Comment by pweezy | Hacker News Reader

Comment by pweezy | Hacker News Reader

I've always thought that the main reason for Starbucks to push their card and reward program is to save on per-transaction credit card fees.

By my understanding, in the US, typical merchant fees to accept a card are a flat $0.20-$0.30 transaction fee, plus 2-3% of the total dollar amount.

The article mentions the interchange fee (the 2-3%), but for small purchases the transaction fee is more significant.

I assume the majority of purchases are individuals buying a single beverage. If an average drink costs $4, a $0.30 transaction fee alone is eating 7.5% of your gross revenue. That's an absolutely huge amount.

Even if Starbucks cards are bought/topped up with a credit card, that $0.30 fee is being amortized over $20+ worth of product instead of $4 worth.

I also figured this tied in with Starbucks' contract with Square some years back - as one of Square's value props is eliminating the per-transaction fee for credit cards. Not sure why that was cancelled, though.

> By my understanding, in the US, typical merchant fees to accept a card are a flat $0.20-$0.30 transaction fee, plus 2-3% of the total dollar amount.

That's correct, generally. But those can always be negotiated. And Starbucks probably has the volume to have some negotiating power. I'd be surprised if they didn't have a lower rate.

What are they negotiating against though? Wouldn't the BATNA be to not accept credit cards which be suicide for a retail company?

Accepting some cards and not others? That could potentially move the market, at Starbucks' scale.

This is a great example of a HUGE competitive advantage Starbucks has over regular merchants that's very unfair. Smaller merchants don't get the scale advantages here...

Unfair because?

It's the "economies of scale" effect https://en.wikipedia.org/wiki/Economies_of_scale The big players always have an advantage.

Although, having tried Starbucks coffee, I have to say it's terrible!

Maybe it's the way it's made with an automatic machine and a disinterested barista, or perhaps the beans are over-roasted and mass produced in a factory. Just about any small coffee shop makes better espresso based coffee than them, especially in Sydney, Australia, where Starbucks continues to struggle to gain a foothold.

To be honest some of those smaller merchants can also make better coffee than Starbucks, and as such they can ask for slightly higher prices for said better coffee without their customers complaining.

No one goes to Starbucks for the high quality of their coffee. They go for convenience, maybe atmosphere (a safe comfortable place to hang for awhile), and such. But if you want great coffee, that is a trade off that doesn’t favor Starbucks (like a burger conesuire at McDonald’s).

>maybe atmosphere (a safe comfortable place to hang for awhile),

So I mean, coffee shops in general, yes. But at least in urban areas? Starbucks seems to be really well-designed to maximize throughput and profit; they have fewer seats, usually per cup of coffee sold than the smaller coffee places, and generally seem to be set up for 'to go'.

It's one of those things where if I look at it as an investor, I really like it, but if I look at it as a consumer, the opposite.

What urban areas? Seattle? No, downtown stores have seats, there are very few togo stores, heck the one near the library is pure plush seat forest (the one in Paris near the grand opera is like that also). You can’t operate togo stores at all in China, where your sales volume is strictly limited by the amount of seating you have (unlike the USA). Tokyo has the best seating I’ve ever seen in a Starbucks, maybe NYC?

It really depends on the market, I guess.

mm. in santa clara, redwood city, san francisco and Los Angeles, Starbucks usually have few places to sit (compared to local coffee shops) - and are usually way busier (compared to local coffee shops) and usually don't offer mugs; they just have to-go cups (or bring your own mug) - while most of the nicer local places give you a mug by default if you say it's 'for here'

I mean, sure, they aren't 'to go only' - but they are impractical places to meet or hang out compared to most smaller coffee shops, just because they seem to have a much worse (or, I guess as an investor, better) ratio of customers to seats; a lot of time there are more people in line for coffee than there are tables.

I'm not saying they don't have seating at all, just that they seem to be optimized in a thoughtful way to sell as much coffee as possible, making them superior (if you are an investor) but inferior if you want a place to meet up with other people or hang out, when compared to the locally run and less-optimized coffee shops.

Big players like Starbucks pay per transaction fees in the range of zero.

There's no getting out of paying 1-2% of interchange fees unless you're willing to exclusively accept debit cards.

Per transaction fees, as in 30c per tx.

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