When we hear the name Starbucks, we usually think of a coffee shop, right? But if I said that Starbucks is not just a coffee shop, but also a bank, how would that work?
Starbucks is the world's largest coffee selling company, but they are now operating somewhat like a bank. The difference is that Starbucks doesn't have a banking license like traditional banks do. In 2022, Starbucks had over 80,000 stores worldwide, with nearly 16,000 of them in the United States alone.
In 2022, the company reported total revenue of 32 billion dollars. Interestingly, 44% of this revenue came from Starbucks' loyalty program, which includes card and mobile app transactions.
Although this article may not provide a full case study of Starbucks, sharing some history can help provide context. Until 1996, Starbucks had opened over 1,000 stores, and their growth was thriving. From 2000 to 2008, Starbucks was under the leadership of CEO Orin Smith, and during this time, their growth was four times that of previous years. They were opening over 1,500 new stores every year.
Starbucks was known for its strategic store location selection, often causing real estate prices to increase by up to 30%, a phenomenon known as the "Frappuccino Effect." However, their rapid expansion led to concerns about the quality of their products, and customer satisfaction started to decline. The 2008 economic crisis also negatively impacted Starbucks, causing a drop in their share price.
To address these issues, Howard Schultz, who had previously served as Starbucks' CEO from 1988 to 2000, returned as CEO in 2008. During his two-year tenure, he closed nearly 900 stores and focused on maintaining product quality and improving the customer experience.
In October 2013, Starbucks launched a unique campaign on Twitter called "Tweet a Coffee." Customers could use a hashtag to send a coffee to friends or family linked to their credit cards. The campaign was a great success.
Today, Starbucks stores accept payments through their loyalty cards, which are connected to their mobile apps. The more customers use these cards for payments, the more rewards they accumulate, which can be redeemed for drinks or meals.
Starbucks' loyal customer base usually consumes coffee from Starbucks, and they often load more money onto their loyalty cards to earn more rewards. Starbucks' loyalty program is a significant asset, valued at over 2 billion dollars, and it continues to grow. Even the normal bank of USA has the asset amount of 1 billion. That means Starbucks has more amount of asset then a Bank.
In fact, Starbucks' loyalty program is so valuable that it serves as a source of funds for business development, as customers leave their money unused on their cards, essentially providing Starbucks with interest-free loans. This significant asset remains with Starbucks, and they can use it for their business development.
Ultimately, Starbucks' app allows customers to manage everything, and they can use the money they load onto it at any Starbucks location worldwide. Many customers load more money onto their apps for future use.
You can also introduce this loyalty program idea in your own business as well. Many have already implemented it in various customized ways. So far, it's been quite successful."
You can use it like Loyalty Subscription for better service or discount. Then you can send your loyal consumer some gift as a replacement for their discount. That will help to build a strong relationship with the consumers.
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FAQs
Starbucks, the world's largest coffee chain, operates like a bank due to its loyalty program and customer deposits. The company pays an interest on these funds deposited by customers (interest expense) and then loans them to other customers at higher interest (interest income) and earns a spread.
Is Starbucks holding more money than banks? ›
With numbers like that, it's understandable why Tu calls Starbucks the worst bank in the world. It's holding $1.6 billion, which is far more than what many banks and credit unions manage. It also doesn't need to pay out any interest, and in fact, it often gets to keep over 10% of that money.
Is Starbucks a coffee shop or a bank? ›
Starbucks was converted into a coffee shop serving espresso-based drinks under the ownership of Howard Schultz, who was chief executive officer from 1986 to 2000 and led the aggressive expansion of the franchise across the West Coast of the United States.
Is Starbucks the biggest bank in the world? ›
Starbucks is not actually a bank and does not have the same regulations and oversight that traditional banks have. However, based on the income loaded onto its Starbucks App., if it was a bank, it would rank fifth in the U.S. for cash reserves, behind Paypal, American Express, SunTrust and SVB.
How many banks turned down Starbucks? ›
There would be no Starbucks if Howard Schultz gave up after being turned down by bank 242 times.
Which bank does Starbucks use? ›
The partnership with Starbucks is offered through Bank of America's BankAmeriDeals program. Launched in 2012, BankAmeriDeals allows more than 45 million Bank of America clients to earn cash back on deals they choose when they pay for everyday purchases with an eligible Bank of America debit or credit card.
Why is Starbucks in so much debt? ›
Starbucks relies on operating leases, which are off-balance-sheet obligations, and carries a substantial amount of debt. Six useful ratios to analyze Starbucks are the fixed-charge coverage ratio, the debt/equity ratio, the operating margin, net margin, return on equity, and return on invested capital.
Is Starbucks financially strong? ›
Starbucks Brews $35.98 Billion across 38,038 stores!
In the fiscal fourth quarter of 2023, Starbucks showcased strong financial health with consolidated net revenues rising to $9.4 billion, an 11% increase year-over-year.
Where does Starbucks make most of its money? ›
Starbucks follows a chain business model where most of its revenue comes from company-operated stores followed by licensed stores. It also generates revenues via royalties, selling goods and services, and sales of packaged coffee, tea, and other beverages.
Who is Starbucks owned by? ›
Starbucks is owned by its shareholders, as it is a publicly-traded company. The company has more than 1,500 institutional shareholders, according to the proxy statement that Starbucks filed with the SEC on January 7, 2022. This figure clearly shows how well-diversified the ownership of the company is.
Across the world, Starbucks spent $13.5 billion dollars on store operating expenses, which is around 42% of their total revenue. Their next biggest expenses are product and distribution expenses, which include shipping, milk, syrups, packaging, and, of course, coffee.
Why is Starbucks called Starbucks? ›
While researching names of mining camps on Mt. Rainier, one of the best known landmarks near Seattle, Terry came across “Starbo,” which eventually led the team back to where they'd started. In “Moby-Dick,” the name of the first mate on the Pequod was, you guessed it, Starbuck. A brand was born.
Why is Starbucks actually a bank? ›
That means Starbucks has more amount of asset then a Bank. In fact, Starbucks' loyalty program is so valuable that it serves as a source of funds for business development, as customers leave their money unused on their cards, essentially providing Starbucks with interest-free loans.
Who owns the majority of Starbucks? ›
The ownership structure of Starbucks (SBUX) stock is a mix of institutional, retail and individual investors. Approximately 47.20% of the company's stock is owned by Institutional Investors, 2.41% is owned by Insiders and 50.38% is owned by Public Companies and Individual Investors.
Is Starbucks FDIC insured? ›
The value on your Starbucks Card is not insured by the Federal Deposit Insurance Corporation (FDIC), nor does it earn interest. Most Starbucks stores in North America including Puerto Rico accept your Starbucks Card.
How does Starbucks finance its operations? ›
In addition to company-operated stores, Starbucks also earns revenue through licensed stores. These are locations operated by partners who have obtained a license to use the Starbucks brand and sell its products.
Why is Starbucks financially successful? ›
80% of the total Starbucks revenue is from its 15,000 company-owned coffee shops worldwide. This amounts to $3,800 every day and $520 for each store. One cup of Starbucks coffee generates a 6% profit. Starbucks' coffee shops sell a big percentage of its coffee to people on the go, generating high sales and profit.
What makes Starbucks different from other companies? ›
How Does Starbucks Differentiate Itself From Competitors? Starbucks differentiates itself by creating a "third home" value proposition. In addition to home and work, the company strives to have a welcoming, warm location for customers to consume their products.
Why is Starbucks taking on so much debt? ›
Starbucks relies on operating leases, which are off-balance-sheet obligations, and carries a substantial amount of debt.
