Americans love their coffee!
According to a Sept. 10, 2013, Beverage Industry article, "83% of the U.S. adult population now drinks coffee" representing a "five-point uptick compared with last year." A fast pace of life and the desire to connect with other people in coffeehouses serve as catalysts for this recent increase. Three publicly traded businesses will benefit from this uptick, and here's why...
By the numbers
From 2008 to 2012, retail coffee sales grew "at an average annual rate of 5.6% to $27.9 billion" and the number of households with a single-cup coffeemaker grew from 3% to 10% since 2007, according to Beverage Industry.
As a result, major coffee sellers -- Dunkin' Brands (DNKN +0.00%), Green Mountain Coffee Roasters (GMCR +0.00%), and Starbucks (SBUX 2.05%) -- produced stellar sales growth and market returns over the past five years (see table below).
|
Company |
5-Year Sales Growth |
Total Return Since IPO |
S&P Total Return |
|---|---|---|---|
|
Dunkin' Brands |
17%* |
68% |
36% |
|
Green Mountain Coffee Roasters |
646% |
894% |
107% |
|
Starbucks |
41% |
638% |
107% |
Source: YCharts as of Oct. 10, 2013. *Sales growth since IPO, July 28, 2011.
Dunkin' Brands outpaced S&P 500 total returns by 32% since its IPO in 2011. Green Mountain Coffee Roasters and Starbucks percolated past S&P 500 total returns by 787% and 531%, respectively. Green Mountain Coffee Roasters' sales growth of 646% since 2008 might be attributed to its 2006 acquisition of Keurig and the related K-Cup craze. More on this later.
Why so popular?
On the retail side, coffee no longer represents the single stale black beverage that you drink before putting in a hard day's work at the factory. One of the reasons for coffee's popularity lies in its availability and increasing variety. For example, Starbucks lists over 62 different coffees on its website. In addition, coffee now represents an expression of style and a conversation piece in the office. People discuss the latest coffee or espresso blend made by Starbucks or Dunkin' Donuts. Finally, coffee and espresso provide many people the necessary jolt to get them through the day. Starbucks and Dunkin' Donuts sell ready-to-drink espressos and iced coffee for people to buy at midday when energy runs low. Coffee and espresso are socially acceptable for any time of the day in the U.S., allowing for greater market opportunity.
Capitalizing on coffee popularity
As for the single-cup Keurig brewers, Green Mountain Coffee Roasters has been partnering with other beverage and food sellers as a way to procure market staying power and to ensure that people only use their machines for branded beverages. Over 78% of Green Mountain Coffee's revenue comes from single-serve packs as of the most recent quarter. Dunkin' Brands sells K-Cups in a 14-count carton. Starbucks also sells a variety of products in a K-Cup form. Green Mountain Coffee Roasters also partners with a plethora of lesser-known companies to ensure that customers use the K-Cup made for its brewers and cementing free cash flow for its shareholders.
Foolish takeaway
Consumers can purchase Starbucks products in a variety of grocery store chains and convenience stores, allowing the company greater ability to capitalize on increases in coffee demand. Starbucks' innovative culture encourages new products such as the "Ethiopia Coffee" that will keep the consumer coming to grocery stores and restaurants. Dunkin' Brands keeps expanding at a healthy pace, increasing ubiquity and purchasing power. In the early part of August, Dunkin' Brands announced plans to open 64 new franchised restaurants. Green Mountain Coffee Roasters' desire to partner with coffee manufacturers will propel its K-Cup sales higher. Green Mountain Coffee commands 60% of the single-serve market, meaning it still faces room for expansion. These companies are positioned to take advantage of any caffeine-fueled demand surge.
