Tuesday, March 24, 2009

Starbucks Refill Policy is Now Worse!

Part of my daily routine is a cup of delicious coffee at Starbucks. I pick one up on my way to work and then get a refill a couple of hours later for 50 cents (or free if you have a registered starbucks card). The staff by our office is extremely friendly and the experience is great.

Unfortunately, as of March 25, 2009, Starbucks is eliminating free refills (and 50 cent refills) unless you consume the coffee within 1 hours while at the store. The Staff at my local Starbucks broke the news to me last week.

I guess the company is trying to come up with ways to penalize its best customers. I was calculating that because of their prior refill policy I would go to a Starbucks about 50 times a month (2x per day, 25 days a month). Generally I would just buy a coffee (or get a refill) - but about 1/3 of the time I'd upgrade to a higher margin item like food or an espresso based drink.

Under the new policy, I have no incentive to come back in the store for a second time during a day, so I'll probably start going to Peet's in the afternoon. My visits to Starbucks will drop from 50 times a week to probably about 25 times a week. Starbucks will have 1/2 has many touchpoints and opportunities to sell me things.

Looking at these numbers I'm struck by two things. 1) Starbucks is penalizing their best customers who often evangelize about their brand. 2) I go to Starbucks way too often. I should cut back. Seriously.

20 comments:

Anonymous said...

Lets think about the cost of running a coffee shop per month, say you have 15000 transactions per month, 500 per day.

monthly bills
rent: 4500
payroll: 21000
utiliies: 2500
=28000/15000= .53

.53 pays only for the store to be open and staffed, let alone stocked with product.

SiliconMBA said...

Thanks for your comment. Rather than guessing how accurate the 5 variables in your equation are, here's a better way to think about it:

Coffee (and anything else they sell) is a very high margin item (80-90%). Therefore their primary goal is to drive the throughput of customers. Just by a customer walking in the door, they are creating positive expected value for starbucks.

Anything that reduces transaction volume destroys value, anything that increases it creates value.

daveman said...

What a travesty! You're putting those baristas' kids through college, and that's how they thank you??

SiliconMBA said...

I know. I've already started shifting my coffee $$$ to Peet's and Blue Bottle.

Chris said...

A starbucks employee went through a whole explanation with me. It was really elaborate.

Anonymous said...
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Anonymous said...

I just got the explanation from my local Starbucks. Well, I too will be visiting a whole lot less. I think I'm gonna resort to the free stuff at work. So there, now, they'll get none of my money.

emmeff said...

I just got hired at Starbucks in August, and wasn't too familiar with the policy until my manager and I had a lengthy discussion about it. I hate the new policy. I'm very good at what I do, and when I lose a customer over something as stupid as Starbucks' new refill policy, it puts me in a very difficult place. The conversation is incredibly awkward. Not only am I creating enemies for myself, but also for Starbucks. I swear the top execs up in Seattle are morons.

Anonymous said...

The math could be much easier than what a previous post included. Only taking into account pure revenue, the comparison is $2.00 vs $0.50. For this to work out in Starbucks' favor, they would need 1 customer to pay full price for a "refill" for every 4 customers that would have paid the reduced price of $0.50 for a refill. If you are considering the profit associated with both comparison points, I'd guess that the ratio would be even more in favor of charging full price for a refill. Other posts have mentioned the value of having customers enter the store because they may buy other things. This is true, but I still wouldn't be so quick to say that Starbucks doesn't know what they are doing. As a customer, I'm with all of you in that they should stick with the $0.50 (or free) refill. The policy probably needed some refinement to limit those who have abused it (never paying the full price for a new cup of coffee).

Anonymous said...

When you say a delicious cup of coffee you should say a mediocre cup of coffee.

You need to learn more about coffee, Starbucks coffee tastes awful.

Anonymous said...

and when you say mediocre, you mean average... but I digress.

I too will be frequenting Peets instead of Starbucks from March, but that has more to do with the fact that I am moving to a new building w/ a Peets in the lobby instead of a Starbucks.

I think SiliconMBA's point is that the marginal cost of brewing one pot of coffee is so small as to be basically free, compared with Starbucks other operating costs... so it is almost certainly in their best interest to keep the foot traffic coming through the door for refills.

Griffin said...

i love how everyone is switching to Peet's which is just another company owned by...you guessed it, STARBUCKS!! idiots.

SiliconMBA said...

HI Griffin, Peet's Coffee and Tea is an independent company.

http://www.google.com/finance?client=ob&q=NASDAQ:PEET

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john bailo said...

After buying a "Clover brewed" coffee for $2.60 at one Starbucks in one location, and then getting refill later at another (free on my Gold Card), the store person hit me over the head with "oh, you can't do that, you have to buy the first one here". I was stunned as the whole point of the Starbucks Card is you can track purchases (you know, those things called "computers").

Thomas said...

FYI, just left this on SB's contact us page:

I am about fed up with Starbucks punishing its best customers! Hopefully I have your attention. Long ago I stopped at Starbucks a couple of times a month, then I learned that I could get refills for 50 cents and decided to only come to Starbucks for my coffee which meant I visited at least once per day, so now 20-30 times per month. Then I was "sold" on a rewards card by one of YOUR employees to get free refills. I then frequented even more and many times upgraded to mixed coffee drinks because of the free refills I was receiving...the bottomline was more money spent at your stores, which is the goal of your program and was a win-win, SB's got more of my money and I got what I wanted...life was good. At least until SB got greedy, I had bought 2 $15 tumblers rather than dealing with the paper cups (more money for SB's) but quickly grew tired of being treated like a thief when I got a refill and was actually told once by an employee "we dont have any way of knowing that you dont just get free coffee all the time"... I have had my own business for 12 years and it takes a real idiot to call your customer a thief to their face. Now I am being told that the FREE refill only pertains to the same store within a one hour time frame....frankly this is fraud! This is not the "reward" I was sold on and a really good way to screw and piss off a customer that spends a minimum of $60-$100 per month on my coffee alone, not to mention an average of another $50-$100 per month on my clients as "thank yous" Your response to this will determine if my $1200-$2400 a year stays or goes.....and I have a very big mouth and have been preaching my love for SB's up until this...I will be more than happy to share the story of SB's greed as well.....

Pools said...

Actually, by using a tumbler, you can get free coffee all the time. Just dump your last coffee early in the morning before entering the store and while it is busy, you go in and ask for a refill. There are people getting free drink for a year and a half now, and bragged about never paying for the coffee as they received a bailout from Starbucks during their period of unemployment.

Anonymous said...

Those who lie to get free coffee are simply thieves.

I have had the benefit of free refills all day for years. I buy lots of other stuff due to those late day refills, so free refills late in the day is a win-win. I just came back from a visit to Waikiki, and since they didn't honor this policy, I decided to try other local coffee places and liked their product better. That's a win-lose situation. I believe that the fixed overhead of most businesses with high profit margin sales far outweights the small benefit of paying full price for refills due to loss of refill and other sales.

Anonymous said...

The new policy is a joke. The price of regular coffee and cost of refills are marginal and do not affect the bottom line. Star$$% makes most of their profit on frappuccinos, sandwiches and other high priced/ high profit items.
That's what happens when a company, even as good as Starbucks, becomes too big and too powerful.

Anonymous said...

The best quality coffees can be purchased online, from the many small roasters.
Two of my favorites are La Colombe and Awhaw, but there are others. Compared to the large coffee shops, the taste and quality of these fresh roasted coffees are outstanding.
They use a much higher quality arabica bean and your order is always delivered fresh roasted.