It’s only the last week of August and Starbucks is already in full marketing mode with the early launch of its popular menu of Pumpkin Spice Lattes items (apparently the cool folks just call them PSLs so
that’s what I will use in this blog).
Think about this: In 2024, people on vacation at the beach can Uber Eats their PSL drinks directly to their portable cabana. Who would have thought it?
The PSLs are a significant part of the Starbucks seasonal line up and given the recent organizational and Wall Street turmoil surrounding the surprise exit of the CEO after less than 2 years, the company is counting on big-time revenues in an attempt to turn around its sagging stock price performance. While Starbucks doesn’t publicly release individual product sales data, there are many analyst reports out there that indicate the PSL portfolio will account for up to $2 billion of the overall $36 billion of top-line revenue.There are some very interesting Business Acumen lessons and dynamics in this case study. A company has a very popular seasonal product and leadership is looking to it as a “savior” to address a lot of their business issues and challenges. Is that possible? Is it realistic?
In Advantexe’s simulation-centric business simulations, we often present learners with similar situations and challenges for them to think about and work through to build their business acumen. I recently conducted a business acumen simulation workshop for a beverage company and can use that experience to share some ideas.
Here are three business acumen lessons from the Starbucks situation for your consideration:
Be Careful of Market Saturation
Starbucks isn’t the only retail coffee chain announcing the launch of their version of the Pumpkin Spice Latte and many other local shops will be following along. That is a lot of saturation and a lot of competition. What if they get off to a poor start? Does that discourage the team? Do they have to do something like lower the price which would cut into margins? Do they need to advertise more?
Starbucks must be careful about overstimulating its markets. With numerous locations, Starbucks sometimes competes with itself, cannibalizing sales at nearby locations which is fine for this year’s revenue, but what about next year when Wall Street expects growth? At some point, they will run out of expansion opportunities. Or maybe they will just start selling the PSLs on July 4th!
Operational Excellence is a Big Issue
One of the biggest challenges Starbucks faces right now is long wait lines. Customers are fed up and these additional fancy customized Pumpkin Spice Lattes are not going to make those wait times go down! Custom products is a strategy and this may be the wrong strategy when they need scalability. Remember, in retail, when customers become frustrated, they may not come back or worse yet, go to a competitor.
Another increasingly concerning issue is staff talent. The number of mistakes employees have been making is increasing and again, customers are becoming more vocal and more frustrated leading to even more loss of repeat customers.
Supply Chain and Commodity Price Volatility
Starbucks relies heavily on coffee beans, pumpkin spices, and other commodities that are subject to fluctuations in price and availability. More competition and earlier releases of products are only going to put more pressure on the system.
These fluctuations can be caused by various factors such as weather conditions, political instability in producing countries, and changes in trade policies. Managing these risks requires sophisticated forecasting and strategic stock management, which can be complex and costly.
In addition to all that, continued inflation is pushing the price to consumers even higher, and at some point, a $9 Pumpkin Spiced Latte is just going to be too expensive.
In summary, while seasonal products may give revenues a big boost, and could be the catalyst to fixing what ails you, there are other significant business acumen challenges that must be addressed proactively with an eye on both the short-term and long term. Only when done correctly with the stock price go back up.
