US Restaurants Will Outsized Coffee Category Growth Continue?

Research evidence excerpt

US Restaurants Will Outsized Coffee Category Growth Continue?

EBITDA upside potential should support further gains for shares following the recent

move higher. For Starbucks, we anticipate turnaround plans and new sales initiatives

should continue to support sales and earnings recovery, with improvement across

operations, marketing, and menu innovation appearing to resonate with customers. But

we believe shares already reflect a solid multiyear sales and earnings recovery, and we

don't view the return potential as compelling enough from current levels based on a

reasonable valuation and the upper end of (or above) the FY28 target earnings range.

Increasing competition from public & private coffee brands and large QSRs

Competition within the coffee category has intensified in recent years from both public

and private brands, driven by three subcategories, in our view, including: i) traditional

coffee brands (ie, Starbucks, Dunkin'), ii) drive-thru focused coffee / energy concepts (ie,

Dutch Bros, 7Brew), and iii) an increasing push into coffee / specialty beverage among

larger QSRs (ie, McDonald's, Taco Bell). Worth noting, Technomic's Top 500 Chains list

now includes 25 coffee brands in '25, compared to 16 coffee brands in '21.

Several of the larger traditional coffee brands continue to exhibit sizable growth

and maintain opportunities for further expansion. While not among the most

scaled in the US, Tim Hortons continues to accelerate US store growth, focusing

on development in existing markets while expanding into new regions, with a

targeted >1,000 stores by '28 from >600 currently.

Traditional QSRs are increasingly leaning into coffee / specialty beverage, with

opportunities for continued menu expansion. For MCD, the recent new beverage