Rethinking Starbucks Membership
The din of conversation surges in my local Starbucks, drawing my attention to the line of people snaking its way among the high tables. The hiss of espresso is a constant companion as I sit in the corner of the coffee shop, watching the Starbucks counter, ready to spring into action.
I’m working at the Starbucks in the midst of Seattle’s thriving South Lake Union, where lanyard-laden Amazonians assault the café in droves from 8 AM until noon. I’m waiting to go up to the counter and ask for a refill. Over the clamor of conversation, I hear “Can I get a Grande Skinny Iced Macchiato with Hazelnut and an Extra Shot?”
Between these monstrous macchiatos, my drink order is a respite for the overtaxed baristas. I’m drinking a grandé dark roast. I periodically throw the barista a curveball by asking for the coffee in a “for-here cup.” You can’t let them get too comfortable.
Over the past twenty-five years, Starbucks has refined its customer experience like one of its fine reserve roasts. The company has diversified and evolved its services in a competitive landscape and has developed visionary digital ventures like the Starbucks mobile app.
Perhaps most importantly, the company has constantly challenged itself to improve.
From an outsider’s perspective, Starbucks has the crisp, clean functionality of a well-maintained espresso machine, so what’s to improve? As a plain coffee drinker, I have plenty of time for idle contemplation while waiting in line. I usually neglect to order my coffee in advance using the mobile app. And I’m not the only one, as evidenced by the relatively infrequent “mobile order” shouts. So I’ve lately been wondering why I should have to line for such a simple coffee order, when I could easily serve myself from a thermal pump flask. You commonly see this type of dispenser at local mom-and-pop coffee shops.
Here’s the rub: At other cafés, you still have to visit the counter to pay before pouring your own coffee. That’s because these other coffee shops don’t have a convenient app that let’s you pay. But wait! Starbucks has just such an app. So why not let customers who want normal coffee pay for and serve themselves.
Being Self-Serving
Let’s imagine Starbucks installed a new fixture, which we’ll call the Brewster. The Brewster is a device that makes and distributes coffee, like the coffee machines squirreled away behind a Starbucks counter, but with one key difference: It also has a barcode/card reader that works with the Starbucks app and gift cards. When you go to the Brewster, you scan your phone or card, enter the size of your cup, and place your vessel in the Brewster. The device then cordons off your cup — preventing litigious customers from reaching in and getting blasted with scalding coffee. Such a device offers both pros and cons.
Pros:
- Encourage adoption and use of the Starbucks app
- Fewer plain coffee drinkers placing orders means shorter, faster lines for everyone else
- Customers on-the-go are likelier to stop in for coffee if they’re able to bypass lines
- Plain coffee drinkers could be monetized in different ways (more on this below)
- Flexible pricing based on the current price of coffee
Cons:
- Customers serving themselves would be less likely to be upsold on pastries
- Safety could be a problem
- Coffee machines take up valuable retail space
The Real Cost of a Cup
To really understand the advantages of self-serve coffee, let’s first look at what goes into producing a 16 oz. cup of coffee, according to a 2011 survey from the Specialty Coffee Association of America.
- Coffee beans — $0.64
- Cup — $0.13
- Sugar — $0.04
- Labor — $0.33
- Creamer — $0.03
A few caveats: The price of coffee in 2011 was higher than it is now, and these prices will vary depending on whether a person uses their own cup, how much sugar they use, and if they use creamer (which I approximated, because it wasn’t in the original study).
That total comes to $1.17. A grandé cup of coffee at Starbucks costs 2.25, so the gross profit margin is around $1.08. That doesn’t take into account fixed costs, such as the retail space, marketing, utilities, and taxes. According to that same survey, this puts the cost up around $1.75. Starbucks likely benefits from an economy of scale, but it also offers incentives like free refills, so we’ll call it a wash. Let’s assume for the sake of this thought experiment that Starbucks makes a meager $0.50 per grandé cup of coffee.
Cutting Lines and Costs
By offering self-serve coffee, Starbucks could potentially reduce its wait time and the number of people needed behind the counter. My polling of some Starbucks baristas suggested that between forty and fifty percent of Starbucks customers buy plain coffee, with more making the purchase in the morning. Can you imagine if even half of these people used the Brewster? Starbucks could see a 20% — 25% reduction in the number of people in line. Although such a change wouldn’t necessarily equate to big time savings for a given individual in line, it could mean big savings for Starbucks in the aggregate.
“According to Starbucks, 60 million customers visit its nearly 18,000 stores per week, bringing a daily average of 476 per store.” Now, let’s consider that the average customer visits Starbucks six times per month, or about 1.5 times per week. That means each week, Starbucks sees around 40 million unique customers. And of those customers, let’s say only 40% are buying plain coffee. Of that forty percent, some amount of customers are going to go through the drive-thru or purchase food, another drink, or merchandise, requiring them to wait in line. Let’s generously assume then that between 10 and 20 percent of these customers are coffee-only buyers who could skip the line. That result still gives us between 4 and 8 million customers per week who could benefit from a self-serve coffee machine. Figure that each of those transactions saves around 1 minute, you end up saving 4 to 8 million minutes of barista time per week, or 67,000 to 133,000 hours people hours. With the average barista pay of $9/hour, according to Glassdoor, this reduction would amount to savings between $603,000 and $1.2M per week.
With a lack of data, I’ve obviously made some liberal approximations. For example, this sum is probably generous, since the people cost savings may not correspond directly to the people-hours saved, since it depends on whether a Starbucks store could actually reduce its staffing based on a diminished customer load from self-serve coffee. However, even when you consider the R&D costs to develop the Brewster, the insurance costs to protect against litigious, scald-prone customers, and the need for installation, cleaning, and upkeep of such a device, the potential savings seem like a worthy pursuit.
But wait, didn’t I mention alternative monetization schemes above? Enter the platinum membership.
The Platinum Membership
Starbucks currently offers two rewards levels: the green level, where everyone starts, and the gold membership, which you gain after accumulating 300 stars (the equivalent of spending $150 or more during the course of a year.) Through a strong loyalty program, philanthropy, and genuine marketing, Starbucks has cultivated a huge and loyal base of customers, especially among Millennials. And yet Starbucks’s rewards program has remained limited to just one level. I’m a proud Starbucks gold member, but the only benefits I use are complimentary refills and a free drink on my birthday. Starbucks hasn’t given me a way to take my fandom to the next level.
So here’s where self-serve coffee could come in. Starbucks could introduce a new “Platinum Membership” level on top of its gold membership, which charges a monthly fee and in exchange, offers a set of benefits, such as:
- Unlimited regular coffee (or alternatively, up to a certain number of cups per month)
- A signature drink once per month, or alternatively, whatever the new drink is for that month to encourage adoption/sampling of new brews.
- Reserve coffees, available for pick-up in store
- Special cup or mug to distinguish you as a platinum member
- Access to exclusive store events, such as the debut of a new drink or the return of the pumpkin spice latte
Starbucks has been offering a scarcely known Starbucks Reserve Roaster Subscription, but the extent of the service is to provide select coffee beans. Amazon.com has shown with Amazon Prime that customers value a subscription service, even if that service is made up of very disparate offerings. Most of us Prime customers use only Prime Instant Video and free shipping, but the service actually includes much more.
SaaS and subscription models work because eighty percent of customers don’t take full advantage of them, making up for the twenty percent of “power users.” For example, the customer who pays $10 for Spotify and only listens to 5–10 hours of music per week subsidizes the customer who listens who listens to 80 hours of music per week. I see no reason that a similar model couldn’t work for Starbucks.
Conclusion
As competitors like McDonalds have entered the premium coffee market, it’s required Starbucks to evolve by introducing food items, drive-thrus, and new technologies to keep a competitive edge. Self-serve coffee might not have worked traditionally, because customers couldn’t be relied upon to pay or stay safe, but with new mobile-pay options and improvements in automation, this coffee future is now within reach. For Starbucks and its customers, it seems like a win-win.
Starbucks made waves a few months ago by restructuring its rewards program, which hurt star-optimizers like myself, who used my regular coffee drinking to fuel the purchase of food items. As a result, I’ve been visiting Starbucks less frequently. A premium membership program may not be the answer, but I can guarantee that I’d like it a latte.
Sorry, I couldn’t help myself.
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