Starbucks sales have slacked off. Yes, you read that right. The king of coffee shops is in the midst of what is, for them, a slump. And, after the disastrous rollout of their online ordering app, the company really needs a way to get people excited about their coffee again. The answer? A Starbucks credit card.
According to a media release announcing the card, the new “Starbucks Visa” will help customers build “Starbucks rewards” even when they’re not buying coffee. The Visa-branded card is supported by JPMorgan Chase and came out last week. According to the release, card members can build points, called “Stars,” for using the card anywhere that accepts Visa. The “Stars” will connect with the company’s Starbucks Rewards program, a loyalty perks membership that already has 14 million members.
But are customers really going to line up for this card, with its $49 annual fee? Starbucks seems to think it has a winner. But what about younger customers or those with limited or poor credit ratings? Starbucks says they have that covered too. The company, again working with JPMorgan Chase, plans to release a prepaid debit card later this year.
Branded Credit and Debit Cards
So, here’s the big question: will the branded credit and debit cards actually increase sales? Starbucks needs the answer to be “yes.” Q4 sales last year only rose about two percent, well below what analysts had predicted. While that’s not a loss, it is bad news for new CEO Kevin Johnson, who was brought in to replace Howard Schultz. One of Johnson’s toughest tasks has been to confess to investors that sales of specialty drinks and holiday gift cards did not go over well … or, at least, as well as planned.
And, while the company hasn’t lost too many regular customers, they don’t seem to be attracting new customers like they once did. Some are blaming brand exhaustion, there are just too many Starbucks stores. Others are blaming the brand’s negative PR in recent years, or the price of the coffee.
Dunkin’ Catching up to Starbucks
Then there are the efforts of competitive brands, like Dunkin’, which is transforming its brand and product focus in a way that takes direct aim at Starbucks. In the time where Starbucks stock dropped four percent, Dunkin’ Brands stock shot up nearly 20 percent, and McDonald’s, which is finding good success with its premium coffee line, is up more than 30 percent. As these two ersatz rivals soar, Starbucks still has yet to find its footing.
YORKVILLE ADVISORS – global alternative investment manager providing