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How Starbucks Operates Like a Bank While Serving Coffee | The Economics Of | WSJ - YouTube
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(dramatic music)
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(liquid hissing)
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- [Narrator] If you've ever
ordered something at Starbucks,
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you've probably loaded one of these.
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- Starbucks, between October and December
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has had something like $3 billion of value
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is loaded onto these cards.
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I mean, that's a lot of money.
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- [Narrator] So much money in fact,
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that if Starbucks was a bank,
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it would rank as the 385th
biggest in the country.
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And it's money that Starbucks
gets to use upfront as revenue
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before a single product is even purchased.
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- Eventually it is a liability
if someone chooses to use it,
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and you will find that
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in lots of gift card programs,
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they're plenty of people who never use it.
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- [Narrator] So how important
is Starbucks' mobile app
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and gift cards to its bottom line?
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And what role does technology play
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in its continued evolution?
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This is the economics of Starbucks.
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In 1971, the first Starbucks,
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a small unassuming cafe
opened in Seattle's downtown.
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Fast forward 50 years, and that
store is still in operation,
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but Starbucks is a global coffee giant.
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- Only McDonald's is bigger than Starbucks
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when it comes to market caps.
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So they are really a powerhouse
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when it comes to really the
whole restaurant industry.
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- [Narrator] In its
early years of operation
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Starbucks expanded slowly
and only within Seattle.
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It wasn't until 1987
when the original owners
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sold the company to its
then marketing director,
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Howard Schultz,
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that the Starbucks that
we know today took root.
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Schultz began expanding
Starbucks outside of the city
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and introduced Americans to
what was then a little known
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Italian drink, the espresso.
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- They were really founded
on this coffee house culture
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that they make each beverage
by hand according to order.
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As Starbucks has grown,
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that has gotten more complicated.
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- [Narrator] Today, Starbucks
says they make more than
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a 170,000 different varieties of drinks.
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- These beverages can be very complex.
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They can take a while.
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They can take many different ingredients.
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And so it's good for Starbucks.
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And that these tend to be
higher price beverages,
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but for workers, the baristas,
they can be very complicated.
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- [Narrator] The company's
early investment in espresso
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has transformed to many
different signature drinks
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from the creation of the frappucino
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to the launch with a pumpkin spice latte.
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- Pumpkin spice latte, high five it.
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- They really didn't know
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that it would take off like it did,
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but clearly it is formed
quite a phenomenon
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all around the world really.
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- We introduced pumpkin to
spice, us here, Starbucks.
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- One additional thing
in Starbucks evolution is
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cold beverages have
become much more important
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to the company, whether
it's just an iced coffee
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or a nitro iced coffee,
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or all these cold foam and cold brewed.
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Increasingly this is so
important to their revenue,
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the company has gone through
periods where frappuccino sales
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have softened, but they've
come up with more cold drinks
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to keep people interested
and keep people ordering.
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- [Narrator] In part due to
the company's Seattle founding
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technology has played a large
role in the change dominance.
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- A key moment of that was
the founding of its mobile app
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in 2009, which was very early
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for one of these kinds of apps.
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And they really saw this
as a digital flywheel.
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- At the end of 2021, mobile
orders accounted for nearly
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a quarter of all Starbucks
transactions in the US.
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Many of those purchased
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through a virtual Starbucks gift card,
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which was previously the only way
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a customer could order on their phone.
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Today, a little under one half
or 44% of all transactions
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at Starbucks are done
with a Starbucks card.
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In fact, so many Starbucks
customers use a Starbucks card
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or the Starbucks mobile
app to purchase items
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that Starbucks says it holds
about $2.4 billion in cash
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that was uploaded by
customers to be used later.
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That number exceeds the
deposits at many American banks.
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- Starbucks also gets a
lot of data from that.
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They own a lot of that data
in a way that many companies
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don't because they have
created this whole ecosystem
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where people are using the Starbucks app,
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they're mobile ordering,
and they're hooked into that
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Starbucks unique proprietary system.
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- [Narrator] As mobile payments rise,
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Starbucks' business
priorities have shifted.
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Prior to the pandemic,
approximately 80% of US Starbucks
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transactions were on the go,
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either as drive-through or mobile order.
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- Starbucks started in cities,
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but really has spread
all around the country,
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including the suburbs.
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And a lot of that is through drive-thrus.
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- [Narrator] These
alternate pickup options
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are becoming increasingly important
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to the company's bottom line.
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- [Woman] Especially during the pandemic.
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I mean, these stores have
been a lifeline to Starbucks
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because they kept running and
people could easily queue up
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and go and not have to
enter an actual cafe.
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- [Narrator] Starbucks has long said that
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"It remains committed to a set of values
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established early in the
company's existence."
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- Starbucks is very
committed to trying to create
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a connection between its
baristas and its customers,
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even in its drive-thru.
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They talk about this on earnings calls
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that there are these
customer connection scores.
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They want to make sure that
everyone is feeling good
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about their Starbucks experience,
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which is getting increasingly challenging
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when you're ordering through
a drive-thru or a mobile app.
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You're trying to get in and out.
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- [Narrator] Starbucks says,
"Those values also appear
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in the manner in which
their stores are designed."
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- The items you will find in the store,
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they really choreograph that
down to where the basket
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of water is placed into a store.
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They want this all to feel very similar.
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- [Narrator] Starbucks has long
touted its internal culture,
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which it says is built
on a strong relationship
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between management and employees.
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- The workers at it's stores
are not called workers
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or baristas they are called partners.
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And this is very central
to the company's ideology.
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Part of that is that all these partners
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do get shares in the company,
it's called Beanstalk.
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- [Narrator] That relationship
may look different
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going forward for some
Starbucks locations.
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After two of three Buffalo stores voted
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in favor of unionization.
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- [Narrator] Since then,
Starbucks has thrown
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a huge amount of energy and
resources into this issue.
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And executives have traveled
to Buffalo extensively
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to meet with workers, to try
to understand their concerns
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(indistinct) to the company.
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They want to maintain
this direct relationship
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with their workers, they
call unions an intermediary.
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They do not want that
relationship to be severed.
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But according to these workers,
they who support the union,
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they want a more direct
relationship with the company.
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- [Narrator] In a statement
to the "Wall Street Journal"
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Starbucks said, "Starbucks's
success past, present,
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and future is built on
how we partner together,
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always with our mission
and values at our core.
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From the beginning, we've
been clear in our belief
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that we are better together as partners
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without a union between us at Starbucks.
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And that conviction has not changed."
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- They are the world's
biggest coffee chain.
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They are very dominant when
it comes to coffee sales,
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and they are really synonymous
with the coffee house culture
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in a lot of ways, but they
do face increasing pressures.
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(upbeat music)
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