Coffee prices have been increasing at a fast pace with almost doubling itself in the last one year. The increase is mainly due to the drought in Brazil, the world’s largest producer of coffee, which has resulted in shortage of supply. The most obvious effect of this increase will be on the coffee providers, such as Starbucks (NASDAQ:SBUX), Keurig Green Mountain (NASDAQ:GMCR) and Dunkin Brands (NASDAQ:DNKN). These players will have to increase their product prices since rising input costs will eat away into its margins and profits.
Performance in the Past
However, the demand for coffee has been rising too, as is evident from the performance of each of these players. The stock price performance of the three players in the last five years has been impressive, with Starbucks leading the pack.
- Warning! GuruFocus has detected 2 Warning Signs with SBUX. Click here to check it out.
- SBUX 15-Year Financial Data
- The intrinsic value of SBUX
- Peter Lynch Chart of SBUX
Starbucks has provided the highest return of 93.4% over the last five years whereas Dunkin Brands and Keurig Green Mountain stood at 59.2% and 45.4%, respectively.
Starbucks is one of the leading coffee chains and its efforts have been quite helpful in driving growth. In fact, its recent quarter was also a blockbuster one with a 9% surge in revenue and 6% growth in same store sales. Also, its bottom line increased by 17% to $0.56 per share over last year.
On the other hand, Dunkin Brands’ top line increased 6% only, helped by same store sales growth of 1.2%. Also, its earnings rose 14% over the prior year quarter. Therefore, Starbucks has been a better performer than Dunkin Brands.
Last One Year
However, if we consider stock price appreciation of the three companies in the last one year, the situation becomes different.
Starbucks’ share price has jumped 10.5% only, whereas Keurig Green Mountain has been able to outpace the other two players with a stock price increase of 48%. Dunkin Brands provided the lowest return of 7.1% over the same time period.
Keurig Green Mountain has been able to perform better than the others, especially in the last one year, mainly because of its K-cups and Keurig Single Cup Brewers which gained a lot of popularity. This has helped customers in making a single cup of coffee at home, enabling the retailer to boost its revenue.
Starbucks Still Looks Hot
Nonetheless, Starbucks still looks attractive because of its endless strategies to attract customers and keep them happy. For example, it has broadened its product portfolio by adding new items such as specialty tea and fresh juices. Also, it has started offering bakery items under “La Boulange” brand. Moreover, it has been expanding its footprint by adding new stores. In fact, it plans to open a total of 750 new stores during this year.
Additionally, the coffee retailer will enter the breakfast segment by introducing a host of breakfast items. This move looks pretty interesting since this segment has been growing well and demand is growing. Hence, it should attract more customers.
Starbucks has been the best performer among all the players. However, Keurig’s new product enabled it to outpace Starbucks in the last one year. But Starbucks’ large number of measures should help the coffee provider to overcome hurdles. Its expansionary measures and diversification of product portfolio should help in driving growth. Therefore, prudent investors should not look beyond Starbucks, if coffee industry is what you are looking for.