Faced with inflation, some consumers have chosen to hold back discretionary purchases, but Starbucks drinkers have remained loyal.
Coffee sales at grocery stores performed well at the onset of the pandemic in 2020, spiking in mid-March. By September, Americans had reduced buying in supermarkets by 15%, according to a report from Reuters at the time.
In 2021, coffee outperformed other spaces in the dining sector for much of the year, but foot traffic halted in step with the omicron surge, the retail analysis company Placer reported.
Demand for Starbucks has remained steady, and consolidated net revenues were up 9% to a quarterly record $8.2 billion.
“This is a company that buys a lot of ingredients so they’re able to negotiate a very good deal,” said Bruce Clark, an associate professor of marketing at Northeastern University. “In fact, in a time of supply chain disruptions, they may actually have better access to supplies than some others.”
Interim CEO Howard Schultz said during a recent quarterly earnings call that despite inflation, “… we are not currently seeing any measurable reduction in customer spending…” attributing the company’s success to customer loyalty and engagement.
The coffee chain hasn’t been immune to growing costs and raised its prices about 5% within the past year, Schultz reported in the call.
Demand is likely to remain strong as the company prepares to launch a seasonal favorite.
The Pumpkin Spice Latte has become a cultural harbinger of the fall and a boon for Starbucks — one that’s likely to withstand penny-pinching brought on by inflation, Clark said.
“My sense is it may well be recession-proof,” Clark said. “… People are going to still buy them. I think the big question is whether people are going to buy them in the same amount and frequency that they might have done in the past.”
What some analysts reference as a “pumpkin-spice economy” generates between $350 and $500 million in annual sales, Clark said. That includes pumpkin-flavored coffee from Starbucks and other coffee shops, baked goods, alcoholic drinks, and pumpkin-spice-flavored chicken sausage.
The average cost of a Starbucks tall (small) latte in the U.S. is $2.75, according to an analysis by LendingTree company Value Penguin. Prices vary, though. At the world’s largest Starbucks in Chicago, a latte runs between $7.50 and $8.25.
“They are seeing some supply increases, but clearly not enough to break the bank,” Clark said. “For a latte, that’s an expensive drink, the dollar profit margin on a latte will be high.”
For some, lattes are an “affordable luxury” that people are willing to pay for, even during economic hardship.
“There is also evidence that sweets tend to do well in tough economic environments — candy, chocolate, things like that,” Clark said. “And there’s a lot of sugar in lattes so I think there are a lot of reasons to expect that the Pumpkin Spice Latte will hold up pretty well in the presence of inflation and economic uncertainty.”
“There are a lot of emotions and feelings tied up in Pumpkin Spiced Latte coming into the fall,” Clark said.
Not all favor the “PSL,” but the usual polarized takes on pro- versus anti-pumpkin-spice are likely to bring in business, Clark said.
“It’s a way of generating news,” he said. “It’s a way of bringing traffic into restaurants late in August, when restaurant traffic may be pretty low. People are still on vacation. (They) hope to bring more people to the store. (They) hope while they’re in the store, they’ll buy more stuff.”
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