I swear, I'm going to bang my head into the wall if I hear one
more of my friends say, "I don't like
coffee because it tastes burnt, and I don't like paying five
bucks a cup." As a fellow coffee snob, I used to be guilty of
making the same complaints, but then Starbucks woke up and
smelled its own bitter-to-some-people coffee.
After 80 different tested recipes, Starbucks answered the
criticism a couple of years back with the cleverly named "Blonde
Roast" which is milder tasting yet just as caffeinated. Try it
and try denying how delicious it tastes. As a long time
brew devotee, Starbucks managed to win over my taste buds as well
as my wallet.
But what about the expensive price?
The reality is few of the coffee items on the menu really even
cost five bucks. The "regular" cup of Joe at Starbucks is around
two bucks. This is slightly higher than Dunkin' Donuts at $1.60,
but I have trouble believing those four extra dimes are really
the deal killer some people make it out to be. And the growth
numbers seem to suggest customers aren't balking at the price
Last quarter Starbucks reported global same-store sales gains
of 6% including 7% in the U.S. The company chalked up its 18th
quarter in a row of positive same-store sales greater than 5%.
Starbucks credited the success with its "best-in-class
mobile, social and digital technologies" as well as the power of
its innovation. The blonde roast catching on is of course only
part of the story and just an example of Starbucks figuring out
how to appeal to guests in innovative ways whether its product,
marketing, technology, or even just plain old-fashioned
Source: Dunkin' Donuts
blamin' everythin' under the sun (or lack of
Meanwhile, Dunkin' Donuts hasn't been nearly as fortunate, at
least lately. After a paltry 1.2% gain in same-store sales in the
U.S. for the first quarter, which the company blamed on the
concentration of restaurants in the winter-storm-hit northeast,
the second quarter wasn't much better. Same-store sales gained a
slightly better 1.8%.
At the time of the first quarter report, CEO Nigel Travis
explained the weather interrupted the "ritualistic nature" of its
customers when work and school got cancelled. It made sense at
the time. But then investors were naturally expecting a big
rebound for the second quarter that didn't come.
This time around executives blamed rain, cold, and
macroeconomic factors for its lackluster growth. Dunkin' Donuts,
as you probably know, sells more coffee than donuts. Given that
Dunkin' Donuts is struggling a bit while Starbucks is
flourishing, despite its slightly higher priced coffee,
apparently the price points at Starbucks coffee aren't much of a
problem. I don't think there were too many offices or schools
closed due to rain or cold this spring. The economy is to blame
too? Dunkin's coffee is cheaper but apparently that's not a
strong selling point.
Starbucks wonders what weather?
Interestingly, nowhere in the Starbucks release or the conference
call were there any complaints of bad weather or macroeconomic
headwinds. The closest Starbucks came to any of that was when CEO
Howard Schulz stated in the conference call (emphasis added):
"Particularly noteworthy is that our U.S. retail store
business delivered comp growth of 7%, ahead of our own
expectations and a stunning achievement on a base of over 6,800
stores against 9% comps in Q3 last year and in the
face of continuing challenging U.S. economic and consumer
It sounds to me like a bragging point; the bad economy is
showing no signs of hurting Starbucks as the 7% same-store sales
gain was on top of a challenging gain to beat of 9% in the
year-ago period. It's always possible that a company is rising
well above and beyond bad economic times and, if so, it's huge
props either way for Starbucks and shame on Dunkin' Donuts.
Opportunity is apparently possible and Starbucks continues to
seize it while Dunkin' treads water.
This leads me to conclude either something is going on with
Dunkin' Donuts to cause its disappointment and the company isn't
sharing (or maybe isn't even aware), or Starbucks is simply doing
something very right and bucking the overall industry trend in
spades. Maybe it's a little of both.
I own Dunkin' Donuts, and I'm bullish on Starbucks, but at this
time I wish it were the other way around. Starbucks coffee and
the stock both rock. On a
Schulz is targeting at least a $100 billion market cap and says
the company is just getting started. If so, there is still
significant long term upside in the stock on its way to that
market cap target. In light of recent results, in conjunction
with the ongoing trend and success, I would be hard pressed to
doubt Schulz. As for Dunkin' Brands Group, figuring out a
long-term valuation these days is starting to feel like an
exercise in futility. It breaks my heart to say it, but my vote
is Starbucks now has the better stock and the better coffee.
Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett
admitted this emerging technology is threatening his
biggest cash-cow. While Buffett shakes in his
billionaire-boots, only a few investors are embracing this
new market which experts say
will be worth over $2 trillion
. Find out how you can cash in on this technology before the
crowd catches on, by jumping onto one company that could get
you the biggest piece of the action.
to access a FREE investor alert on the company we're
calling the "brains behind" the technology.
Starbucks vs. Dunkin Donuts: Which Is The Better
Stock and Has Better Coffee?
originally appeared on Fool.com.
owns shares of Dunkin' Brands Group. The Motley Fool recommends
Starbucks. The Motley Fool owns shares of Starbucks. Try any of
our Foolish newsletter services
free for 30 days
. We Fools may not all hold the same opinions, but we all believe
considering a diverse range of insights
makes us better investors. The Motley Fool has a
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a