Daily coffee consumption soared by seven percentage points, moving coffee solidly ahead of soft drinks, according to the 2012 National Coffee Drinking Trends from the National Coffee Association. Significantly, the new figures more precisely reflect consumption behaviors of the new U.S. demographic make-up, using sampling that statistically mirrors the Hispanic- and African-American segment.
The same jump in consumption echoes across all age groups and is most significant among those between 18 and 39. Among those 18-24, daily consumption jumped from 40 to 50% and for the 25-39 group 54 to 63%;
Gourmet coffee consumption also grew, moving from 37% of all cups of coffee consumed in the U.S. in 2011 to 54% in 2012. As for coffee types, the largest jump was for gourmet coffee beverages. In 2011, 25% of Americans claimed to have drunk a gourmet coffee yesterday while in 2012 that number is 32%. The percent claiming to have drunk a traditional coffee of a gourmet variety yesterday also grew notably, from 17% to 22%.
And while sales of coffee and other specialty drinks such as iced tea and smoothies have been on the rise, sales of carbonated soft drinks at restaurants are down. We believe restaurants that offer coffees will benefit from increased consumption of coffee, but we think Starbucks is best-positioned due to its brand name being synonymous with premium coffee.
Founded in 1985 and based in Seattle, Washington, Starbucks (SBUX) is the leading roaster and retailer of specialty coffee in the world. The company buys, roasts and sells high-quality whole bean coffees globally. Starbucks has a strong presence in China in the provinces of Guangdong, Hainan, Sichuan, Shaanxi and Hubei, and the municipality of Chongqing. Starbucks has full ownership and control of Starbucks Coffee Switzerland and Starbucks Coffee Austria through the acquisition of its joint-venture partner Marinopoulos Holdings S.A.R.L.
We believe that its broad product portfolio and consumer base will drive growth in the coming quarters. Moreover, the company expanded its food warming program into its stores in China, with over 90% of the stores in these markets providing warm food items as of the end of fiscal 2011. The company is also diversifying its product line and serving wine and beer to its customers at select outlets after 2:00 p.m. This initiative is also going to increase the customer traffic at its outlets during the evenings. SBUX has an equity summary score of 7.1 out of 10 for a Bullish outlook among analyst.
SBUX has had no trouble attracting customers in its cafes either, despite higher prices and the continuing struggling economy. SBUX is seeing strong sales of its K-cup portion packs for Keurig single-serve coffee brewers, even though Keurig's parent company, Green Mountain Coffee Roasters (GMCR), has seen an unexpected deceleration of sales growth lately.
GMCR valuation has lost its caffeine high as the company finally acknowledged slowing growth in its Keurig single-serve brewing system. The company's outlook, though, fulfilled comments by critics - including noted hedge fund investors David Einhorn of Greenlight Capital and Whitney Tilson of T2 Partners - who have blasted Green Mountain for overspending and a lack of transparency. It also comes as Green Mountain faces increased competition and the continued fallout from some highly publicized stock sales by its chairman. GMCR has been downgraded by several analysts in the past few weeks.
Peet's Coffee & Tea (PEET) shares have slid 12% following its May 1 earnings report. The stock had been trading at its highest level since going public in 2001. While Peet's backed its 2012 outlook, its margins have been hammered by steep prices paid to buy premium coffee beans. During the quarter ended April 1, the company paid 44% more per pound for unroasted green coffee beans compared with the same 2011 period. Pricing power is an issue for Peet's. At grocery stores, its coffee already sells at a premium to other brands, even SBUX. That makes it harder for Peet's to raise prices further than it already has since last year. In the recent quarter, Peet's sales of its name-brand coffee bags slowed to a growth rate of 17%, down from 24% in the period ended Jan. 1. The company said it expects grocery sales to be up 20% this year. PEET has an equity summary score of 1.7 out of 10 for a bearish outlook among analysts.
Caribou Coffee Company, Inc. (CBOU) owns and operates coffeehouses. The company operates in three segments: Retail, commercial and franchise. The retail segment offers premium coffee and espresso-based beverages, food, specialty teas, whole bean coffee, branded merchandise and related products. Caribou recently cut its 2012 sales view due to slower growth of its K-Cups portion packs used in Keurig brewers sold by Green Mountain Coffee. For its commercial business that includes sales to grocery chains, Caribou slashed its sales growth outlook to 6% to 10%. Its prior outlook had called for 20% growth. In 2011, Caribou's commercial business saw rapid growth. It accounts for roughly 20% of the company's total sales. CBOU has an equity summary score of 3.0 out of 10 for a bearish outlook among analyst.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
