Starbucks looks to boost margins through changes to its rewards program
Scott Olson

Bank of America thinks recent changes by Starbucks Corporation (NASDAQ:SBUX) with its rewards program structure could be significant on the margin line.
Analyst Sara Senatore said the new structure in 2023 broadly lowers starsâ redemption value with the minimum tier for a standalone menu item increased up to 100 stars from 50, Handcrafted beverages require 200 stars instead of 150 prior and lunch items are in a new 300-star tier after being at 200-tier level.
Interestingly, SBUX made some exceptions that could end up being margin drivers as well. The redemption rate for iced brewed coffee or tea was decreased to 100 Stars from 150. "At 70%-80% of mix, cold beverages dominate U.S. beverage sales - suggesting an offset to the higher redemption rates elsewhere â and, importantly, are more likely to be upsized and customized, generating higher tickets and higher margins," noted Senatore.
Also of note, cold coffees and teas are more customized than hot versions and require less production time than hand-crafted beverages at a time when Starbucks is working to serve unmet demand. High ticket, low effort items like reusable to-go cups and packaged coffee also require fewer stars under the new tier structure, which could also help boost throughput.
Adding it all up, Senatore and team think that the power of Starbucks Rewards will help insulate the coffee giant during an economic downturn.
Bank of America has a Buy rating on Starbucks (SBUX) and price objective of $125.
Shares of SBUX fell 0.61% premarket to $104.36.
Starbucks (SBUX) is due to report earnings on February 2. See the consensus estimates and track record of earnings beats and misses.