If Starbucks has an iconic drink, it’s probably the Frappuccino. The sweet, icy coffee confection accounts for 11 cents of every dollar in revenue Starbucks makes. But over the past year that margin has started to melt, with Frappuccino are down 3% so far this year.
Starbucks isn’t sure why its Frappuccino sales have cooled, but it may have to do with Americans turning away from sugary beverages. Soda sales have declined in the U.S. for more than a dozen years amid warnings about obesity and trends, like fitness apps, that promote healthy consumption. A tall Caramel Frappuccino has 300 calories. The venti version has a whopping 510 calories.
“These are oftentimes more indulgent beverages—higher in sugar, higher in calories,” Starbucks CEO Kevin Johnson said during a presentation to investors Tuesday. In 2017, Frappuccino sales rose 4% annually in 2017 and by 17% in 2014.
Johnson’s comments prompted a wave of downgrades from analysts at Morgan Stanley and several other Wall Street investment houses. Starbucks’ stock dropped 3% Wednesday, bringing its share price down 12% so far this year. The S&P 500, by contrast, is up nearly 3%.
To counter the declining Frappuccino sales, Starbucks is tweaking the drink’s promotions. In past years, the coffee chain offered an annual, ten-day-long promotion it called Frappuccino Happy Hour. Now Starbucks is making those Happy Hour promotions not only more frequent, but more targeted to the 15 million consumers who have signed up for its rewards promotions.
For instance, Starbucks is following this bad Frappuccino news with a one-day promotion in celebration of the summer solstice. All grande Frappuccinos are 50% off Thursday—but only if Starbucks emails you a code. (Details can be found here.) And that’s just the start, the company says.
“Last year, Happy Hour was a ten-day, one-and-done stunt. What ended up happening is you gave the discount away to everybody,” Matthew Ryan, Starbuck’s chief marketing officer told investors recently.
Now, rather than offering discounts to everyone, Starbucks is using it to sign people up to its rewards program. “We will be able to use this very well-known device we have called Happy Hour to promote a variety of afternoon products across the year,” Ryan said.
So maybe your fitness app may nag you if you consume the hundreds of calories inside an icy Frappucino. But Starbucks wants to counter that with its own prodding—why not indulge during a flash promotion?
