Early Pumpkin Spice Lattes Sign of Trouble at Starbucks?

For many Americans, the month of September is something to look forward to every year with the return of cooler temperatures and, for millions of Starbucks’ (NASDAQ: SBUX) consumers, the return of the coffee retailer’s delicious Pumpkin Spice Latte.

Except this year, because Starbucks isn’t waiting for cooler temperatures to roll out its most popular seasonal drink.

For fall fans, and coffee connoisseurs, it’s the question of the year: When will Starbucks have Pumpkin Spice Lattes? By way of the Starbucks menu, August 28 must be the first day of autumn, because Pumpkin Spice Latte and Pumpkin Spice Frappuccino are available for the first time in 2018 today….

In the past, the coffee chain has offered the Pumpkin Spice Starbucks menu to select customers in advance of the public release date, and sometimes that sneak preview would come as early as August. But the norm is to pour Pumpkin Spice Lattes around early September, as it was in 2017.

When a retailer moves its sales of a seasonal item earlier and earlier into the year, it almost always is a sign that they don’t have any better ideas for growing their sales. Selling a popular seasonal item earlier can provide a year-over-year boost for their same-store sales statistics, but as the selling season grows ever-longer, year-after-year, the marketing strategy breaks down because consumers get burned out on the product because the retailer betrays one of the key things that makes the seasonal item special – its limited availability.

In the case of Starbucks however, we’re afraid that the early arrival of the PSL is coming at a time when the retailer’s U.S. sales and its stock price are struggling.

Which is why the company’s leaders would appear to be turning to what is its “top-selling seasonal drink of all time” as a means to improve their fortunes.

This is no mere giddiness for sweater season on Starbucks’ part. Spending on specialty drinks like the annual Pumpkin Spice Latte are one way Starbucks stock hopes to recover from an otherwise downward trends this year. In June, Starbucks executive chairman Howard Schultz announced he was retiring, after stepping down as the company’s chief executive in April 2017. Beyond that bombshell, June was also a chaotic month for Starbucks, with the chain announcing it would close 150 locations as it quietly raised coffee prices, the third increase in three years.

We’re afraid that count on the number of price increases at Starbucks is incorrect – 2018 marks the sixth price increase in the last four years at the company, where the current series of price rises began in July 2014 in response to high coffee and milk prices, then continued in July 2015, and again in July 2016, before breaking the annual pattern to raise prices again in November 2016, then again in September 2017, before waiting until June 2018 to raise them once more.

Speaking of coffee and milk prices, the two main ingredients other that water and spices that go into a Pumpkin Spice Latte, both have fallen considerably since 2014….

The combination of lower commodity prices for the company’s main product ingredients and higher prices however have only succeeded in sustaining Starbucks’ profit margins, where aside from some anomalous rogue quarters, Starbucks’ profit margin has consistently ranged between 11% and 14% since 2012.

Which is to say that other factors, such as rising labor and employee benefit costs, higher real estate costs, and the need to generate revenue to fund the company’s overseas expansion, particularly in China, are largely responsible for Starbucks’ current business predicament and flat profit performance.

So long as that continues, we can probably expect an earlier and earlier arrival time for Starbucks’ Pumpkin Spice Latte. Only time will tell if the PSL “season” will become as stretched as the one for Christmas, which once used to begin on the day after Thanksgiving, but which now may be measured to begin from some retailers begin putting up their annual Christmas displays right after the Fourth of July holiday….