Starbucks doesn’t sells just coffee
Starbucks acquired the specialty tea retailer Teavana last year to participate in the $40 billion global tea market. This will give Starbucks a whole new line of customers from Teavana’s existing 300 stores and another 400 stores which it plans to open this year.
To upgrade its food offerings, Starbucks Corporation (NASDAQ:SBUX) acquired San Francisco’s beloved local bakery shop La Boulange Café and Bakery. With McDonald’s Corporation (NYSE:MCD) offering coffee with its fast food menu, it makes sense for Starbucks to offer more food products to retain its customers, and also bring in new customers. La Boulange is a successful brand, and with Starbucks’ network this partnership can work wonders for both the companies.
It acquired small, upscale juice-maker Evolution Fresh to tap the $3.4 billion cold-crafted juice market in the U.S., and if this clicks Starbucks might find another billion dollar business segment.
Dunkin’ Brands offers stiff competition to Starbucks
Dunkin Brands Group Inc (NASDAQ:DNKN) competes with Starbucks Corporation (NASDAQ:SBUX) with its line of stores that sell coffee (more cheapely than Starbucks) and donuts, along with other baked goods. The company has had a superb run since its IPO a couple of years back, and is up over 23% this year.
| Starbucks | Dunkin’ Brands (NASDAQ:DNKN) | |
|---|---|---|
| P/E | 33.14 | 44.95 |
| PEG 5 yrs | 1.62 | 1.80 |
| Debt/Equity | 10.32 | 532 |
| EV/EBITDA | 18.52 | 19.61 |
Over 66% of Dunkin Brands Group Inc (NASDAQ:DNKN) stores are located in America, of which 98% are located in North-Eastern and Eastern America, leaving plenty of room for the company to grow both in America and overseas. Maybe that’s the reason why Dunkin’ Brands has higher valuations.
Starbucks’ total number of stores worldwide has seen a 6.3% increase since 2008, whereas Dunkin Brands Group Inc (NASDAQ:DNKN) has increased its store count by 4%. In 2013 Dunkin’ Brands plans to open 700-800 new stores, while Starbucks Corporation (NASDAQ:SBUX) plans to open over 1300 stores. Starbucks opened 337 Teavana stores last quarter to hit a total of 590 new stores, showing that the company still has room for expansion in America through its tea offerings. From these numbers it looks like Starbucks is the one with the faster growth and cheaper valuations, making the perfect recipe for investment!
Apart from the growth factor, the high debt/equity ratio for Dunkin Brands Group Inc (NASDAQ:DNKN) is also a cause of worry as it weighs down heavily on the company’s earnings.
Where does the whole argument lead us to?
Starbucks Corporation (NASDAQ:SBUX)’ track record speaks for itself. The company has always been at the forefront of innovation and growth, and it still seems to be going strong with new acquisitions and steady expansion.
harsha lohia has no position in any stocks mentioned. The Motley Fool recommends McDonald’s and Starbucks. The Motley Fool owns shares of McDonald’s Corporation (NYSE:MCD) and Starbucks Corporation (NASDAQ:SBUX).
The article What Does Rhis Coffee Giant’s Future Hold for Long Term Investors? originally appeared on Fool.com.
harsha is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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