Skip to main content

Starbucks Gift Cards: A Christmas Present for Its Bottom Line

Coffee-bar giant Starbucks sells billions of dollars of gift cards.

Getting someone a Starbucks (SBUX) - Get Starbucks Corporation Report gift card counts as a thoughtful holiday gift, even though it's a sort of lazy choice. 

Even people who don't drink coffee might buy a cookie, a pastry, or maybe a coffee-free creme frappuccino. It's not overly thoughtful or creative, but it's easy, most people will be at least mildly happy to get the gift, and, well, buying a Starbucks gift card meets your holiday obligation for people you have to buy gifts for, but aren't willing to put much effort into shopping for.

Starbucks has ridden that ubiquity into a huge business that peaks right before Christmas. The company, of course, has a positive spin on being one of the season's gifts of convenience.

As customers finalize their holiday shopping, Starbucks anticipates the busiest day for purchases of Starbucks Cards on December 23, citing the perennial popularity of gift cards as one of the most popular gifts during the holiday season. Last year, more than 46 million Starbucks Cards, which includes both physical and digital cards, were purchased in the U.S. and Canada during the holiday season. Starbucks projects that nearly $3 billion will be loaded onto Starbucks Cards from October to December this year.

A gift card to the coffee chain may be a bit of a lazy present, but it checks off all the boxes. And in a year of supply-chain and inventory problems, Starbucks gift cards likely will continue to be popular. That's good for the cafe brand in more ways than one.

Gift Cards Drive Sales

Companies, Starbucks included, love gift cards because they drive traffic to stores. 

You may not be a frequent coffee drinker or even a regular visitor to one of the Seattle chain's stores, but when you have a gift card there's a decent chance you're going to use it. 

And once you choose to visit a Starbucks, there's a decent chance you will spend more money than you have been gifted.

In fact, survey data show that unused balances on gift cards were consistent over the five-year period between 2013 and 2018. 

Scroll to Continue

TheStreet Recommends

"First Data's 2018 Prepaid Consumer Insights Study found that the average consumer is spending $59 more than the original value of their gift card, marking an increase from $21 a year ago," Pymnts.com reported

Starbucks customers aren't like to overspend by that much, but they are likely to either spend more than the face values of their cards or neglect to use the full balances.

Consumers Give Starbucks a Loan and Free Money

When a consumer buys a gift card, it's essentially giving a company an interest-free loan. Starbucks gets $3 billion in extra cash that it can use to generate revenue while it waits for consumers to redeem their gift cards. 

The free-loan part certainly helps the company's bottom line, but people not spending the full values on their cards literally provides Starbucks with free money.

"Customers buy the cards, providing Starbucks with cash, and they are recorded as revenue once they are redeemed," Restaurant Business reported. "The company recognized $130.3 million in 'breakage' revenue, or funds from cards that don’t get redeemed, in its most recent [2020] fiscal year ended Sept. 27."

Starbucks isn't unique when it comes to customers leaving balances on gift cards or forgetting to redeem them at all. More than half of Americans (51%) have left value on a gift, according to a Bankrate survey.

For Starbucks, gift cards are a sort of win, win, win, win situation. First, if a customer buys a gift card in person, they likely also purchase a drink and/or something to eat. The second win comes in the fact that the company then gets to hold the money until the card gets redeemed.

The third win occurs when the gift recipient actually uses the card since there's a pretty strong chance they'll spend more than its value. And, of course, the final win opportunity happens if the customer uses only part of the gift card balance, then forgets about the card, enabling Starbucks to (eventually) book that balance as revenue.

Starbucks closed fiscal 2021 with just under $1.6 billion in unclaimed gift cards on its books. That's an increase from $1.45 billion at the close of fiscal 2020.