Gift card revenue recognition

3 min read
3 min read

Gift card revenue recognition case study: Starbucks

Gift card revenue needs to get the recognition it deserves.

The gift card industry continues to grow around the world, businesses are enjoying soaring success with their gift card sales. Today we’re going to take a quick look at just one example that perfectly illustrates the level of success that can be achieved. Let’s dive into some detail about Starbucks Gift Card Program…

Starbucks, one of the world's coffee shop giants, makes billions each year- and it isn’t on coffee…

In this blog post, we look at why Starbucks wouldn't be the global coffee house they are today without their impressive gift card business. We also look at why selling gift cards is so successful for them. While considering what you can do to improve your gift card sales.

Starbucks Gift Cards

The gift card business for Starbucks is worth an incredible $12 Billion USD. For context, that makes it bigger than the combined revenue of Chipotle, Dunkin Donuts and Keurig! So why has the success of Starbucks gift cards grown so rapidly?

The start of Starbucks gift card journey

From way back at the beginning, Starbucks discovered early on that their gift card business was the start of something HUGE.

Starbucks introduced their gift cards in 2001. Impressively, in just 8 months they had reached 4 million gift card sales.

Starbucks gift cards today

Today, the company's gift card business accounts for a huge 41% of all company sales. - Almost half of the sales from a coffee shop is dedicated to its gift cards. Wrap your head around that!

The gift card flywheel

In business terms, a flywheel is a series of small actions that increase the momentum of a service or product exponentially.

Starbucks has created a successful flywheel with their gift cards.

The flywheel works like this….

1.   The first purchase

You purchase a gift card for a colleague for their birthday. Spending £20 on a gift card. While you’re there you get something for yourself. Spending more than the £20 gift card- let’s say you spend £30.

2.   The gift card spend

Your colleague spends their gift card over a few visits. As the exact amount is hard to master, they’re likely to spend more than the value of the gift card again. For this example, let’s call this an additional £10.

3.   The gift card breakage

In the gift card industry, the term we use for unused gift cards is ‘breakage’. With all gift card sales and gifts, there is a certain percentage that will never get spent. This means Starbucks keeps the entire revenue from the sale of the gift card without ever giving out the cost of the products and service.

Starbucks understands this and plans for it. They make a huge $155M in pure profit off of unused gift cards. By the end of 2021, Starbucks reported a huge $1.6 billion in gift card sales that are yet to be redeemed.

4.   The float of money

When you buy a gift card, initially you purchase without getting anything in return.

This is the genius of selling gift cards.

In this flywheel lifecycle example, a £20 Starbucks gift card can bring in as much as £40.

Why have Starbucks gift cards been so successful?

 

1.   The default gift giving option

When it comes to the holidays, gift cards are one of the major gifts to be bought.

This can mostly be because shoppers may not know what to buy, so a gift card is a safe option.

73% of adults surveyed by the National Retail Federation’s Gift Card Spending reported that they would buy at least one gift card. With more than 15% of these adults purchasing 6 or more of the gift cards.

2.   Spending more than the value of the card

According to the same survey, shoppers spend an average of $44.83 per gift card.

Another study from First Data 2015 Consumer Insights also found that due to a gift card, shoppers were more likely to visit a store more often. With 69% of the respondents spending more than the value of the card.

3.   Keep repeating card use

More than one-third of the Starbucks transactions in North America are paid using a Starbucks card.

Starbucks gift cards encourage repeat use. When downloading the ‘My Starbucks Reward Programme’ app, users can receive many loyalty features, including points, customised offers, birthday rewards and so on.

But most importantly, loyal customers can purchase and send gift cards through the digital app to their friends. This increases gift card spending dramatically.

What can we learn from Starbucks gift cards?

One of the best decisions you can make for your business is to consider new revenue streams that coincide perfectly with your product and services.

Using gift cards is the perfect way to boost your revenue without much additional effort. You work the gift cards around your business.

Starbucks and many more businesses like it are showcasing the way for the prosperity of gift cards.

To get started on your gift card journey, take a look at what we do!

+44 (0) 1633 509 878[email protected]
+1 888-979-7818[email protected]
Privacy policy