uses that as revenue before someone buys an espresso or a cinnamon roll.
Starbucks Gift Cards Are a Liability for the Company, or Is It?
Gift Cards are a liability for Starbucks because its an obligation to provide a product or service in the future. Until the card is redeemed, the unused balance is a liability in the financial statements ;) However, many gift cards go unused/unredeemed. Starbucks reported in 2022 that they attribute $212.7 million in revenue to "breakage," funds from unredeemed gift cards.
A Business History of Starbucks
In 1971 Starbucks started as a small, unassuming cafe in downtown Seattle. That store is still in operation, BTW. Today, Starbucks is a global coffee powerhouse. They are also a powerhouse in the restaurant sector, with Mcdonald's the only one with a larger market cap. In its early years, Starbucks had a slow expansion. They also only expanded in Seattle. In 1987, the original owners of Starbucks, Jerry Baldwin, Zev Siegl, and Gordon Bowker, sold the company to its then Marketing Director, Howard Schultz. The Starbucks we know today largely came from ideas and business strategies of Schultz. He began expanding outside of Seattle and introduced Americans to a little-known Italian drink called the espresso.
At that time, Starbucks also had a coffee house culture. They make each coffee by hand and according to order. But as the company grew, they had to change that. Starbucks says that they make 170,000 varieties of drinks. They now have many signature drinks. I mentioned earlier the Frappucino. They also have the Pumpkin Spiced Latte, which they did not expect to be such a big hit. It's now a phenomenon all over the world. Cold drinks have also become crucial for the bottom line of Starbucks. The Frappucino is a hit, but sales can be inconsistent. The company created new beverages, mostly cold brew drinks, to cover up for the sales dip of Frappucinos.
Tech in Starbucks
In 2009, Starbucks launched their mobile app. That was pretty early. The iPhone was only two years old at that time. But by the end of 2021, mobile orders were almost a quarter (24%) of Starbucks U.S. transactions. Many of these were Virtual Starbucks Gift Cards. Today, Starbucks Gift Cards account for 44% of transactions.
Starbucks says that the gift card and mobile app hold about $2.4 billion in cash from customers. That's more money than many American banks. Equally as important as the money, Starbucks also owns the data. And even before the pandemic, 80% of Starbucks U.S. orders came from on-the-go. That includes drive-thru, mobile orders, and food delivery apps like Uber Eats and Grubhub.
Starbucks Culture and Values
Starbucks says that they remain committed to a set of values established early on by the company. They always wanted to create a connection between the baristas and the customers. In their earnings call, they talk about a Customer Connection Score. Essentially, they want every customer to feel good about their Starbucks experience. Part of their values is the store design. Each store is 'choreographed' with nothing placed accidentally.
They are also proud of an internal culture with a strong relationship between management and employees. They call their baristas Partners. Aside from salary and benefits, Partners also get stocks. But that could change. In 2021, 2 of 3 Buffalo stores voted in favor of unionization. Executives met with Partners in Buffalo to understand their issues and concerns. Starbucks says they want to maintain that direct relationship with employees. They even call unions as intermediaries.
Starbucks is a very successful company. They are synonymous with the modern coffee culture. But as technology advances and more Partners want to unionize, Starbucks will face more and maybe even unforeseen challenges.
No comments:
Post a Comment