Starbucks isn't a coffee company. It's actually a bank that sells coffee.
The Secret Behind Starbucks' $12 Billion+ Gift Card Business
That Starbucks gift card you got for your birthday is more than just a convenient way to grab your morning coffee. It's actually part of a master plan that has turned Starbucks into a massive, highly profitable business.
Starbucks operates over 33,000 stores worldwide, with $29 billion in revenue in 2021 alone. But surprisingly, 41% of that revenue comes from gift card sales. That's right - those little plastic cards make up nearly half of Starbucks' business.
In fact, Starbucks is sitting on what amounts to a $12 billion interest-free loan from its customers. So how did Starbucks turn a simple gift card into a $12 billion powerhouse? It comes down to something called a flywheel effect.
A flywheel is when a business creates momentum so customers engage more over time. Starbucks has crafted the perfect gift card flywheel strategy.
It starts with the initial gift card purchase. Someone buys a $25 gift card to give as a gift. But because they're already there, they buy a coffee for themselves too, turning a $25 sale into a $30 sale.
Then the gift card recipient starts spending the $25 at Starbucks. But because balances are seldom exact, they add a little extra to use up the card. That's another few dollars.
Of course, some gift card value always goes unused, what's called "breakage" in the business. For Starbucks, unused gift cards equal a jaw-dropping $155 million in pure profit every year.
And while money sits on those cards, Starbucks gets to hold and invest it just like a bank. They earn interest on billions of dollars.
So between extra purchases, card loading, breakage, and investing float, a single $25 gift card can generate over $45 in revenue for Starbucks. No wonder they sell more than $12 billion worth every year!
Starbucks has figured out how to turn a simple gift card into a money-printing, cycle-starting flywheel.
So what can other businesses learn from Starbucks' flywheel success?
Look for your own flywheel opportunities - areas where small actions can compound. A few examples:
Retail sales can lead to gift card purchases
Lumber companies can sell sawdust waste
Lawyers can repurpose research into articles and webinars
Make a referral program to incentivize customer referrals
Even simple products like Starbucks gift cards can become powerful when linked into a flywheel system. Consider how you can create self-reinforcing momentum in your own business. The results may surprise you!
Great way to keep customers coming. What do you think is the great way to do this for a service business ? Offer a code to give to friends , etc?