Starbucks, The Industry Leader
Starbucks began over 50 years ago with a single location in Seattle, Washington. Since then, it has experienced phenomenal growth and is now the largest coffeehouse chain in the world.
From its humble beginnings as a Seattle-based coffee roaster, Starbucks has strived to create a “second home” for consumers, where they can stop on their way to and from work. In recent years, the company has invested heavily in its brick-and-mortar locations by expanding its food options, remodeling its restaurants, and revamping its rewards programs.
Like many other retail or restaurant companies, Starbucks was negatively impacted by business restrictions implemented for COVID-19. On March 4, 2020, Starbucks paused the use of personal cups and restricted company-wide business travel. Eleven days later, Starbucks temporarily moved to primarily drive-thru only for the United States. As a result, global store sales declined 14% and consolidated net revenues declined 11.3% from 2019 to 2020.
However, 2021 proved to be a much strong year. Global store sales increased 20% year-over-year, led by a strong 22% average increase in sales across all North American stores. Consolidated net revenues increased 24% to $29.1 billion for the year. At the end of 2021, Starbucks shares were trading for $116.97; at the time of writing, the company’s stock price had dropped below $82.
Today, Starbucks continues to innovate through new sustainable practices and commitments. Starbucks has committed to providing easy access to reusable to-go cups for various orders by 2025, implementing electric vehicle charging stations across the United States, and reducing company-wide waste by 50% by 2030.
With big plans in the future for its product and future growth of its already existing 34,000 stores, here’s how the company stacks up against its competitors.
Dunkin’ Brands-owned Dunkin’ Donuts peacefully co-existed with Starbucks for decades. When the spokesman for the company’s ad campaigns retired in the late 1990s, however, Dunkin began to transition away from coffee and in the direction of donuts. By the early 2000s, the company had introduced its first specialty coffee line and slowly began to make a name for itself as a destination coffee shop.
Dunkin’ Donuts has more than 11,300 locations across 36 countries. Within the United States, Dunkin’ Donuts operates out of 41 different states.
In 2006, Dunkin’ upped the ante and declared war against Starbucks when it launched its “America Runs on Dunkin'” ad campaign. While Starbucks has created an intentionally chic and upscale environment, Dunkin’ Donuts represents itself as an All-American brand.
In December 2020, Inspire Brands completed an $11.3 billion acquisition of Dunkin’ Brands Group, Inc. This acquisition included the purchase of other brands including Baskin-Robbins. The move has the two restaurants joining an already diverse portfolio including Arbys, Buffalo Wild Wings, Jimmy John’s, and SONIC Drive-In.
As Inspire Brands is a private company, it is not required to publicly disclose many financial metrics. However, it does report global sales of over $30 billion with over 650,000 employees worldwide. With the potential to capitalize on a diverse leadership team and economies of scale, Dunkin’ Donuts continues to rival Starbucks in the coffee industry.
McDonald’s has long been known as a fast-food restaurant, but the global franchise joined in on the emerging coffee craze by introducing flavored and iced coffees in the mid-2000s. After leaning on the “I’m Lovin’ It” advertising campaign for more than 10 years, McDonald’s recently pivoted to embrace the everyday American with emphasis placed on people of every educational and cultural background.
McDonald’s operates more than 36,000 restaurants across 100 different countries. There is a storefront in every state across America, though Montpelier is the only state capital without a McDonald’s.
In 2021, McDonald’s surpassed $23.2 billion of sales globally, though this does include revenue from its entire food product line. After being negatively impacted by COVID-19, McDonald’s revenue increased 21% year over year. The McCafe line of products has grown to 23 different drinks. To further rival Starbucks pastry, McDonald’s also boasts an independent product line of McCafe bakery products.
McDonald’s remains committed to the long-term success of its coffee line. In the company’s 2020 Annual Report, McDonald’s stated it is “committed to the core by tapping into customer demand for…burgers, chicken, and coffee.” However, the company also admits to “facing sustained, intense competition from…coffee shops.”
Maxwell House and Folgers
Starbucks has also entered the coffee beans and ground coffee market by distributing its product line to retail and grocery stores around the world. In the process of expanding its retail segment, Starbucks has gained two new competitors: Maxwell House and Folgers.
Kraft Heinz has previously evaluated whether or not to sell the Maxwell House product line. For now, the subsidiary remains with the company.
Maxwell House is one of the more recognizable subsidiary brands of Kraft Heinz. Kraft used to be the exclusive manufacturer to license and distribute its McCafe coffee in retail outlets, but McDonald’s opted into a new long-term agreement with Keurig in 2019.
Kraft Heinz has been reimagining Maxwell House products to compete with Starbucks in the environmentally sustainable product sector. In 2020, Maxwell House launched a 100% compostable coffee pod. The company also reduced material inputs of packaging in New Zealand to save 28 tons of material a year. However, Maxwell has not been able to capture success in the market in the past few years. Kraft Heinz recently noted a $140 million impairment to the Maxwell House brand.
Acquired by The J.M Smucker Company in 2008, Folgers also boasts a diverse product line that prides itself on convenience. It’s diverse product line includes ground coffee canisters, K-Cup pods, instant coffee jars, and single-serve packets. Folgers also does not have physical storefronts.
Through the first three quarters of Smucker’s fiscal year, U.S. Retail Coffee has generated $661.8 million, a 6% increase over last year with a segment profit margin of 32.2%.
Who Is Starbucks’ Biggest International Competitor?
With physical locations around the world, Starbucks competes with McDonald’s and Dunkin’ Donuts in dozens of international storefronts.
How Does Starbucks Differentiate Itself from Competitors?
Starbucks differentiates itself by creating a “third home” value proposition. In addition to home and work, the company strives to have a welcoming, warm location for customers to consume their products. Alternatively, competitors like McDonald’s and Dunkin’ Donuts strive for lower prices for goods more likely to be consumed offsite.
How Much More Popular Is Starbucks Over Its Competition?
Starbucks is the largest coffee company in the world. With annual revenue of over $29 billion, it sells more product than McDonald’s (with annual revenue of ($23.2 billion).