Blank Street Coffee relied on low costs to grow — now it's betting on subscriptions

The exterior of a Blank Street Coffee location.

Source: Blank Street Coffee

Blank Street Coffee’s shops have taken over New York City as they lure in customers with cheap lattes and cold brew.

Now the upstart chain aims to attract even more consumers who want to slash their coffee budgets through a subscription program.

The Blank Street Regulars program, which opened to the public this summer, has drawn roughly 5,000 paying members — and another 4,000 are on the waiting list to join.

For more than a decade, startups have turned to subscription models to generate guaranteed revenue, which can make their businesses more attractive to investors and juice their valuations. More established companies have also turned to monthly subscriptions as they try to draw regular customers looking for a deal. For example, members of Panera Bread’s Unlimited Sip Club pay $11.99 per month for “free” coffee, tea, caffeinated lemonades and fountain sodas every two hours.

Since its launch three and a half years ago as a coffee cart in Williamsburg, Brooklyn, Blank Street has grown to 74 locations across New York City, London, Boston and Washington. The typical Blank Street location is small, with limited seating and a semi-automated Eversys espresso machine to make drinks.

The startup has raised roughly $100 million, with backing from the likes of General Catalyst, Tiger Global and a co-founder of Warby Parker, according to PitchBook.

As of March, the company was valued at $177 million, down from its prior valuation of $218 million roughly a year earlier, according to PitchBook. Many startups have seen their valuations decline as the Federal Reserve raised interest rates and economists worried about a recession.

The chain has its critics. Blank Street’s rapid growth — and venture funding — have drawn grumbling and skepticism from some coffee drinkers. However, its prices have helped attract customers, especially as the cost of coffee beans soared in 2021 and $8 lattes became more common.

In New York City, ordering an oat milk latte today will set a Blank Street customer back $5 — below the $5.45 charged by Dunkin’ or the $6.15 by Starbucks for comparable sizes. The chain’s lower overhead costs, such as the smaller square footage and fewer employees needed to make cappuccinos, help it charge cheaper prices for its coffee.

But Blank Street Regulars, as the chain calls its subscription members, can save even more money on their coffee. Members pay either $8.99 or $17.99 a week.

The cheaper plan covers basic drinks, such as teas, hot brewed coffee, Americanos and double espressos, while the more expensive option allows members to buy a wider range of beverages, including cold brew. To curb losses and avoid the fate of MoviePass, a movie theater subscription service that offered unlimited tickets before declaring bankruptcy, Blank Street caps the total number of drinks per week at 14, and customers have to wait at least two hours to buy another drink.

Blank Street co-founder Vinay Menda estimates that about 30% to 40% of its customer base will eventually become members.

“I don’t ever think it’s going to be the majority of customers,” he told CNBC.

For now, Blank Street has capped the number of Regulars to ensure that its coffee shops and baristas don’t get overwhelmed by demand.

“The more we can build capacity and build our stores out, the more we want to keep unlocking access for more people,” Blank Street’s Chief Product Officer Dan Hill said.

The chain is working to improve capacity at its locations so it can accommodate those on the waitlist eventually. Those improvements include installing a second or third espresso machine so baristas can make more drinks quickly.

Blank Street also recently launched Regulars across the pond in its London locations. For £12, or roughly $15, customers can buy any drink on their menu, with similar limitations to its U.S. program.

The program already has a couple hundred members, according to Hill. In the U.K., Blank Street faces stiffer competition from Pret A Manger, the ubiquitous sandwich shop with its own coffee subscription program. But Menda said he thinks Blank Street’s version will win over customers who care more about coffee.

Blank Street pursued a subscription program over a traditional loyalty program because its customers wanted an easy, fast way to benefit from visiting its coffee shops regularly, according to Hill. The chain’s relative youth gave it flexibility in designing the program.

Hill said Blank Street is already thinking of ways to expand the program, such as adding family and group plans.

“We don’t have to deal with the way a loyalty program that was designed 10 years ago and now has millions of members who are accustomed to the way things were,” Hill said.

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This article was originally published by Cnbc.com. Read the original article here.

Blank Street Coffee relied on low costs to grow — now it’s betting on subscriptions

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