This month Starbucks (SBUX) celebrated the 40th anniversary since beginning with Howard Schulz and a packed coffee store in Seattle and growing into a manifestation of the American Dream with a founder running for the Presidency and thousands of coffee stores across the globe.

With revenues of $10.7 billion last year and 16,850 shops in 40 countries, Starbucks is one of the world’s most well-recognized brands – opting to not even put their name cups anymore. 

They’ve added an average of two stores each day since 1987, growing to 137,000 employees – a workforce twice the population of Greenland, which President Trump attempted to purchase last week. Greenland isn’t for sale, and sadly for the President, Starbucks market cap of $109 Billion puts it a little out of his price range.

REDEFINING COFFEE

Starbucks went public in 1992 with its initial public offering (IPO) at $17 per share, which, when adjusted for splits, would be $0.27 per share…. So for $1,000, you could have bought 3700 shares in Starbucks (SBUX) which would be worth around $224,777 currently. That’s about 27% per year.

You have to sell a lot of coffee to grow at 27% a year for over a quarter of a century. In fact, you have to do a lot more than sell a lot of coffee. In fact, Starbucks had to detach themselves from all existing associations of coffee shops in order to achieve that success.

That’s why for the first 4 years of Starbucks existence, they did not sell donuts in the store; and continue to offer more upscale eating options to make grabbing a Starbucks an event, rather than a transaction. 

For more on how Starbucks uses price discrimination to maximize profit: check out this article. 

STARBUCKS’ GREATEST ASSET? AN APP…

Starbucks does a lot more than coffee, and it’s their constant innovation that has allowed them to achieve sustained success; and there’s no better example of this than the Starbucks App (especially considering it accounts for 30% of all company sales).

For those not familiar, the Starbucks app (launched September 2009) provides personalized content, promotions, and producing a gamification from the daily routine of grabbing a coffee on the way to work. Now Starbucks App users order in advance by linking credit cards and earn stars with each purpose: the stars redeem additional products similar to airline miles. The app has even gone as far as integrating with Spotify to provide songs playing in Starbucks stores directly to a user’s phone.

Today, Starbucks had 23.4 million unique app users purchase a product in 2018, dwarfing Apple Pay (22 million), Google Play (11 million), and Samsung Pay (10 million). Those users average 5 purchases per month in the US.

According to a 2016 MarketWatch report, Starbucks had $1.2 billion loaded onto Starbucks cards and its app as of the first quarter of 2016, which, at the time, was more than the deposits at a number of financial institutions, including California Republic Bancorp ($1.01 billion), Mercantile Bank Corp. ($680 million) and Discover Financial Services ($470 million).


BOTTOM LINE:

The account balances loaded onto Starbucks cards is enormous, and their mobile payment system through a first-party app continues to dwarf in-store sales. They continue to adapt – whether it be with a mobile app, adding wireless charging ports, or closing 8,000 stores for employees to take compulsory anti-racial bias training.

With that said, any payment system can be hacked & accounts can be compromised so, while we’re all “addicted” to coffee, that addiction comes at a cost; and that cost serves as an interesting example of the growing risks & uncertainties that companies (and shareholders) assume by meeting their customers technological demands – even when successful.

P.S. Try to pick up a latte in Cairo if you’re traveling and it might make sense to bring your own French press if you’re craving caffeine in Zurich.