Company Analysis: Starbucks v/s Dunkin Donuts
About the paper
The paper is commissioned to perform the analysis of the coffee giant, Starbucks and its competitor, Dunkin Donut for the latest two financial years. As part of this analysis, first, we will unearth some of the aspects which are not disclosed in the financial statements, but still, are imperative while making an investment decision in the company. Thereafter, we will compare financial as well as non-financial aspects of both the companies, and will then culminate this paper with a conclusion that which company looks financially attractive and is worthy enough to be included in the portfolio.
Analyzing non-financial factors: Starbucks Inc.
Founded in the year 1971, Starbucks Corporation is a globally recognized coffee retailer and is the industry behemoth with sales volume of $19.16 billion and a market share of 32.6%. However, what is most worth considering here is the traditional business model, which the company continues to follow till date for the expansion purpose only.
Referring to the relevant information in the annual report, we found that around 79% of the company’s store are owned by the company and only 21% are on a licensed basis. In fact, beginning this year, Starbucks Inc. is not even accepting any application for new licensed stores and many of its existing licensee in China and Asia Pacific has shut down their stores. By the end of 2015, the total store count in China and Asia Pacific was down from 3492 to 3010, while the company operated stores increased from 1132 to 2452. (Starbucks, 2015)
Another notable discussion in the annual report was the company’s mission to be a premium supplier of coffee and tea. Important to note, Starbucks is indeed a premium supplier offering an extensive menu and product customization. Taken altogether, these factors forms a bon-vivant experience and thus comes at higher end prices.(Starbucks, 2015)
It is considerable that the reason we discussed the store operation models is the impact of such model on the company’s financial and consequently, the profit margins. Since the company is profoundly operating on a self-operating model, this comes at the cost of higher input prices. Similarly, premium experience at higher cost, may only be suitable for a particular segment of consumers, and is really not a long-lasting arena to cash on the growth.
Comparing Financials: Starbucks v/s Dunkin Donuts
Prima-facie, even though Dunkin Donuts looks a relatively small company with a mere $811 millions in revenue compared to $19163 million of Starbucks, however, an in-depth analysis of the financial statements reveals the real truth. As we discussed in the previous section, Starbucks faces high input cost because of its company-operated store model. Accordingly, the gross margin of the company was recorded at 59.35%. On the other hand, nearly all of the Dunkin Donuts stores are franchised, this allows the company to keep the cost of inputs at lower end and receive gross margins as high as 80.14% as of 2015. (Dunkin Brands Group Inc, 2015)
This also imposed consequences on the operating cost structure of both the companies. Accordingly, with a lower proportion of operating expenses, Dunkin recorded operating margin of 39.21%, compared to 18.79% of Starbucks. . (Dunkin Brands Group Inc, 2015)
Conclusion: Go long on Dunkin Donuts
Even though the Starbucks Corporation and Dunkin Donuts targets the same segment of the customers and maintain similar menus and strategies, however, to what we analyzed, difference in store operating model and branding, is what is making Dunkin more lucrative for the investors. Starbucks is showing limited scope of expansion, but on the other hand, Dunkin is eyeing aggressive international expansion and owing to its low cost inputs, the stock is likely to offer good capital returns in the near future to the investors.
Works cited
Dunkin Brands Group Inc. Annual Report 2015. Dunkin Brands Group Inc, 2016. Web. 30 July 2016.
Starbucks Corporation. Annual Report 2015. Starbucks Corporation, 2016. Web. 30 July 2016.
