Starbucks is a very popular coffee company, which can be found in every major city worldwide. It sells more than eight million cups of coffee every day and has more drink combinations, than its branches. Also, Starbucks has $1.5 billion dollars from their app, which is the most popular in the restaurant rewards section. That’s more than customers have stored in 85% of American banks. This app, which is the best idea of Starbucks and reason why Starbucks is not selling coffee to its customers is why Starbucks is from financial perspective a bank that’s not governed by law. How is it possible and how does it works?
At the beginning of Starbucks in 1983 was selling only coffee beans, and things to make coffee, not coffee itself. One of its employees Howard Schultz (CEO of Starbucks) was on his business trip in Italy, where he visited one café. And this experience changed Starbucks forever.
When Howard Schultz came back to USA, he presented his idea of making Stabucks a café to management of Starbucks. This idea wasn’t successful at the beginning, so Howard left Starbucks in 1985 and started his own café, where he wanted to sell one cup of coffee for $3. Howard was not selling coffee but experience and feeling, that customers get, when they entered his café. He was selling quality coffee, ice cream and, in the background, opera music create a luxurious atmosphere.
Two years later, Howard bought Starbucks with its seven branches for $3.8 million dollars. He bought it, because with which other company would he be selling coffee than Starbucks, which was marked as a pioneer in the market for quality coffee in America. And after year 1987 he transformed Starbucks as we know it today. The coffee – selling bank that sells coffee. After year 2008, Starbucks had more than 17 000 branches.
After the financial crisis and criticism from its customers, Starbucks launched an app where customers earn stars from purchases that they can later exchange for free coffee. The best idea was that, if you put money in their app before and buy coffee from your credit in the app, you would get double the stars. With this step, Starbucks can work like a bank.
The way how it works is that Starbucks serves millions of customers every day. Part of them are regular customers and they upload money in this app, because they know, that they will use it.
Statistic from 2019 shows that customers have deposited more than $1.5 billion in this app, which means lending money to the company with a 0% interest. By not being an official bank, Starbucks can do whatever it wants with this money.
Therefore, Starbucks presents its branches and products as a luxury affair to make customers pay them big money for a product whose production cost is not even half of what they paid.
In my opinion, Starbucks has high prices for their products and for me, its not because they have premium products. But sometimes I buy something, because I know, what I can expect from them. So, Starbucks is for me not the best coffee company, but it’s very popular and can do things with its popularity, like Frappuccino effect.
The Frappuccino Effect is effect that make properties near Starbucks branch a significant increase in real-estate value. According to the findings, homes near Starbucks have an average cost of $137,000 compared to $102,000 for those without. Appreciation is 96% for Starbucks-adjacent properties versus 65% for regular locations.
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