Starbucks is not a coffee shop. ☕
Starbucks is a bank that sells coffee on the side.
Gen Z's favorite café mints millions in a way that makes bankers jealous.
From cappucinos to cash, here is the story. 👇🏻
1/ Show me the money. 💸
Last year, Starbucks had revenues of $32 billion.
41% of that revenue came from selling gift cards (and other stored-value stuff, like loyalty and rewards).
This gift card business is the golden goose that lays golden eggs on their balance sheet.
2/ How does it work? ⚙️
Let's say you walk into Starbucks and buy a $30 gift card for your friend's birthday.
You have given Starbucks $30, and they are now holding that $30 deposit as a liability, since they owe you your money back.
Just like a bank.
But the catch is - with a bank, you can withdraw your money as US Dollars, Indian Rupees, or even Bitcoin (if your bank is weird)
But with Starbucks?
They owe you your money back in the form of $30/worth of coffee.
Starbucks currently holds a staggering $1.6 BILLION of deposits.
That's more than 85% of banks in the US.
3/ But how does it make Starbucks so much money? 💰
A - Direct boost to the business.
- Starbucks can now use your $30 to do whatever they want.
- If a million people buy gift cards, Starbucks now has $30 million sitting with them.
- That money goes toward building stores, marketing, or sourcing the weirdest-tasting coffee beans. 💀
B - Human psychology.
- If you get a gift card, chances are that you will never spend that EXACT amount.
- So your friend will probably spend about $40 on their coffee trip.
- That extra 10 bucks adds up REAL fast when done at scale. 📈
C - Breakage.
- Breakage is the percentage of this deposit value that's never used, since some people end up forgetting about their gift cards or not using them fully.
- Starbucks recorded $181 million as breakage revenue in 2022.
- They got paid $181mn last year to hold $1.6bn in deposits. 🔥
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Starbucks isn't just a coffee shop, it's financial genius disguised as a caffeine dealer.
The next time you're sipping on your Venti cup of Double Ristretto with Iced Vanilla Double Shot and Organic Chocolate Brownie Decaf coffee, remember that you're not just drinking coffee, you're a part of Starbucks's empire.
Brewing big bucks. 💀