Starbucks’ New Reward Program Could Help Chain in a Downturn – Report
- Starbucks is making changes to its Starbucks Rewards program on February 13.
- Consumers are upset that coffee and lattes will require more stars to redeem for free.
- But Wall Street said the new program emphasizes margin and faster turnaround times on orders.
Starting next month, Starbucks Rewards members must earn more points to redeem free menu items such as coffee, tea, baked goods, cold brews, and lattes.
Consumers have been fuming about the tweaks. Under the new program, they’ll have to buy more to earn freebies on most items such as specialty drinks, which previously required 150 stars to redeem. On February 13, 200 stars gets you a free Frappuccino.
But Wall Street loves the idea.
In a Bank of America note, the research firm said the new program emphasizes higher profits and faster service.
For example, Starbucks is lowering the number of stars required to get a free iced brewed coffee or tea from 150 to 100.These drinks are popular and easier to make. With customers highly likely to customize these drinks with add-ons, that will generate “higher tickets and higher margins” for Starbucks, BofA said.
In its last earnings call, Starbucks said premium add-ons like syrups are a $1 billion business.
High-ticket, low-eﬀort items like reusable to-go cups and packaged coﬀee also require fewer stars under the new tier structure, according to the note.
The new rewards program might give Starbucks a lift if the economy tanks in the coming months.
“In a macro slowdown, we believe the power of Starbucks Rewards will insulate the company, a key distinction from prior downturns,” BofA said.
Still, Jefferies analyst Andy Barish said last month that consumers are likely to trade down to smaller drinks and “less expensive add-ons,” if a recession hits later this year.
Starbucks has one of the most successful rewards memberships in the fast-food business. The program has 28.7 million members. Starbucks Rewards members accounted for 55% of sales at US company-operated stores, Starbucks said in a fourth-quarter earnings call.
Here’s a closer look at what items can be redeemed under the new star program, effective February 13.
- 100 Stars may be redeemed for one of the following items: hot brewed coffee, hot steeped tea, iced brewed coffee, iced brewed tea, a bakery item, a packaged snack such as popcorn or potato chips or a cold siren-logo plastic to-go cup.
- 200 Stars can be redeemed for one of the following items: any handcrafted beverage, any hot breakfast item such as a breakfast sandwich or oatmeal.
- 300 Stars may be redeemed for one of the following items: a packaged salad or lunch sandwich, one packaged protein box, or one packaged coffee item.