Starbucks’ seasonal drink, Pumpkin Spice Latte, excites all cafe lovers. In 2023, we are celebrating the 20th anniversary of this unique coffee. As it turns out, it is not only beloved by customers, but also by shareholders. In the past, the coffee charm glossily referred to as “the taste of autumn” has been a signal for stock market surges. Now, it is needed more than ever.
Autumn means something different for everyone. However, there are many signals indicating its arrival: cold nights, tree crowns decorated like gold, increasingly longer nights, warm sweaters, and… Pumpkin Spice Latte – the essentials for many to officially announce autumn. Interestingly, this also has an impact on financial markets.
The Taste of Autumn That Brings Hope
It may sound surreal, but many investors (and surely Starbucks’ management) are hopeful for the last quarter of 2023, specifically because of the Pumpkin Spice Latte. Last year, this period attracted 25.7% more customers to this famous coffee chain than in previous periods. Even more, the first week of the Pumpkin Spice Latte season was the best in the company’s history. Many now crave for an encore.
Over the last decade, Starbucks has grown incredibly fast, which is also reflected in the company’s market capitalization. However, recent months show a clear downtrend. The company’s current share price is 25% lower than at its peak last year. The negative sentiment from recent months, however, has its reasons.
Will Pumpkin Spice Latte Sweeten the Chinese Tears?
There is no more famous coffee brand than Starbucks. With over 37,000 stores worldwide that consume up to 3% of total global coffee sales, the company is facing major problems recently, both in terms of image and difficult macroeconomic environment.
In terms of its image, the brand experienced problems with allegations of racism, widely discussed in the media. Moreover, trade unions loudly demanded better working conditions, including wage increases, which negatively affect business margins.
The main concerns, however, boil down to the situation in the Chinese market. This region significantly influences Starbucks’ sales (which recently reached record levels). China is the biggest market outside of the USA in terms of revenue. Just when it seemed like the situation was improving post-COVID-19, worrying data about the state of the Chinese economy came out. Adverse macroeconomic data could lead to consumers there drastically cutting their spending, and in such cases, the catering industry is one of the hardest hit. Additionally, there’s a risk that China may just be the tip of the iceberg, and consumer demand worldwide could start plummeting sharply.
Hope in More Than Just an Autumnal Trend
While a demand for Pumpkin Spice Latte might signal increases, a business cannot rely only on this. However, there are strong indications that Starbucks will make the most of its strengths. The trend for typical cafes is fading – 75% of drinks sold are cold ones. Moreover, automated sales, including self-service machines and mobile apps, are becoming increasingly important.
Therefore, Starbucks’ new business strategy focuses more on developing this particular channel. The company plans to focus especially on technological solutions that can shorten waiting times because the crowds can deter customers racing against time. The company plans to have this new distribution system available in 40% of its outlets already by 2026.
The introduction of this solution will accelerate the opening of new outlets. These won’t require as many staff members or such large premises. The chain plans to exceed 55,000 outlets by 2030. Simultaneously, it also aims to grow its loyal customer base to over 75 million “coffee lovers”. All this gives us a promising outlook of Starbucks’ future despite the current unfavorable macroeconomic environment.
Author: Joaquin Robles, XTB Analyst.
