Starbucks isn’t a coffee company…
Watching Fat Electrician on YouTube is always fascinating. He got his start by bringing to light some very interesting bits of military information, both modern and historical. Most of his content is viewer driven. He also has a really catchy delivery, delightfully irreverent and boisterous.
Every once in a while, he focuses on other bits of Americana. This time, he delved into the origins and business model of that uniquely American take on coffee culture that is Starbucks.
I admit, I watch everything he produces, as it’s always entertaining, but occasionally he puts out a real eye opener, and this one is no exception. I’d never really thought about it, but the concept of Starbucks isn’t about the coffee per se. It’s about the culture and the experience. The smell of roasted beans as you walk in the door. The congregation of like-minded people, united around the alter of caffeine, sweetened milk and pumpkin spice. Like he says, it’s a bar. You don’t go to bars for the alcohol, you go for the ambience.
But at the end, he reveals a really interesting caveat to the app-based payment system that Starbucks, and thousands of other stores around the world, use.
When you pre-load your Starbucks account, there really is no way to get that money back. It’s spent. Period. Yes, you can use it to get coffee, but that’s it. There’s no longer any cash value. And for most companies that are NOT international retail icons, it’s not as astonishing.
But when you have nearly 40,000 locations worldwide, and a significant proportion of your customers use the app to make their purchases, you get a $1.7 Billion (yes, Billion), continuously replenished slush fund of untaxable money that is free for the company to use for whatever purpose it wants, because until it’s “redeemed”, it’s not taxable as “profit”. And with 1.7B being held in those accounts that has not been redeemed, Starbucks has more liquidity than 90% of all banks in America. And it’s their money, customers can’t somehow get it back. All they can do is get caffeinated sugar and milk slurries.
Starbucks is a bank.
Yup. This is a pretty major business model. Paypal isn't a bank. But look at all the money they have and move around. ALL of the cash apps follow the same business model.
Remember ADP? The people who did payrolls for everyone? They weren't a bank, but they had billions flowing through their coffers too.
The next question always is: What are they using that money for?
Wow!