Starbucks recently announced their Gold Card for frequent buyers. The Starbucks Gold card costs $25.

Here are the main benefits of the Gold Card (with my comments):

• 10% off most purchases in participating U.S. Starbucks stores (the main benefit)
• A free drink when you purchase your membership in-store (one time savings)
• Option to pay however you’d like (cash, credit card, etc.) (as opposed to being forced to pay?)
• A free beverage on your birthday (birthdays ftw, one time savings)
• Exclusive offers and discounts throughout the year (umm, yeah, whatever)
• Free Wi-Fi access for up to 2 hours each day in participating Starbucks stores (good, but the free Starbucks stored value card gives you the same thing)

So the real benefit is the 10% discount. Simply put, you break even if you spend more than $250 a year at Starbucks (10% of $250 = $25). But let's put that into more familiar terms, in cups of coffee. I'm an engineer, I like to the math on things like this.

I considered two basic scenarios, someone that buys the simple cup of coffee and someone that buys the proverbial $4 Starbucks MochaFrappaLatteChino. I usually order a small cup of coffee, a 'tall drip' in Starbuckese, but many people enjoy a more elaborate drink at a higher price.

For the general case, let's consider how many cups you need to buy to break even on the investment, if you simply look at the 10% discount.

The price of a small cup of coffee is $1.60, a $4 Starbucks costs $4, and a Starbucks Gold Card costs $25. So you are looking at a 16¢ off a small coffee, and 40¢ off a $4 Starbucks. I assumed that there are 50 work weeks in the year.

Doing the math for the general case shows that to break even:

You need to buy ~156 small cups of coffee, that's just over 3 a week or 13 cups a month
You need to buy ~62 $4 Starbucks, that's just over 1 a week or 5 a month

If you consider the maximum case, meaning you take advantage of the free cup when you buy the card and a free cup on you birthday, you get a shorter break even point.

Doing the math for the maximum case shows that to break even:

You need to buy ~136 small cups of coffee, that's just under 3 a week or 11 cups a month
You need to buy ~42 $4 Starbucks, that's just under 1 a week or 4 a month

Looking at it another way, if you a a heavy drinker of $4 Starbucks, say two a week, you are buying 100 cups a year. On that scenario, the math pencils out to a savings of $15 over the year.

So the basic conclusion is that the Starbucks Gold card is probably best for people that drink $4 Starbucks once or more a week. Another way to look at is if you spend more that $5 a week a Starbucks, the card can save you a little money.

For people that just want a small cup of coffee, they are probably better off stopping at McDonalds. McDonalds sells their small cup of coffee for $1.40, less than the price of a discounted Starbucks Tall Drip. Besides, in a blind taste test, people prefer McDonalds coffee to Starbucks coffee.

Personally, I'm sticking with the Starbucks Stored Value card for ease of payment when at a Starbucks and will continue to drink McDonalds coffee when I have the option. BTW, the best cup of coffee I ever had was from Intelligentsia Coffee. It was fantastic. Alas, there is only one in Los Angeles, not very close to me.

Posted by michael at November 12, 2008 06:24 AM