Starbucks will likely make over $500 million on pumpkin-spice lattes this season. Is that enough?

By Charles Passy

Analysts say while the drink is a reliable seasonal moneymaker, the coffee chain needs to address other issues, such as wait times for orders

As popular as the pumpkin-spice latte might be, can it play a significant part in righting the ship at the financially challenged coffee chain Starbucks?

That's a question some might be asking in light of recent developments.

The popular fall-themed beverage has returned - for its 21st year - to the chain's menu as of Thursday. But more important: Starbucks (SBUX) has a new CEO, Brian Niccol, coming aboard from Chipotle (CMG) starting Sept. 9, an announcement that's been greeted as a hugely positive, and surprising, move by Wall Street following the chain's weak performance of late.

There's no doubt that the pumpkin-spice latte - or PSL, as it's known among fans - generates significant revenue for Starbucks. John Zolidis, president of Quo Vadis Capital, a financial-research firm, told MarketWatch that he estimates sales of the drink likely fall between $400 million and $800 million a year, with $500 million being a "decent" estimate. The company's overall annual revenue: $36 billion.

For its part, Starbucks doesn't share sales figures for individual drinks, but a company spokesperson said Starbucks has sold hundreds of millions of PSLs since the product's launch.

The PSL is, in fact, the company's "most popular seasonal beverage of all time," the spokesperson said.

Indeed, analysts and other experts agree that the PSL is a reliable moneymaker at this point. But they also say it's hard to see it becoming a much bigger seller or improving the company's situation in any dramatic way going forward.

As these industry watchers have noted for some time, the company needs to focus on other matters to improve its financial performance.

"There are deeper underlying issues they need to fix," said Brian P. Yarbrough, an analyst with Edward Jones.

Among the issues often cited are making the stores quicker and more efficient at preparing drinks - wait times have been an issue of late because of the complexity of some orders - and wooing customers who are not once-a-day Starbucks loyalists but who can be enticed to visit more frequently with the right mix of products and offers.

Also critical: boosting Starbucks' image with the public.

"We expect Mr. Niccol to help Starbucks better identify its brand identity and better utilize marketing to create brand buzz," said TD Cowen analyst Andrew Cowen in mid-August.

From the archives (July 2024): Starbucks customers complain the once-cozy coffee chain just wants to get them out the door

Not that Starbucks doesn't put effort into calling attention to the PSL. This year, it brought the drink back earlier than ever, effectively extending the sales season for a sip that's theoretically intended to tie in with those crisp days of autumn. (Of course, Starbucks isn't alone in this regard: You'll find pumpkin-spice items now available beginning in July.)

'There are deeper underlying issues they need to fix.' Brian P. Yarbrough, Edward Jones

Starbucks has also made the PSL part of a larger fall lineup of drinks and food items, and it continues to tweak that menu each year. This season, it has introduced an iced-apple-crisp nondairy cream chai to the lineup.

Given that Niccol is coming aboard well into PSL season, industry watchers don't expect he'll really be in a position to do much more to move the needle for the fall menu. That doesn't mean the company won't make changes in 2025 or beyond.

Steve Zagor, a New York-based hospitality consultant who teaches at Columbia University's business school, said one way to rethink the drink might be to add health-oriented ingredients to it and tap in to the growing interest in functional foods and beverages.

And while Zagor doesn't doubt that there will always be those who seek out the traditional PSL this time of year, he warns the beverage may not be as popular in the future. That's because coffee drinkers are apt to seek out new, bolder tastes these days.

In other words, the PSL may be a bit long in the tooth. "We're leaning into more spicy flavors and uniquely interesting drinks," Zagor said.

-Charles Passy

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08-26-24 1047ET

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