Pumpkin Spice Economics: Tariffs to Affect Pumpkin Spice Market
Ah, Autumn in Texas.
The leaves are changing, the temperature is staying the same, and scores of coffee customers are asking a familiar question when they get to the front of the line of their favorite coffee shop.
“Can I get a pumpkin-spice latte?”
The demand for pumpkin spice is by no means small; over $802 billion worth of pumpkin-spice-flavored products sold out in 2023 according to Nielsen IQ data. Pumpkin spice is larger than the economies of Taiwan, Belgium, and Argentina according to the International Monetary Fund’s World Economic Outlook. Since introducing pumpkin spice beverages in 2003, the world’s largest coffee chain, Starbucks, has increased its net revenue nine-fold, and the company’s last quarter with the products outdid the previous quarter by $300 million.
However, President Donald Trump’s tariffs could seriously influence the cost structure for the drink flavoring. In a letter to the U.S. Senate Finance Committee, The American Spice Trade Association said the tariffs, which took effect Aug. 1, will seriously affect the prices for pumpkin-spice spices that cannot be easily grown in the U.S. like cinnamon, cloves, and ginger, with some of them increasing import prices by up to 50%.
Additionally, although they expect the domestic spice processing industry to grow and pick up some of the $2 billion slack of foreign spices, spice-making giant McCormick and Company said the spice tariffs could drive costs of up to $90 million. The extra cost will likely be passed on to consumers according to the congressional testimony of Spice House CEO Allyson Lewis.
This price volatility could mark the end of global pumpkin-spice dominance at a time when a 2024 survey by Post Honey Bunches of Oats found a decline in consumers who view pumpkin spice as their primary fall flavor. According to Jadrian Wooten, an economist from Virginia Tech, pumpkin-spice demand is subject to precipitous diminishing marginal utility, which means the amount people are willing to pay for the product will diminish as the season goes on. That’s the reason why beverage companies switch between seasonal flavors frequently, the life cycle of a flavor is only about a month and half.
The next quarter will be critical for the industry. If the costs for these drinks increase, the time at which consumers stop purchasing the drinks might come earlier this year than in other years which is bad news for the earnings of beverage giants like the aforementioned Starbucks, whose Q1 earnings report is prime pumpkin-spice season. The company already announced at the end of September that they would have to close stores and layoff employees over the next quarter.
However, if beverage companies can weather the spice storm though, it would demonstrate a resistance to a more expensive supply chain that other industries could echo.
