Investing in Coffee Stocks

Not many consumer products are truly timeless, but coffee passes the test. According to legend, a goat herder in Ethiopia discovered coffee more than 1,000 years ago after noticing the effects that the coffee plant had on his herd. Today, about 1 billion people around the globe drink coffee daily, making it the most popular beverage in the world.

For investors, such a product is clearly appealing. Coffee has some addictive properties, but research has shown that it's generally good for your health when consumed in moderation. Additionally, the habitual nature of drinking coffee means that consumers aren't so sensitive to coffee prices. If you're looking to get a piece of a huge industry, keep reading to learn about six of the best coffee companies you can own today.

Best coffee stocks

Best coffee stocks in 2024

1. Starbucks

1. Starbucks

If you're looking for a pure-play coffee stock, Starbucks is your best bet. The company has come to dominate the global cafe industry by developing a brand that's synonymous with affordable luxury. It's defined itself as a third place between home and work where you can go to relax or meet up with a friend.

Today, Starbucks has about 40,000 locations around the world, more than double those of Dunkin', its closest competitor. Although Starbucks has long seemed ubiquitous, the cafe chain continues to grow. It's expanding in China, now its second-largest market, where it's adding around 500 stores a year.

Starbucks was among the first restaurant chains to recognize the potential of a mobile app. It was a pioneer in areas such as digital payments, a rewards program, and mobile order and pay, allowing customers to order remotely and then pick up their orders upon arrival.

In addition to its cafes, Starbucks has a thriving business selling bagged coffee, ready-to-drink beverages, and other such products in supermarkets and convenience stores. The company recently partnered with Nestle on the Global Coffee Alliance, tapping the global food conglomerate to produce many of its products and sell them in new territories.

Although Starbucks may seem like a mature company, it still has growth opportunities as it continues to open new stores and find ways to grow.

The business has struggled through 2024 due to new low-priced competition in China and complaints about slow service in the U.S., but investors are hopeful that new CEO Brian Niccol, who the company poached from Chipotle, can turn around the business.

In addition to opening new stores in China and elsewhere, the company is leveraging its potential in digital and delivery to make its existing store base more efficient. Starbucks has been a monster stock over the course of its history, but it might have to reinvent itself again to outperform the market going forward. 

2. Keurig Dr Pepper

2. Keurig Dr Pepper

The formation of Keurig Dr Pepper (KDP) was the result of a 2018 merger between Keurig Green Mountain and Dr Pepper Snapple. It was engineered by JAB, the private German holding company that's become a coffee juggernaut. The coffee companies that JAB owns outright or has significant stakes in include Keurig Dr Pepper, Krispy Kreme (DNUT 1.71%), Caribou Coffee, Peet's Coffee, and Panera.

Since it's a private company, investors can't own shares in JAB. But coffee investors should be aware of the company's influence on the industry since it's taken a number of coffee businesses private in recent years. It also led Krispy Kreme's initial public offering (IPO) in July 2021. At the end of 2023, JAB owned 21% of Keurig Dr Pepper.

As a diversified beverage company, KDP owns a wide variety of brands in coffee and soft drinks, including Snapple, Canada Dry, Green Mountain, Mott's, and its namesake brands -- but coffee is the star here. About 40 million U.S. households now have a Keurig brewing system.

U.S. Coffee, the business segment made up of Keurig brewers, K-Cup pods, and other coffee products, contributed $4.1 billion in revenue in 2023, or 28% of KDP's total. Another $1.8 billion in revenue came from the international segment, which the company doesn't break out by category. Additionally, U.S. Coffee is a high-margin business at $1.2 billion in operating income, or 38% of the company's total. The Keurig coffee business is still highly profitable, with an operating margin of 29% even as it's lost many of its earlier patents.

The Keurig system benefits from the razor-and-blades business model; consumers have to buy high-margin K-Cup pods if they want to continue to use their machines. The investment in Keurig also dissuades users from switching to a competitor.

As of mid-2024, Keurig's coffee sales had been on the decline for several quarters due to broader consumer weakness, and possible fatigue with the systems, although coffee brewer sales rose in the second quarter. Returning the coffee category to growth is a top priority for management.

3. Nestle

3. Nestle

Nestle, the world's biggest food business, is a diversified conglomerate with more than 2,000 brands across categories such as coffee, tea, bottled water, candy and sweets, soups, condiments, and pet food. Although a company this diversified can't be distilled into a single product, coffee is a major component of its business, and brands such as Nescafe, Nespresso, and Coffee Mate are known around the world.

Nestle's biggest category is powdered and liquid beverages, which contains the coffee brands Nescafe, Nespresso, and Starbucks. The segment delivered $29.1 billion of the company's $109.5 billion in revenue in 2023. Nespresso contributed $7.5 billion in revenue last year.

Overall, the powdered and liquid beverages category is highly profitable, with an underlying operating profit of 20.7%, making it the company's second-most profitable category behind milk products and ice cream.

It's important to distinguish coffee companies such as Nestle, a consumer staples company that sells its products in grocery and convenience stores, from Starbucks, which sells coffee as a discretionary item in restaurants. Nestle's global reach, marketing power, and expertise in bottled beverages make it an ideal partner for a company such as Starbucks. Selling bagged coffee and ready-to-drink beverages has been a key source of growth.

4. J.M. Smucker

4. J.M. Smucker

The brand name Smucker is synonymous with jams, jellies, and other spreads, but packaged coffee makes up a significant percentage of the company's business. Smucker's primary coffee brands are Folgers, Cafe Bustelo, and Dunkin', which it licenses from Dunkin', now a part of Inspire Brands.

For fiscal 2024, which ended April 30, 2024, the U.S. retail coffee segment made up 33% of Smucker's total sales, or $2.7 billion of its $8.2 billion in total revenue. It's now the company's biggest category after it sold several pet food brands, including Rachael Ray Nutrish and 9 Lives. The coffee segment's revenue fell modestly in fiscal 2024, down 1% in line with a broader trend in the industry.

However, as is the case for the other companies on this list, coffee is a high-margin business for Smucker, generating an operating profit margin of 39% in 2024. That makes coffee the company's most profitable segment both by margin and volume. In fiscal 2024, coffee made up 42% of its operating profits.

With a collection of well-known brands and leadership in the U.S., coffee should continue to drive strong profits for Smucker.

5. Dutch Bros

5. Dutch Bros

After its September 2021 IPO, drive-thru-focused coffee chain Dutch Bros may be the latest to grab the mantle of the "next Starbucks."  

The Oregon-based coffee slinger is growing quickly, and it's easy to see why it's attracted so much attention from investors. Employing a drive-thru model, Dutch Bros had almost 1,000 locations as of September 2024 and it's spreading across the country, now operating in 13 states.

In 2023, comparable sales rose by 3%, and it opened 159 new stores, driving revenue up 26%.

This rapid growth and white-space opportunity make a bull case for the stock as Dutch Bros sees room in the market for 4,000 locations. The company's drive-thru model helps differentiate it from coffee chains like Starbucks, and its high average unit volumes indicate strong demand. Dutch Bros finished 2023 with average sales of $1.97 million at its stores, which is better than most fast-food restaurants.

Dutch Bros is now profitable on a generally accepted accounting principles (GAAP) basis, and its profitability should improve as the company gains more brand awareness and expands. For a coffee stock, Dutch Bros is expensive, but the underlying business looks promising and the stock should reward investors if the company can reach its goal of opening 4,000 stores.

6. Black Rifle Coffee Company

6. Black Rifle Coffee Company

Black Rifle, which went public through a SPAC merger in February 2022, puts a unique spin on a commodity product by branding for a specific customer subset -- conservative Americans and veterans in particular. The company's mission is "to serve premium coffee and content to active military, veterans, first responders, and those who love America."

That distinct branding and its direct-to-consumer origins and marketing have helped the company quickly build brand awareness and sales. In 2023, revenue rose 31% to $395.6 million, seemingly helped by the stay-at-home nature of the pandemic and the company's e-commerce positioning. Through the first half of 2024, revenue growth has slowed to 7%.

Unlike the typical coffee company, Black Rifle also defines itself as a media company, and it's a lifestyle brand as much as a coffee brand. The company puts out a magazine and is active in political and cultural issues with its blog and on social media. With a brand that also functions as an identity, a key component of its strategy is selling branded merchandise like apparel and equipment that helps build awareness and gives its customers a way to signal their affinity for the brand.

Black Rifle has begun opening its own stores, which it calls "outposts," and had 18 locations at the end of 2023, though most of its revenue now comes through the wholesale channel since it also sells ready-to-drink and bagged coffee through retailers such as 7-11, Publix, and Walmart (WMT 0.77%). 

The company is also expanding beyond coffee with a new line of ready-to-drink Black Rifle Energy drinks.

While Black Rifle's business model is still evolving, its unique brand has a loyal following, which can be a valuable asset in a competitive industry such as coffee.

Related investing topics

Why you should own coffee stocks

Coffee is a high-margin business for the world's top consumer products companies. It's also a timeless product that's likely to gain popularity as people in China and other countries move into the middle class and consumers seek alternatives to sugary beverages like sodas.

Although coffee is a competitive industry, it offers opportunities in both consumer discretionary and consumer staples stocks. Different types of investors can find the right fit whether they're seeking growth stocks or dividend stocks. There may not be a lot of pure-play opportunities in the sector, but investors looking to perk up their portfolio should consider the six stocks above.