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Starbucks: It's Time To Go All Cash

|Includes: McDonald's Corporation (MCD), SBUX


50% off or Rip-off? Time to ask for receipts.

Dismal security for Gold Card Members puts product at risk.

Rising Starbucks prices despite falling coffee prices.

Hello fellow gold card members. We thought we were smart didn't we? We thought there was no down side to becoming an exclusive member. We were a select group, somehow better than the commoners paying with cash or some other form of credit.

Yup, that was me. Feeling like a bad ass every time I pulled up to the drive through in my '03 Atomic Orange Xterra. The one with 176,000 miles, an upgraded stereo head unit, new speakers all around, and dual subs. Sure, it's currently in the shop getting the A/C compressor replaced... but that's all water under the bridge man. I was a gold card member!

(Note to self: Remember, you must make this car last until your kid turns 16. Do NOT buy a new car until then. Only 4 more years. You can do this!)

Being a gold card member was great... well, at least up until the day I started to pay closer attention to my account. You see, I thought Starbucks and I could trust one another and that we had a mutually beneficial relationship. I'd just go in for the occasional drink and then they'd reward me with stars, free birthday drinks, and a whole host of emailed challenges, promotions, and perks.

But then it happened. On June 21st I pulled into my local Starbucks at exactly 3:00 pm to take advantage of this:

Though I prefer to be trusting (after all, this is Starbucks), little red flags were going off in my mind as the employee (apparently a new employee) kept referring to my cost as being $4.60... even after showing her the emailed coupon above. Suspecting I might not had been billed correctly, I asked "So, how much was I charged?". Upon realizing her mistake, she then went to get her manager. The manager then took my card again and swiped some adjustments. She then told me that the drink would be free due to the inconvenience it had caused me and thanked me for stopping by. A good day had just gotten better I thought to myself. But with no receipt showing a reversal of charges in hand, I wondered... did I really get it for free?

The following day I'd log into my account for the first time in many months to satisfy my curiosity. Nope! I didn't get the drink for free at all. In fact, I didn't even get it for half price. I paid the full amount... and for a drink I would have never purchased had it not been for the coupon they emailed me.

Naturally then, I began to review the rest of my purchase history and... WOW! Apparently the above issue would pale in comparison to what I'd uncover: Triple digit fraudulent charges over a two month time frame!

(Note: I've since requested that Starbucks send me a more detailed account history. Despite being a gold card member since 2013, only two months of history is available for viewing online.)

So, how strong is Starbucks fraud detection? You tell me. Notice anything particular about these purchases?:

Or, how about these three purchases:

In case you missed it, on both May 2nd and May 9th, nothing set off alarms at Starbucks when I apparently went on shopping spree's in California... even though I live in Texas. Worse still, Starbucks also found nothing usual about me making purchases both in Texas and California... on the same day! Additionally, during my five years of being a gold card member, I don't believe I'd ever made a single purchase greater than $20. Still, none of this would raise red flags with the Starbucks Security Team (SST). Business as usual?

Also note how on May 9th, the crooks appear to of been "testing" my card to insure it was going to work before making a bigger purchase. At 10:47 we get the $2.75 charge, perhaps a modest cup of coffee. Two minutes later they decide they'd also like to have the fancy espresso machine for $161.57. Where was SST? Asleep at the pastry bar? Does SST even exist?

So far, (remember, I can only see back as far as two months) I've uncovered $504.71 of fraudulent charges coming out of California.

So, what is my trust factor right now with the Starbucks Gold Card and SST? It's about 0%.

These revelations I just uncovered now has me questioning years worth of prior gold card purchases:

  • Did I really receive the 50% promotional price when they swiped my card?
  • Did I really receive a free drink after stating I wanted to redeem my stars? (After all, they are still swiping my card even for the "free" drinks).
  • What about the times they'd messed up my initial order and ended up swiping my card multiple times? You know the routine... once for the initial purchase, again to reverse it, and then again for the (supposed) correct amount. Did I still end up paying the wrong amount? Worse still, could they have charged me twice or even three times?

While this matter has not yet been resolved (and I'm thinking it might take awhile), I did get to spend 42 minutes with the Starbucks representative that answered my call after dialing the number on the back of my gold card.

Guess what I learned? Apparently all those stars the criminals were earning me with their huge purchases in California... well, they were being redeemed in Minnesota. Again, no alarm bells going off at SST.

While the representative was helpful, polite, and sympathetic... he also couldn't see into my account beyond those same 60 days I had access to. He'd have to forward all his notes to higher ups at SST for further investigation. I should be hearing back from them within 3-10 days or such.

So, this got me thinking... how many other people could be at risk to the same type of fraud I was victim of? According to the most recent Starbucks earnings call transcript from April 23, 2018...

We have over 75 million customers who come to Starbucks each month. This includes the nearly 15 million customers inside our Starbucks Rewards program

So there we have it: nearly 15,000,000 customers at risk.

However, if you wanted to be more conservative, you could whittle this number down further by excluding those who are always checking their Starbucks accounts after every purchase, or after every billing cycle. That was definitely not me. I was in the auto-reload camp... perhaps making me a member of Starbucks most trusting group of all. <Let me know what YOU think this group should be called.>

Now I'm going to go out on a limb here and predict something: I predict I'm not the lone Starbucks customer out of nearly 15 million that are currently being unknowingly defrauded by thieves who have tapped into the Starbucks Reward Program. Any of the most basic and elementary fraud detection systems should have caught the shenanigans going on with my account. So this has me wondering... At Starbucks, is probable fraud being over-looked so long as the customer doesn't complain about it and keeps paying their bill? It certainly appears that way.

I think Starbucks has an issue on their hands, potentially a big issue.

As I'm sure most are already aware, those who use cards in lieu of cash to make purchases spend more... as much as 83% more according to this 2018 report. What if more people start to feel as I do... that the Starbucks Reward Program actually carries more risk than reward? In all likelihood, some portion of them will go back to old school cash. And as research has shown, money is harder to spend when you see it leaving your hands.

Any other threats to the Starbucks bottom line?

In my opinion, people are starting to draw a line in the sand in regards to how much they are willing to spend for a cup of coffee (or coffee concoction). For me, that line is $5 and my go-to drink (more times than not) is the latte. For years I'd automatically order the "venti" (large) size without much thought. However, once these started costing me more than $5 each, I started downsizing to the "grande" (medium). Surprising myself, after a few weeks I was already used to the new smaller size. In fact, it has now gotten to the point where I feel like a spendthrift glutton anytime I go with a size larger than the medium. Nowadays, the largest size is exclusively reserved for my (supposedly) free drinks and long road trips.

At Starbucks, despite falling coffee prices, the corporate savings never seem to find their way back to the consumer. As a result, I'm always on the lookout for potential new ways to save money. More recently, that has been swapping out of my traditional latte in favor of a simple Pikes Peak with cream. Savings: 41%. Another thing I've done, with more limited success, it ditch the grande sized drink in favor of the "tall" (small) size. I've also experimented with the "M" word... McDonalds.

For me, I no have particular loyalty to Starbucks. I just want a good coffee at a reasonable price without a bunch of sugars. Truth be told, I'd say 25% of the time I purchase something there nowadays, I'm already regretting it after just a few sips. The convenience is there, but not the value... not even when I'm not being charged $250/month in fraudulent charges.

In closing, I'd urge anyone paying for their Starbucks by any method other than cash to go check their purchase history immediately... and then continue to monitor your account closely. As of right now, it appears that Starbucks is not taking account security seriously. Again, even the most rudimentary of fraud detection systems should have flagged my account multiple times. For a company as large as Starbucks, with a $67 billion market cap, this is simply inexcusable and outrageous. Good luck... and may all your purchases actually be yours.

PS. Check out my website: 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.