Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has received a lot of positive attention and comparisons to Starbucks Corporation (NASDAQ:SBUX) lately.
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has a lower Price-Earnings ratio (P/E) than Starbucks Corporation (NASDAQ:SBUX), but just marginally (33 for Starbucks vs 29 for Green Mountain). Green Mountain Coffee Roasters just hit $1 billion in revenue in the first quarter (Q1) of 2013, so why shouldn’t they have a lot of positive attention?
But the question isn’t “Why wouldn’t investors go for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)?” The question is, “Why would investors choose Green Mountain Coffee Roasters over Starbucks Corporation (NASDAQ:SBUX)?!”
Good vs. great
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is a good company, sure. Their unique Keurig coffee maker is a huge success, and they expect the number of Keurigs in households to increase 25-30% over the course of 2013. The company is the gatekeeper of K-cup products, single-serving sizes of coffees and other brewed drinks made especially for Keurig. Keurig requires a partnership for other companies to create K-cups, so Green Mountain Coffee Brewers benefits from every K-cup sale.
The company expects K-cup sales to increase 11-15% during 2013. But so what that the company has a hold on the K-cup market and a 5-year agreement with Starbucks Corporation (NASDAQ:SBUX) for K-cup production? Compared to Starbucks, and based on the current price/earnings ratio, Starbucks is the better investment.
Starbucks’ large-minded growth
Starbucks Corporation (NASDAQ:SBUX) obviously dominates the market, but its innovation and growth is why it really stands out. Starbucks coffee shops are located in 60 different countries, and 10,000 different locations in the U.S. To keep up with competitors, Starbucks continues to innovate. The company changed its concept and goals three years ago and adopted a much more proactive business model.
Even though we already see a Starbucks on every corner, Starbucks plans to use statistics and immense planning in order to place more coffee shops in more domestic locations to maximize profits. Starbucks is exploding in China and other Asian countries. The firm intends to expand its Asian operations much more in the coming years.
The grass is not greener for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) when it comes to innovation. The company is introducing some new technology to integrate more coffee machines into work environments, but that’s about it. They recently created a Research and Development (R&D) group, but until they have promising new products in the pipeline, the potential can’t match Starbucks’.
Not a one-trick pony
Unlike Green Mountain Coffee, Starbucks’ retail coffee sales account for less than one-third of its total revenue. The company’s operations are huge, and have a much larger hold on the market. Starbucks Coffee has expanded its revenue streams by acquiring three new businesses as well. For instance, Starbucks recently acquired La Boulange, a chain of bakeries in order to capitalize on an entirely different market and complement their current sales of non-coffee items.