If you enjoy getting your caffeine fix daily, you probably have heated opinions about who makes the best cup of joe. Starbucks (SBUX 0.47%) has been the king of coffee shops for decades at this point, but newcomer Dutch Bros (BROS -1.04%) is gaining in popularity as it sweeps across the country. They're both beloved brands, but which one is the better stock pick today? Let's see how they stack up against each other.
High growth for Dutch Bros, but comps go to Starbucks
Starbucks operates more than 38,000 stores as of the end of the 2024 fiscal first quarter (ended Dec. 31). It's a coffee shop juggernaut with no equal anywhere in the world, and it's fast encroaching on McDonald's lead as the largest restaurant chain in the world (McDonald's has over 40,000 locations).
Dutch Bros, on the other hand, has only 831 stores as of the end of 2023, and in some ways this isn't even a contest. However, investing is all about the future, in which case Dutch Bros' small size could be an advantage, because it has the potential to grow that much bigger. In terms of revenue growth, there's no comparison.
SBUX Revenue (TTM) data by YCharts
As Dutch Bros opens new stores at a fast pace of more than 150 stores annually, it's adding high incremental growth to its low total of $913 million over the trailing 12 months versus $37 billion for Starbucks.
However, as compelling as that looks, it's not that simple. Starbucks has been reporting much better comparable sales growth than Dutch Bros in the most recent quarters despite its much bigger size.
| Company | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 |
|---|---|---|---|---|---|
| Starbucks | 5% | 11% | 10% | 8% | 5% |
| Dutch Bros | (0.6%) | (2%) | 3.8% |
4% |
N/A |
Data sources: Starbucks and Dutch Bros. Quarters shown are for the calendar year.
Starbucks' brand gives it a real edge, even though its high-growth phase is over. Dutch Bros may have tons of opportunity, but it can't compete with Starbucks' brand at this point. It's planning to open more than 3,000 stores over the next few years, while Starbucks sees the opportunity to expand by over 10,000 stores globally. Those won't add the same amount of growth in percentages, but they will add much more revenue.
Risk, growth, opportunity, and value
The case for Starbucks centers around this brand piece. Not only does it have the name, but it also has the scope and scale to get stores up and running quickly. It has years of experience and an existing network that it can leverage to expand profitably. It also has pricing power.
Because it's a global company, it's less susceptible to geographic problems. For instance, when China was under lockdown last year, its other regions performed well. In the most recent quarter, it was able to overcome geopolitical headwinds to report competitive growth and increasing profits.
The case for Dutch Bros is all about potential. It's very popular in its current markets, and it's reaching higher profitability as it expands, with a rising contribution margin and two consecutive quarters of positive net income.
Which stock is the better buy?
I think it's clear at this point that the answer to this question will largely depend on what kind of investor you are or what kind of stock you're looking to buy at the moment. Starbucks has a strong advantage in its unmatched brand value and scale, as well as a reliable expansion pipeline and profit picture. It also pays a growing dividend that yields 2.5% at the current price. It's an excellent value pick.
If you have an appetite for risk, Dutch Bros may offer the opportunity for higher growth. There are many reasons to be confident about its prospects, but there are still unknowns. The better buy is the one that suits your needs today.
