This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Neither Starbucks, McDonald's Win Coffee War

A homemade cup of coffeehouse-quality brew was the caffeine addict's drink of choice, as the National Coffee Association trade group's 2010 National Coffee Drinking Trends Study showed a jittery 86% of Americans preparing their coffee at home -- percolating 4% from last year. Of the 56% of Americans who drink coffee, the study found that 16% changed their drinking habits as a result of the economy. With 40% of all coffee consumed considered to be "gourmet," that meant a shift from the counter to the coffee aisle.

In the case of Minneapolis-based Caribou Coffee, while sales at coffeehouses increased 3.4% last year and comparable store sales dove 2.3%, commercial sales including K-cups jumped 42.4% in the same period. Commercial sales also leapt 4% as a percentage of total sales, a trend that continues as Caribou's commercial sales growth (51%) far outpaced that of its coffeehouses (4.4%) last quarter.

The same holds true for San Francisco-based Peet's Coffee (PEET), which lost to Green Mountain in a bidding war over single-cup coffee company Diedrich. The company has only 192 retail locations -- only eight east of the Mississippi River -- and gets nearly 35% of its net revenue from grocery and delivery sales. While the company's coffeehouse sales grew 7% last year, grocery and delivery sales of Peets Coffee by the pound nearly doubled that growth rate. Growth was even more disparate last quarter, when a 4% retail gain was minimized by a 22% hike in grocery and foodservice revenue.

Nearly a year after its brief stumble, Starbucks has received the message. The launch of its VIA single-serving instant product in stores and supermarkets helped Starbucks push third-quarter revenues up 6%, to $2.6 billion, increase same-store sales in the U.S. by 9% and improve its operating margin to 15.6% from 10.8%. Revenues have improved 7% year-to-date, while comparable store sales growth spun 180 degrees, from down 7% last year to up 7% this year.

For now, Green Mountain and its home-brew ilk have seized the spotlight, though their reign may be short-lived. Coffee prices hit a 13-year high last week, trading at nearly $1.99 a pound, forcing J.M. Smucker (SJM - Get Report) to boost prices 9% on its Folgers, Millstone and Dunkin' Donuts coffees. Green Mountain followed suit, announcing plans to raise prices on its K-Cup offerings 10% to 15% next month. With Starbucks saying it will absorb the cost increase for the time being, it's possible the company may end up winning the same coffee war its instability started.

--Written by Jason Notte in Boston.



>To contact the writer of this article, click here: Jason Notte.

>To follow the writer on Twitter, go to http://twitter.com/notteham.

>To submit a news tip, send an email to: tips@thestreet.com.

Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
SBUX $95.16 0.08%
SJM $116.18 1.50%
JMBA $14.69 0.07%
GMCR $113.60 0.31%
MCD $97.06 -0.59%

Markets

DOW 17,722.58 +44.35 0.25%
S&P 500 2,058.25 +2.10 0.10%
NASDAQ 4,879.4840 +16.1220 0.33%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs