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The Wall Street Journal recently reported (as we covered in our weekly coffee newsletter, Coffee News Club) that new Starbucks CEO Brian Niccol plans to scale back the chain’s drink discounts and promotions. Starbucks had increased the number of promotions in the last year under former CEO Laxman Narasimhan to drive traffic and increase profits.
But instead of driving sales, the promotions led to employee burnout, as understaffed stores received surges of traffic during promotional periods. Because of excess demand, guests would complain that drinks didn’t come out fast enough, and promotional periods became an annoyance for regulars.
But not all discounts are created equal. We spoke with a few coffee shops across the country to see how they approach discounting, and to learn what’s worked for them.
Stan’s Donuts has 30 Chicagoland locations and a robust loyalty program and app with different levels and reward redemptions, similar to Starbucks. “We believe that adding value and consistent rewards to our Stan’s Perks members helps brand loyalty and frequency,” says owner Rich Labriola. “We tend to choose days and products that will allow us to justify the discounts and not negatively impact the customer experience.”
The loyalty program, Stan’s Perks, gives users 10 points for every dollar spent. For 300 points you can get a free glazed donut or 12oz hot chocolate; for 2,050 points, you can get a half dozen assorted donuts or a bag of coffee beans.
“Beverage-focused promotions we have found to work best for us,” Labriola says. Beverages are made-to-order and have higher margins compared to donuts and other food items, and Stan’s always has new seasonal options—like a recently launched matcha and strawberry oat cream—to try. “It helps us from gambling on how many donuts to make and potentially running out too early,” he explains. “Additionally, during product launches, we have found success by running promotions to gain awareness and encourage trials.”
Spill the Beans has three locations in San Diego, and although the mini-chain has offered promotions in the past, it doesn’t rely on them as a primary tool to generate business. “In our experience, promotions have been used to encourage our customers to try a new product, to help cycle through a product that is being discontinued, and most importantly to simply show appreciation for them,” explains regional manager Connor Nerat.
For example, Spill the Beans has offered free house coffee to mothers on Mother’s Day and veterans on Veterans Day. “While the promotions themselves don’t tend to be a huge driver of business, we’ve found that showing our customers that we value them goes a long way,” Nerat adds.
By contrast, Elliott Lau, owner of Nice Coffee Roasters in Los Angeles, is generally not a fan of discounts. “I think discounts bring in business, but not the right kind,” he says. “They can give you a stimulus, but it’s not going to be long-term. You’ve got the guests that only come for the happy hour, but once you get your numbers in order […] you’ve lost that guest after the deal goes away. Instead of incentivizing ritual, you’re incentivizing the discount culture itself.”
However, similar to Nerat, Lau believes that an occasional discount can be a surprise and delight for regular customers, and a way to express gratitude. “I love a celebratory discount,” he says. “Be it a birthday, holiday, or event, that’s absolutely worth it. Let them be an ephemeral treat for your guests, but not something to be expected.”
Lau never runs discounts at Nice Coffee’s Downtown LA coffee bar, save for its Give It All Away Grand Opening in 2020. For its grand opening, the business gave away all drinks to help stress test its systems and act as an inexpensive marketing strategy.
Instead of running promotions, Nice Coffee sees more value in a targeted loyalty program that rewards regulars.
“Our loyalty program equates to a 10% discount per beverage, and on top of that we offer a $6 reward just for signing up,” Lau explains. “We don’t promote it because we want it to be a surprise as a way of showing our guests that we don’t take them for granted.”
