The coffeehouse segment is poised for a banner year due to rising same-store sales, more stable coffee prices and a boom in consumer packaged goods revenue led by price increases and “K-Cup” individual-brewing sales, according to a report from Jefferies & Company Inc.
Andy Barish, equity analyst for Jefferies, projected sales growth between 8 percent and 10 percent for the coffeehouse segment this year.
“In the currently mixed consumer sales environment, the specialty coffee sector continues to be among the ‘haves’ in terms of same-store sales growth,” Barish wrote in a research note. “We believe the habitual nature of the occasion and the affordable-luxury aspect of the experience continue to drive sales opportunities, both in retail coffeehouses as well as in the [consumer packaged goods] channel.”
Jefferies is projecting revenue growth between 15 percent and 20 percent for Starbucks and Dunkin’ Donuts, and of about 20 percent for Peet’s and Caribou Coffee.
In addition to same-store sales in coffeehouses, growth in retail CPG sales and the emerging K-Cup trend should provide a tailwind for the major coffee players, as those brands continue to grab more shelf space in grocery stores and the single-serving coffees build brand awareness.
“We believe this cycle can continue over the next several years before a shakeout amongst the winners and losers emerges,” Barish wrote.
In their most recently completed fiscal quarters, Starbucks, Dunkin’ Donuts and Caribou Coffee tallied same-store sales growth of 10 percent, 5.6 percent and 4.1 percent, respectively.
Barish cited other data from Nielsen for grocery store sales of ground coffee, which “indicates a continuation of the trend: sales growth fueled primarily by price, with market share growth dominated by specialty names and single-serve offerings.”
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In grocery stores nationwide, where sales of ground coffee increased 23 percent year-over-year, Caribou Coffee showed the most growth, increasing its market share 1.9 percent in December and 3.6 percent for all of 2011, Barish wrote.
Starbucks grew its market share 1.5 percent in December, but lost 12.5 percent for 2011. Dunkin’ Donuts increased its share 0.5 percent in December and lost 4 percent for the year. Peet’s market share for ground coffee sold in grocery stores was flat for December and the full year.
Barish also noted that demand for Green Mountain Coffee Roasters’ K-Cups grew robustly last year, as sales rose 163 percent in December and 156 percent for the full year. Starbucks, the relative newcomer to single-serving coffee sales among the big four coffeehouse brands, rang up $6.5 million in K-Cup sales in December, or about 12 percent of all K-Cups sold.
“This appears to be a good start, possibly helped by the holiday season,” Barish wrote.
Coffeehouses also should benefit from stabilization in coffee prices, which Barish expected to hover around the $2.20 to $2.40 range. He added that most major coffeehouse chains have locked in the majority of their purchasing needs for 2012.
“Looking across the category, we expect most companies to take similar pricing action to 2011, with CPG up 8 percent to 10 percent and up in the low single digits in retail, where coffee makes up less than 10 percent to 15 percent of cost of goods sold,” Barish said. “Margin pressure should alleviate in the back half of 2012, but there is some risk to visibility in 2013, given the South American coffee crop concerns.”