3 Great Cafe Stocks
Apr 4th 2013 4:21PM
Updated Apr 4th 2013 4:26PM
I'm a coffee snob, and I don't mean that in a pleasant way. I'm a jerk about it, and clearly, I'm unapologetic. But that isn't going to stop me from keeping a close eye on the workings of the biggest prepared coffee sellers in the world. Taste-wise, these guys might be third-tier -- seriously, there's better coffee to be had -- but business-wise, they're top of the heap. Here are three companies that would pair well with almost any portfolio.
While Dunkin' Brands used to be known for just its doughnuts, the brand has expanded over the last decade, and now it's a major player in the world of coffee. In its last quarter, Dunkin' opened 256 new franchise locations around the world, and remodeled 205 other locations. While the company also operates Baskin-Robbins, it derives most of its revenue and income from Dunkin' Donuts. The U.S. portion of Dunkin' Donuts accounted for 81% of the company's revenue last quarter.
The next big area for Dunkin' is the international market. Last quarter, Dunkin' Donuts only earned 3% of its revenue abroad, while the international portion of Baskin-Robbins brought in 11% of revenue. That shows that the company has the ability to manage overseas locations, it just needs to add more of them. Right now, the international push is costing the company, and those locations are running on a 54% profit margin, which compares poorly to the U.S. segment's 74% margin.
This is a long-term growth story, with international locations increasing, under a suppressed margin. Then, as marketing backs off and those locations start to operate in a regular fashion, margins expand and everyone wins.
If you want success in the here and now, you probably won't do better than Panera Bread . The chain has been surging recently, driven by catering expansion and strong comparable sales growth. Last quarter, catering sales grew 19%, and the company has big plans for keeping that pace up. In-store, comparable sales grew 5% in company-owned locations. That was largely affected by increase in the average check, which was up 5.4%, driven by both product mix and price increases.
Over the next year, look for more of the same from Panera. The catering business is going to be an increasingly big deal, and the company is putting a lot of energy into making it efficient and profitable.
What else could possibly have been on this list? Starbucks is the reason that I can drink the kind of coffee I like -- they made coffee fashionable. That hasn't changed, and the company has had a great 12 months, with acquisitions and new product launches all over the place. Food is starting to play a larger role, and with the addition of a bakery in La Boulange, Starbucks is now in control of its own supply.
The next step is even more international expansion. The company is committing itself to expanding in Southeast Asia, where it operates more than 700 stores already. The area has a population of 600 million -- twice that of the U.S. -- and as the middle class grows, Starbucks is going to be there to give them a nonfat, decaf, sugar-free vanilla latte. Starbucks is the kind of company that looks like it's going to be around forever, and there's no reason not to take a closer look -- maybe while sipping on someone else's coffee.
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Investors can be forgiven for thinking that a company that has returned almost 2,500% since going public probably has its best days behind it. But in the case of Panera Bread, there's reason to believe that the best is still yet to come. The stock has been on an absolute tear over the past five years, and you're invited to find out why -- and what else there is to look forward to -- in The Motley Fool's premium report on Panera. Included are key areas that investors must watch, as well as opportunities and threats facing the company both today and in the long term. Don't miss out on this invaluable investor's resource -- simply click here now to claim your copy today.
The article 3 Great Cafe Stocks originally appeared on Fool.com.Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Panera Bread and Starbucks. The Motley Fool owns shares of Panera Bread and 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 that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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