Regarding melted jaffas, part dos
The third place of American life
First, I want a third cup in large part because, like many others, I am a sucker for the ritualistic experience of what founder Howard Schultz has termed the "third place" of American life. It's a place without the stresses of the home or the office, a neutral ground where there are always "friends" behind the counter. In our largely impersonal, digital and ethereal world, returning to the homey confines of one's own Starbucks, staffed with people who care enough to remember something about us, provides a primal human connection.
If Starbucks were just selling water, or a blast of air, we would still want to start or take a break from our day there. It's the white-collar equivalent of the tavern next to the auto plant, where Frankie behind the counter hits us with a shot of Wild Turkey and a Bud draft on sight. A company that can create the illusion of compassion with high standards of hiring and staff training is starting off on the right foot at earning a high rate of return.
A ridiculous premium for heating milk
Second, the cost of this third cup is ridiculous. Yet, despite being a value buyer in virtually every other part of my life, I pay without complaint. How crazy is it? Well, if you break down the components it becomes clear that you are paying a vast premium for the heating of your milk -- but not the milk itself. The main ingredient is a double shot of espresso, and that costs $1.85. My Starbucks doesn't charge for a single pump of vanilla, so that's free. And at the sugar-and-napkins counter, you can pour all the milk into your cup that you like. So that's free, too.
The $1.37 premium is therefore just for the labor of steaming the milk, which takes about 20 seconds. If a barista can do three steamed milks in a minute and keep up that pace all day, then she's earning Starbucks around $246 an hour just by steaming milk. Discount that by a third, and the company is still getting $175 an hour for steaming my milk. And that goes a long way to explaining why the company's profit margins come in around 11.5% pretax.
We pay this enormous premium for milk heating in part because it creates a consistently high-quality drink. Also, a lust for status emblems is an obnoxious burden that we carry around in our collective cerebral cortex. One reason given for the compunction among women to paint their fingernails, for instance, is that it provides a non-verbal message to others that they don't do physical labor. It's the same reason that businesspeople shake hands upon meeting, showing each other, in a subliminal gesture, that neither bears the calluses of hard labor (or a weapon). Ladies with red nails and sword-free men with soft hands thus bear identification to others that they are members of the same tribal caste.
Since it's fairly obvious that all the people riding the elevator in a downtown skyscraper are not day laborers, it seems that we then unconsciously take another step by holding an expensive white cup in our hands as a status symbol. In addition to being an effective drug-delivery system for the electric buzz of caffeine, a cup of Starbucks beams out a little message that we are wealthy enough not to care about overspending for coffee.
Here's another reason why Starbucks has maintained its margin of success in the stock market with consistent margins and virtually no mass-media advertising: It never, ever discounts. Free samples? Yes. Half-off cappuccinos? No. Unlike McDonald's which focuses on increasing store traffic -- and, thus, transactional volume -- through heavy promotions like "dollar" menus and "value" meals, Starbucks never cuts prices. And after all, how could it? Its marketers understand that customers consider the green-emblemed cup an affordable luxury that has virtually no substitute in most cities. Discounting would imperil that key value.
Starbucks card means money is no problem
Third, we allow Starbucks the right to earn interest on the $10-to-$50 value of our smart cards to satisfy a need for convenience -- and to offer another symbol of caste. On one level, flashing a card instead of cash shows that you are a regular, that you're in the club. On another, it offers a way to exhibit a sense that coins and dollar bills are trifles. We don't readily see the cost of this behavior, but Starbucks collects millions of dollars on the float of the money it receives on the smart cards -- which, by the way, are also considered collectibles.
Now factor in the recent addition of Frappuccinos -- essentially, milkshakes -- to the menu, and you can see that the company has found a way to bring young people into the fold. With easy chairs, nice lighting and an addictive product that doesn't kill you, Starbucks has replaced 7/11s and pubs as gathering places for teens, 20-somethings and office workers -- a cultural hat trick that is unparalleled in restaurant history.
Personally, I would just like to comment that Frappuccinos are not milkshakes. They are generally made with coffee and, without coffee, generally taste terrible.