The Right Coffee Shop to Enlighten Your Portfolio: Starbucks Corporation (SBUX), Green Mountain Coffee Roasters Inc. (GMCR), Dunkin Brands Group Inc (DNKN)

Starbucks Corporation (NASDAQ:SBUX) has always pleased its customers with great ambience and aroma, and obviously with its cup of tasty coffee. It is the only coffee company amongst peers which is trying to provide a “sit down and drink coffee comfortably” experience to its customers. On the other hand, Dunkin Brands Group Inc (NASDAQ:DNKN) and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) are mainly providing cheap coffee on-the-go.

Expanding horizons

Starbucks is spread in over 61 countries with over 18,000 stores. While the company’s domestic market does not offer much scope to open new stores, it has an extensive market in the Asia-Pacific region. It’s clearly evident from the fact that its first four stores in Mumbai, India, have received an overwhelming response. Moreover, Starbucks Corporation (NASDAQ:SBUX)’ coffee shop in the heart of Delhi was also flooded with customers waiting outside the shop in long queues. Apart from India, the company plans to open about 800 new stores by 2015 in China.

Tea is the traditional drink of India and China. In these two countries, where about two-fifth of the world population resides, Starbucks’ acquisition of tea brand Teavana can prove to be beneficial if the company is able to recreate its coffee mantra with tea. Further, the company’s same-store sales should move north without any major investment, because of increased sales due to addition of tea products to its current menu.

Starbucks’ new Verismo coffee machine is in direct competition with Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s Keurig. Apart from just coffee, Verismo can do lattes and mochas, as against just coffee, hot cocoa, and espresso made by Keurig, at the same price. Thus it looks as if Verismo is outpacing Keurig.

To attract its customers over and over again, Starbucks Corporation (NASDAQ:SBUX) offers its own iPhone and Android Apps and free Wi-Fi. Starbucks Card generates rewards in the form of free refills and free drinks. The company is further trying to enter consumer homes with a new product, in conjunction with specialty food manufacturer Inventure Foods. The product will benefit from the rise of at-home blended coffee drinks, and reach grocery stores and mass retailers nationally by spring 2013.

The company has a strong balance sheet with a cash balance of around $2 billion, and its debt-equity ratio is declining constantly. It provides a stable dividend, which acts as a cushion for investors. Starbucks’ ROIC and equity has grown 20% and 17%, respectively, over the last five years. Earnings have grown at 16% over the last five years, and with its current outlook, I believe the company will be able to grow at the same pace for the next five years, which means a lot of growth is still in the cards.