In a new report, analysts at Citibank pitted coffee shop rivals Starbucks Corporation SBUX 1.47% and Dunkin Brands Group Inc DNKN 0.36% head-to-head in a six-part comparison of different aspects of their businesses.
Analysts picked a winner in each category and then declared a champion.
1. Domestic Outlook
Currently, Starbucks has about 48 percent more stores nationwide than Dunkin does. As Dunkin continues its expansion in the West, analysts see a major domestic opportunity in California, where a recent Citi survey showed coffee drinkers have a favorable perception of Dunkin.
Winner: Dunkin’ Donuts
2. International Outlook
Although about 77 percent of Starbucks’ revenue comes from the U.S., the company’s international presence, which includes over 9,500 locations, makes it a global force.
Winner: Starbucks
3. Digital Capabilities
Although Dunkin has recently increased its focus on loyalty and digital and mobile initiatives, this part of the competition simply comes down to numbers. There are currently more than 9 million My Starbucks Rewards members and only 2.5 million DD Perks members.
Winner: Starbucks
4. Consumer Packaged Goods
Dunkin recently announced it will be launching K-Cups in U.S. grocery stores beginning May of this year. While Dunkin has room to grow its packaged goods numbers domestically, analysts see a similar growth opportunity for Starbucks internationally, based on the company’s global brand awareness.
Winner: It’s a tie
5. Store Economics
Analysts like Starbucks’ average unit volume of $1.3 million, about 40 percent higher than Dunkin’s. However, they also note that Dunkin’s first-year, cash-on-cash returns for new locations have been greater than 25 percent, for an impressive four consecutive years.
Winner: It’s a tie
6. Valuation
Starbucks’ stock has outperformed both Dunkin and the S&P 500 in the past year, and the stock currently sports an estimated 28.8 price to earnings ratio (P/E) based on 2016 projections.
Dunkin’s stock currently trades at a projected 2016 P/E of only 25.5, lower than Starbucks and asset-light franchise peers Domino’s Pizza, Inc. DPZ 0.49% (29.5 P/E) and Restaurant Brands International Inc QSR 1.51% (37.8 P/E).
Winner: Dunkin’ Donuts
A Champion Declared
Analysts acknowledge that both coffee companies put up a strong fight, adding, “Over the coming years, we think a number of factors, including an improving economic outlook, robust emerging market opportunities and continued growth in food away from home spending should benefit the coffee-specialty sector.”
However, analysts give the slight edge to Starbucks overall because of its premium brand positioning and international growth opportunities.
Citi has a Buy rating on both Starbucks and Dunkin Brands.
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