Starbucks Corporation (SBUX), Dunkin Brands Group Inc (DNKN): How to Profit From the Coffee Glut

But don’t expect Starbucks Corporation (NASDAQ:SBUX) to discount your favorite Hazelnut Macchiato. Because of little direct competition, Starbucks isn’t likely to be reduce prices in its cafes. It would be difficult for the company to re-raise prices later if commodity costs rebound.

However, Starbucks Corporation (NASDAQ:SBUX) recently did lower the price of its bagged coffee by 10% to respond to price cuts from rivals.

In contrast, rival Dunkin Brands Group Inc (NASDAQ:DNKN) isn’t expected to benefit from falling commodity prices.

It’s a fundamentally different business model. Because most of the company’s U.S. locations are franchised and store owners are responsible for ingredient purchases, Dunkin Brands Group Inc (NASDAQ:DNKN) is insulated from volatile commodity prices.

However, if franchisees increase their marketing efforts in response to raw cost savings, that could translate into higher royalties for Dunkin Brands Group Inc (NASDAQ:DNKN) investors.

Foolish bottom line

So will coffee prices continue to fall? Not likely – according to a report in the Wall Street Journal, prices are approaching the cost of production in Brazil. Many farmers are converting crop lands to cattle pasture, nixing tree planting, and rationing fertilizer use. That could put a floor underneath coffee prices.

The article How to Profit From the Coffee Glut originally appeared on Fool.com.

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