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Making bank with coffee: How Starbuck’s business model played a blinder

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Never before has the world of caffeinated drinks been so divisive. Starbucks is almost entirely in a league of its own as the only “Instagrammable” go-to quick coffee shop. Customers have been taught to order in a foreign language by the restaurant chain.

How did Starbucks come to have such a stronghold in the tech and financial industries?

Coffee is a mundane and monotonous part of your day. Starbucks wished to alter this. Baristas are taught to strike up a conversation. Drinks may be made in a variety of ways. Your name (possibly misspelt) was scribbled on your drink.

As Starbucks grew, there was a decline in shared social spaces. Starbucks saw a need for a casual space where people could congregate with good coffee, snacks and excellent wifi. Starbucks was notorious for not franchising because they wanted to have exact control over the quality of the “experience”. They were also good at scouting new locations for their stores, leading to a new term in real estate: The Frappuccino Effect. 

The Frappuccino Effect: A significant increase in nearby

The first location opened in Seattle, Washington, in 1970, and by 1996, there were 677 locations. About 16,000 stores had opened by the millennium’s turn in 2000. About seven new stores were opening every day at their peak. In 1997, the first international location opened in Japan.

The Catalyst For Change: A Scandal Spark

Starbucks had closed over 600 stores by the end of 2008, with another 300 expected to close in 2009. Some blamed the competition’s rising success for the loss of momentum. A board member at the time, Howard Schultz, wrote an incredibly candid internal memo that was leaked to the press anonymously. The memo challenged the company’s focus on performance and pace over actuarial accuracy.  It also called for a lot of change in a hurry. 

Schultz shut down every Starbucks location for a single day, resulting in a $6 million net loss. To improve customer loyalty and efficiency, over 135,000 baristas were re-trained. A strategy conference was held in New Orleans, and 10,000 top executives were flown in.

Enter: The Starbucks Card

The Starbucks app is by far the most popular restaurant rewards app. Starbucks cardholders account for 41% of all payments in the United States and Canada. Users

had a total balance of 1.5 billion dollars at the end of 2019. This is capital that Starbucks will either recycle back into the market, receive free money from its buyers’ generosity, or open new stores. Approximately 10% of this money would be forgotten, lost, or never used, referred to as “breakage” in the industry. You can also pre-order your drinks, customise them, and pick them up without having to wait in line. In 2021, the app is scheduled to launch in the United States and Canada.

The balance in your Starbucks Rewards account cannot be withdrawn for cash. This enables it to circumvent financial controls and use deposited funds as it sees fit. According to the CEO of South Korea’s third-largest financial community, Starbucks is an unregulated bank, not just a coffee firm. Starbucks has all of the resources and facets it needs to create its full-fledged currency or to collaborate with other brands to create a generally accepted mobile payment system if it so chooses. It’s difficult to predict what the organisation will do next or what its immediate ambitions are. Still, almost everyone will agree that their financial redemption arc has been fun to watch.

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