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  • Among fast-food chains, Starbucks is unique in the way that it dominates mainstream culture.

  • Not only in the language it's trained us all to useTall, Grande, Venti, etc.,

  • But also in the scrutiny it receives

  • No other cup design can command such controversy,

  • No other change of store policy gets so much media attention,

  • And no other drink has taken on such a life of its own as the Pumpkin Spice Latte.

  • Mocked, stereotyped, and yet still highly adored, Starbucks is known everywhere as the

  • coffeeshopalmost in a league of its own.

  • But what you might not know is that, viewed from a financial perspective, Starbucks is

  • far more than a seller of expensive drinksStarbucks has become a bank.

  • Whether you know it or not, Starbucks might already be your bank.

  • Its customers have lent the company around $1.6 billion dollars.

  • In some ways, Starbucks is a technology company, competing (favorably) with Paypal.

  • Even some traditional banks are fearful of what it might do next.

  • Why?

  • How did Starbucks, behind all of our backs, become a bank?

  • Arguably the first genius idea in Starbuck history was to carefully craft an experience

  • its physical locations would be just as much an attraction as its coffee.

  • More than just a restaurant though, each coffeehouse was designed to act as a “third place

  • in our livessomething that would complement both the rigid, formal setting that is the

  • workplace and our private homes.

  • It was well-timed.

  • As it grew during the 90s and early 2000s, the number ofshared spaceswhich served

  • a communal, social, inclusive role were in decline.

  • Fewer malls, for example, were being built, and many sat empty or forgotten.

  • At the same time, more people were becoming self-employed or had begun working from home,

  • creating the need for a place with good WiFi, ample caffeine, and air conditioning.

  • Tacky as it may sound, Starbucks was also supposed to be friendlyin a small-town

  • neighborhood kind of way, encouraging its employees to get to know regulars, make small

  • talk, and personalize each cup with its customer's namemisspelled as they may be.

  • Besides these reasons, Starbucks grew thanks to its great branding, remarkable consistency,

  • and, yes, arguably, the taste of its coffee.

  • Most impressively, it expanded very rapidly without franchising.

  • The company believed, from the very beginning, that it needed to exert very tight control

  • over every process and facet of its presentation.

  • It was also very good at scouting locations.

  • So much so that there's a so-calledFrappuccino Effectin real estate — a significant

  • increase in nearby property prices when a new location opens.

  • According to the CEO of Zillow, in the time a normal home has appreciated by 65%, one

  • near a Starbucks location will have appreciated by 96%.

  • This is likely due in part to the perceived value of its convenience, but also, in large

  • part, to Starbucks' ability to find up-and-coming neighborhoods before the rest of the market.

  • The very first location opened in Seattle in 1971,

  • There were 84 locations in 1990, 677 in 1995,

  • The first international, in Japan, during 1996,

  • 3,501 by the turn of the millennium, And 16,680 in 2008.

  • At its peak, over 7 new stores were opening each day.

  • Around this time, however, Starbucks began showing signs that it had grown too big, too

  • fast.

  • Some in the company attributed these issues to the wider global recession, but it was

  • hard to ignore the increasing competition from McDonald's, the concern about oversaturation,

  • and rising customer dissatisfaction.

  • This culminated when Howard Schultz, a board member at the time, wrote a brutally honest

  • internal memo that was somehow leaked to the press.

  • The email openly questions its focus on efficiency and speed over quality, and suggests, politely,

  • that the company had lost itsmagic”.

  • It was time for a change.

  • If Starbucks was to continue being, Starbucks, it needed to do something drastic.

  • And that, it did.

  • Schultz, who wrote the leaked memo, was effectively the founder of modern Starbuckstaking

  • over the brand in 1982, back when it was just four little coffeehouses in the Pacific Northwest.

  • He stepped down in 2000 to devote his time to international expansion, with a focus on

  • China.

  • But in the rocky times of 2008, Schultz was asked to return to the position of CEO.

  • He inherited the company's worst 3-month performance in its history, and was tasked

  • with guiding it back to its glory days.

  • After just one month in his new role, Shultz made a drastic decision: Things had gotten

  • so sloppy, he needed to make a big gesture to reinvigorate the company.

  • He decided to close every single store for one day, at an estimated cost of $6 million

  • dollars in lost profit.

  • That day, its 135,000 baristas, at the time, were reminded of the very basicshow to

  • pour coffee, please customers, and pay attention to the details.

  • Later that year, a similar all-hands-on-board meeting was called at the corporate level.

  • 10,000 of its partners were flown to New Orleans for an additional $30 million, where they

  • were updated during a 3-day conference.

  • And then came the really hard part.

  • Starbucks closed 600 stores in 2008, followed by 300 more in 2009.

  • It did, on the other hand, continue offering free online college to every employee working

  • more than 20 hours a week, in partnership with Arizona State University.

  • Among quick-serve restaurants, jobs at Starbucks are highly coveted and see lower than average

  • turnover.

  • One of the less high profile changes was an increasing focus on technology.

  • This began with the introduction of the Starbucks Card.

  • For the uninitiated, the way it works now, in 2021, is this: Instead of paying with cash

  • or credit card, you can also add money to your Starbucks account.

  • Then, you can pay with the app on your phone, giving you twice the number ofstars”,

  • which let you redeem free drinks.

  • While this may not sound all that revolutionary, Starbucks is the most popular restaurant rewards

  • app, allowing it to do what others can't...

  • Because of its size and customer loyalty, people are not afraid to keep decent chunks

  • of their money in their Starbucks account, knowing they'll use it eventually.

  • 41% of U.S. and Canadian users pay with their Starbucks card.

  • At the end of 2019, users held a collective $1.5 billion dollars in balances.

  • To put this in perspective, 85% of all U.S. banks have less than $1 billion dollars in

  • total assets.

  • Customers will, of course, eventually exchange this money for coffee, but in the meantime,

  • unknowingly provide Starbucks with a $1.5 billion dollar loan, at 0% interest.

  • That's money Starbucks cou ld simply invest in the market, earning free money from the

  • generosityof its users, or spend on building more stores.

  • Actually, it's even better than that.

  • About 10% of this money will be forgotten or lost and never usedknown in the industry

  • as breakage.

  • But here's the thing: Starbucks is not a bank, legally speaking.

  • With only a few exceptions, Starbucks balance cannot be withdrawn for cash, only coffee,

  • allowing it to bypass financial regulation and use deposited money however it likes.

  • It doesn't, for example, have to keep a certain amount of cash ready on hand in case

  • of mass withdrawals.

  • If it wanted to, Starbucks has all the ingredients necessary to build a fully-fledged currency

  • or partner with other brands to create a widely-available mobile payment system.

  • Customers already use Starbucks gift cards as the next best thing to moneyit's

  • the go-to gift to someone you don't know super well but don't want to give cash.

  • It's sorta liquidnot just because it can be converted to Coffee, but because you

  • can be reasonably sure anyone will have use for it, making it an almost universal intermediary.

  • All this is very scary to regular old banks.

  • The CEO of South Korea's third-largest financial group was quoted calling Starbucksan unregulated

  • bank, not a mere coffee company”.

  • It's anyone's guess what Starbucks will do next, or what its ultimate goals are.

  • In the meantime, though, no one can say it hasn't kept up with the times or managed

  • an incredible comeback.

  • As just about every company slowly becomes a technology company, there's never been

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B1 US company bank schultz cash customer ceo

Why Starbucks is Actually a Bank

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    moge0072008 posted on 2021/07/21
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