The Coffee Stock Showdown: SBUX vs. BROS vs. MCD

Stock Market

In the past, adding coffee to the menu was an easy way to juice sales. A few years ago amid lagging doughnut sales, Krispy Kreme (NASDAQ:DNUT) thought by pushing coffee with its glazed confections could have the beverage grow to 10% of sales.

According to the National Coffee Association, 67% of Americans drink at least one cup of coffee in the past day and 75% in the past week. The biggest growth market is by consumers 25 years and older. Also, the 60-and-older crowd had the greatest jump, from 67% having a cup in the past day to 73%.

Yet inflation is taking its toll. Although coffee prices are down 18% from the recent highs hit in March, they remain 7% above where they were a year ago. They are triple the price at which they traded five years ago. This weighs heavily on all the major coffee chains.

Customer store visits recovered to above pre-pandemic levels. But according to location intelligence data specialist Placer.ai, all the outlets mentioned inflation, commodity costs or pricing actions they had to take to compensate.

Coffee remains one the most popular U.S. beverages with consumption at a 20-year high. Let’s dive into the three most popular, publicly traded coffee stocks you can buy today.

Starbucks (SBUX)

the Starbucks (SBUX) logo on a sign outside of a coffee shop

Source: Grand Warszawski / Shutterstock.com

Starbucks (NASDAQ:SBUX) is synonymous with coffee. The restaurant has millions of ardent and loyal fans flocking to its stores. Yet, it has run into trouble with the casual consumer, the customer who only occasionally visits a Starbucks store.

As inflation ravages the consumer’s wallet, the casual customer has cut back on discretionary spending. That often means reducing the number of Starbucks visits.

“A deteriorating economic outlook has weighed on customer traffic,” Chief Executive Officer (CEO) Laxman Narasimhan said.

Comparable store visits were down 3% in the U.S. in the first quarter and were off 6% internationally. The number of transactions were down as well, 7% and 3%, respectively. At least in the U.S., the average ticket price was up 4%,. This is a reflection of increased pricing by Starbucks due to inflation and soaring coffee bean prices.

Starbucks stock was crushed in the meantime and remains 13% below where it stood before the Q1 report. It makes the coffee company attractively valued. SBUX stock trades at an historically low 20 times earnings and at a price-to-sales ratio it hasn’t seen in the last 10 years.

Dutch Bros (BROS)

A Dutch Bros coffee shop representing BROS Stock.

Source: Alexander Oganezov / Shutterstock.com

Higher input costs have also worn down drive-thru coffee chain Dutch Bros (NASDAQ:BROS). While coffee bean prices are down since the beginning of the year, the company doesn’t expect pricing to change much for the remaining 2024. Also, it’s keeping an eye on sugar and cocoa prices.

The latter, in particular, went stratospheric this year, soaring 300% above last year’s levels. They are still double the price today even as they’ve fallen 34% from last month. The volatility will wreak havoc with Dutch Bros’ top and bottom lines.

Placer.ai, though, notes the upstart coffee chain has seen the greatest traffic increases amongst the various chains. Visits increased 177% in 2023 primarily as a result of the “exponential” increase in the number of new locations opening. 

Further, Dutch Bros adopted the “fortressing” strategy popularized by pizza chain Domino’s (NYSE:DPZ). The method calls for flooding a market with new stores to build mindshare amongst consumers while saving on marketing costs. Although the individual store economics may suffer from cannibalization, overall sales to the company rise.

First quarter sales surged 39% from last year, but importantly, comps were 10% higher. Dutch Bros stock is up 18% year-to-date (YTD), though shares trade at some pricey valuations. However, analysts see the coffee chain growing earnings by 28% annually, so it might just grow into that valuation.

McDonald’s (MCD)

McDonald's golden arches

Source: Vytautas Kielaitis / Shutterstock

The granddaddy of coffee chains is McDonald’s (NYSE:MCD). Although its burgers are the primary attraction, the McDonald’s breakfast menu is still a key component of the restaurant’s overall growth. Coffee is a prime reason the morning daypart represents a third of total sales. Additionally, McDonald’s has a 35% share of the breakfast market.

Indeed, Placer.ai says foot traffic to McDonald’s “remained consistently strong over the past year, with the chain generally outperforming the wider Quick-Service Restaurant (QSR) and posting positive visit growth almost every month.”

Moreover, McDonald’s launched a new chain called CosMc’s that is designed to compete against rival coffee and beverage chains. So far the results look promising as it gives McDonald’s an entry into the evening beverage business. According to the location intelligence data specialist, CosMc’s got 40.2% of late afternoon and evening visits, better than McDonald’s itself at 36.4%, but also Dunkin’ (24.7%) and Starbucks (18.3%).

With more CosMc’s planned to open across the country, McDonald’s could own some of the most important dayparts of the restaurant business.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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