Caffeine consumption is a morning ritual for many Americans. While energy drinks and sodas comprise some of that consumption, coffee is still the go-to morning drink for many people.
Nowhere is this more apparent than Starbucks Corporation (NASDAQ:SBUX). One look at an average location on a workday morning reveals just how addicted Americans are to coffee. Lines for Starbucks Corporation (NASDAQ:SBUX) drive-thrus often stretch around the building, with consumers paying as much as $4 to feed that addiction.
Consumers pay more
On the heels of Starbucks Corporation (NASDAQ:SBUX)’ announcement that it would implement a slight pricing increase, the company revealed a 28% increase in earnings for its second quarter. Same-store sales were up 8%, while revenue was $3.7 billion, compared to $3.3 billion a year ago.
As Starbucks Corporation (NASDAQ:SBUX) makes plans to offer yogurt in its stores by next year, analysts are closely watching. For its next quarter, EPS is expected to be between $0.59 to $0.60, with full year EPS between $2.22 to $2.23. With revenue growth of as much as 13% next year, Starbucks Corporation (NASDAQ:SBUX) has high hopes its new initiatives.
A Cheaper option
Since 2001, McDonald’s Corporation (NYSE:MCD) has tried to grab the American coffee dollar, but the company began its McCafe line as a national standalone restaurant in Australia in the 90’s. The stores were a success, bringing in 15% more revenue than a McDonald’s Corporation (NYSE:MCD) location and eventually became the largest coffee shop in Australia and New Zealand.
In America, McCafe has been incorporated into regular McDonald’s Corporation (NYSE:MCD) locations, with the goal of being seen as a high-end brand of coffee. In 2011, the company credited McCafe with boosting sales 15% for the quarter, stating that its frozen drink line is particularly popular during the summer months.
The company’s $7.08 billion in revenue fell slightly short of analyst expectations in its most recent quarter, the decline blamed on weak earnings in Europe and Asia. The shortfall has one investor posing an interesting idea: split McCafe off as its own chain. Is it possible we’ll be passing a McCafe location on our own morning commutes?
It’s not a far-fetched idea. One of the company’s biggest struggles is competing with fast food giants like The Wendy’s Co (NASDAQ:WEN) and Burger King Holdings, Inc. (NYSE:BKC), while customers seek out healthier food choices from chains like Subway. Instead of adding more stores, the company could implant small McCafe locations in high-traffic business areas to lure some Starbucks Corporation (NASDAQ:SBUX) customers.
Investors had hoped the company would rally, but this most recent disappointment only confirms that earnings will remain flat for the remainder of the year. Frankly, there is no rush to open a position in McDonald’s Corporation (NYSE:MCD)