To understand just how hot the coffee market remains, Starbucks (NASDAQ:SBUX) is plowing ahead with audacious plans to dramatically expand the number of stores it's opening in China. Its 2,000th store just recently opened its doors, but it announced it was going to open another 500 more stores every year for the next three years. Considering the phrase "all the tea in China" references just how important that beverage is to the country's culture, it's easy to see the significance of Starbucks' decision to open coffee shops.
The drink of choice
More people globally may consume more tea than coffee, soda, and alcohol combined, but the International Coffee Organization says coffee consumption is expected to grow 25% over the next five years, while tea could struggle. Tea time in the U.K. is on the decline, with Brits consuming 22% less tea between 2010 and 2015 and consumption is expected to drop another 10% by 2020.
In the U.S., the coffee market is still on a slow boil, so much so that Starbucks also said it was cancelling plans to open Teavana-branded tea shops and convert those already in existence into Starbucks coffee restaurants.
A Gallup poll of U.S. coffee drinkers shows why coffee shops are the fastest growing restaurant segment today:
- 64% of U.S. adults drink at least one cup of coffee per day, but 11% drink four or more
- The average number of cups consumed daily is 2.7
- 66% of women and 62% of men drink coffee
- 74% of those age 55 and older consume coffee, while 66% of those 35 to 54 and half of 18- to 34-year olds do
- Only 10% of coffee drinkers want to cut back compared to 70% of smokers who want to quit
Make it to-go
While the advent of at-home coffee appliances from Keurig Green Mountain, Nestle, and even Starbucks has elevated the art and science of making a cup of joe in the kitchen, the urge to stop at a local coffee shop remains just as strong as it always has.
Yet for all of its ubiquity -- Starbucks operates over 7,500 stores in the U.S. alone -- it is not the most favored place for Americans to get their daily caffeine fix. According to YouGov's BrandIndex, Starbucks ranked fourth in a category of what it calls lighter fare and beverages.
The brand intelligence analysts take a daily pulse of consumer perceptions about a brand with its BrandIndex gauging a company's "buzz," asking whether consumers have heard about a brand, regardless from what source, and whether the perception they formed as a result is positive or negative. YouGov then generates ratings from 100 to -100.
Starbucks' "Buzz Ranking" in 2015 was 7.2, meaning it generated slightly more positive perceptions than negative ones.
The coffee brand America runs on
That puts it behind chains like Krispy Kreme Doughnuts (NYSE: KKD), which recently began expanding into Starbucks territory by placing more emphasis on its coffee. According to a BloombergBusiness report last month, the donut chain hopes coffee sales could comprise as much as 10% of its annual sales, which totaled $660 million last year. Krispy Kreme had a BrandIndex Buzz Ranking of 7.7.
So which coffee chain topped the list? Dunkin Donuts from Dunkin Brands (NASDAQ:DNKN), which also saw its Baskin-Robbins ice cream shops hit the list just behind Starbucks with a 5.5 buzz rating.
YouGov has said that while Starbucks has an "extremely good brand image," it is simply blown away by Dunkin Donuts, which managed to nab a 14.1 score in the annual rankings, although that hasn't translated into equally superb earnings of late.
Day old joe
Last quarter the donut and coffee shop disappointed investors by reporting revenues that grew only 9% on a 1.1% rise in comparable sales and said it forecast revenues and operating profits to only grow as much as 8% for the year, which was less than what was expected.
So Double-D is also planning on moving in on Starbucks turf by adding mobile ordering and payment options, as well as testing coffee delivery. Considering how popular Starbucks has made those options, the positive impressions Dunkin Donuts makes on consumers could make it a piping hot return for investors as well in 2016.