Coffee is one of the few consumer goods that withstands the test of time. According to mythology, a goat herder in Ethiopia discovered coffee over a thousand years ago after seeing the effects of the coffee plant on his flock. Approximately 1 billion people worldwide consume coffee daily, making it the most popular beverage on the planet.
Such a product is tempting to investors. Despite its addictive qualities, research indicates that coffee benefits your health. Additionally, the regular nature of coffee renders users less price sensitive. If you want a piece of a massive business, continue reading to discover the ten finest coffee company stocks you can buy now.
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An Overview of the Coffee Industry
The phrase “cup of joe” refers to coffee as an everyday beverage. There are a few original legends from the early 1900s, and popularity has increased regardless of their provenance.
Over ninety percent of coffee is produced in underdeveloped nations. Moreover, South America is the leading producer. There are over 25 million small coffee farmers worldwide, and the leading coffee stocks rely on this extensive supplier network.
In terms of consumption, industrialized nations lead the pack and can spend more money on these tiny indulgences. Surprisingly, Finland has the most significant per capita coffee consumption, and we recently discovered this coffee trivia while traveling through the nation en route to Russia.
In terms of overall consumption by nation, the United States is the most significant user, and this is due to its higher population and national coffee trends. The National Coffee Association estimates that 62% of Americans drink coffee daily, and 7% drink it monthly.
In the United States, coffee consumption has increased by around 5 percent since 2015. This is a moderate growth rate, but elsewhere in the world, it is accelerating. China is a rising market where demand is increasing. Moreover, one of the coffee stocks listed below tackles this expanding market directly. Let us now examine these leading coffee stocks.
10 Best Coffee Stocks Every Trader Should Know
1. Starbucks
Starbucks is your best choice if you are hunting for a pure-play coffee company. The firm has grown to dominate the worldwide café market by creating a brand synonymous with inexpensive luxury. It has positioned itself as a space between home and work where one may unwind or meet a buddy.
Today, Starbucks has more than 34,000 stores worldwide, more than twice as many as its nearest competitor, Dunkin’. Even though Starbucks has long appeared omnipresent, the café business continues to expand. It is expanding in China, its second-largest market, where it adds over 500 stores annually.
Starbucks became one of the first restaurant businesses to grasp a smartphone app’s potential. It was a pioneer in digital payments, a loyalty program, and mobile order and payment, enabling clients to place orders remotely and pick them up upon arrival.
Starbucks has a booming business selling bagged coffee, ready-to-drink drinks, and other similar items in supermarkets and convenience shops, and cafés. Recently, the firm joined Nestle in the Global Coffee Alliance, enlisting the global food behemoth to make and distribute several goods in the new markets.
While Starbucks may appear to be a mature corporation, it continues to experience consistent growth. While the COVID-19 epidemic caused a setback for the coffee company, by the end of 2021, its quarterly revenue had returned to record levels, and it recovered nearly all of its lost earnings. The company’s digital order strength aided its rapid recovery from the epidemic.
In addition to building new stores in China and abroad, the company is maximizing the effectiveness of its current retail base by utilizing digital and delivery resources. Starbucks has consistently outperformed the market as a stock, and this trend should continue in the future.
2. Luckin Coffee
Coffee consumption in China is expanding faster than in the United States, and Starbucks is capitalizing on this. However, a rival has risen to the occasion. Since its inception in 2017, Luckin Coffee has opened more shops in China than Starbucks.
Luckin Coffee was one of the coffee stocks with the highest growth rate. However, we discovered that it was too good to be true. The corporation committed fraud and has paid a substantial price for its errors. It was delisted from the Nasdaq and is now traded over-the-counter for a fraction of its former price.
The stock of Luckin Coffee has been beaten down by investors, resulting in a substantially lower valuation. However, the organization has been attempting to rectify its errors. Furthermore, it might be excellent growth potential in the future. This entails greater investment risk but the potential for greater returns.
3. Keurig Dr. Pepper
Keurig Dr. Pepper (KDP) was formed in 2018 due to a merger between Keurig Green Mountain and Dr. Pepper Snapple. It was developed by JAB, a private German holding corporation that has become a coffee titan. JAB owns or has significant investments in the following coffee companies: Keurig Dr. Pepper, Krispy Kreme, Caribou Coffee, Peet’s Coffee, and Panera.
JAB is a private firm, and hence investors cannot hold shares. However, coffee investors should be cautious of the company’s effect on the sector since it has taken several coffee companies private over the past several years. It also drove the IPO of Krispy Kreme on July 1, 2021. At the end of 2020, JAB held 33% of Keurig Dr. Pepper.
As a diverse beverage company, KDP owns a vast array of coffee and soft drink brands, including Snapple, Green Mountain, Canada Dry, Mott’s, and its namesake brands; nonetheless, coffee is the firm’s primary focus.
Coffee systems, the business division comprised of Keurig brewers, K-Cup pods, and other coffee items, provided 37 percent of KDP’s total sales of $4.7 billion in 2021. However, it represented $1.31 billion in operational profits or 46% of the total for the corporation. In other words, Keurig’s coffee company is still very successful, with an operating margin of 28%, despite losing several patents. Due to its emphasis on coffee consumption at home, Keurig was not significantly impacted by the epidemic.
Keurig’s business strategy is razor-and-blades; customers must buy high-profit K-Cup pods to keep using their machine. The investment in Keurig discourages customers from switching to a rival brand.
In 2021, sales of KDP’s coffee systems increased by only 6 percent, indicating that the industry may be mature. The demand for soda has also decreased, and the high-margin Keurig will continue to provide money for KDP.
4. Nestle
Nestle, the biggest food company in the world, is a diverse corporation with over 2,000 brands in categories including coffee, tea, bottled water, candies & chocolates, soups, sauces, and pet food. Although such a broad corporation cannot be reduced to a single product, coffee is a significant part of its business, and brands such as Nescafe, Nespresso, and Coffee-mate are well-known worldwide.
The largest segment of Nestle’s business is powdered and liquid drinks, which includes the coffee brands Nescafe, Nespresso, and Starbucks. In 2020, the category generated $25.9 billion of the total $93.9 billion in sales. The sales of soluble coffee and coffee systems contributed $18.4 billion as the firm rebounded from the previous year’s pandemic-related decrease. The whole powdered and liquid beverages category has an underlying operating profit of 23.5 percent, making it the second-most profitable sector for the corporation.
It is essential to differentiate coffee firms like Nestle, which sells its goods in grocery and convenience shops, from Starbucks, which sells coffee as a discretionary item in restaurants. Nestle’s worldwide reach and marketing prowess make it the ideal business partner for Starbucks. The sale of packaged coffee and ready-to-drink drinks has been a significant growth driver for Nestle.
5. Farmer Bros Co. (FARM)
Farmer Bros is a wholesaler of commercial coffee and tea goods in Texas. Founded in 1912, the company has been in business for nearly a century.
You may discover Farmer Bros’ products at local restaurants, convenience stores, hotels, casinos, and educational and medical institutions. Tea, coffee (both hot and cold brew), and other popular drinks are available here.
Farmer Bros also manufactures coffee equipment such as brewers, grinders, and dispensers.
Farmer Bros stock has generated significant returns in 2021, while its share price has declined marginally since its July peak. Despite this, prices are risen 90 percent over the past year and appear to be comfortably outside the range of penny stocks. Even though this is a small-cap firm, it has tremendous potential. The coffee distributor has loyal clients in various sectors, but there is ample opportunity for growth in other markets.
6. J.M. Smucker
Smucker is familiar with jams, jellies, and other spreads, yet packaged coffee accounts for a substantial portion of the company’s revenue. Smucker licenses the coffee brands Folgers, Cafe Bustelo, and Dunkin’ from Dunkin’, which is now part of Inspire Brands.
For the fiscal year ending in 2021, the U.S. retail coffee segment accounted for 30 percent of Smucker’s overall sales, or $2.4 billion of $8 billion in total revenue. It is the second-largest segment for the firm, behind pet food. As a result of increasing consumption of coffee at home, the coffee segment’s revenue climbed by 10 percent during the fiscal year 2021. Recent growth has been modest, increasing barely 3% in the first three quarters of fiscal 2022, which concludes on April 30, 2022.
As with the other films on this list, Smucker’s coffee business is a high-margin one, achieving a 32 percent operating profit margin in 2020. This makes the coffee business the company’s most lucrative in terms of margin and volume. In the fiscal year 2021, coffee contributed 42% of the company’s operating income. With various well-known brands and dominance in the U.S., Smucker’s coffee business should continue to generate substantial earnings.
7. Restaurant Brands International (QSR)
Restaurant Brands International owns one of Canada’s major coffee shop franchises, Tim Hortons. Tim Hortons also operates in the United States, Europe, and Asia. Since opening its first location in Ontario in the 1960s, Tim Hortons has become an integral part of Canadian culture.
In addition to donuts and other fast food products, the coffee shop chain also provides doughnuts. In addition to Burger King and Popeye’s Louisiana Kitchen, Restaurant Brands International also owns Burger King.
Despite the restaurant industry’s difficulties in recent years, this establishment has remained afloat. This is because all three of its primary restaurant brands emphasize takeaway operations from the outset, mitigating the impact of prior stay-at-home orders and the subsequent stock market fall.
Since Popeye’s specialized in chicken sandwiches, its stock trended upwards throughout the summer owing to skyrocketing chicken costs.
It is still a significant investment, even if the price has dropped dramatically. The latest financial report for the third quarter reveals positive results, including an increase in sales, net income, and earnings per share.
8. Dutch Bros
After its initial public offering in September 2021, drive-thru-focused coffee shop Dutch Bros may be the latest to claim the title “next Starbucks.”
It is simple to understand why investors are so interested in the Oregon-based coffee distributor’s rapid expansion. Due to its drive-thru concept, Dutch Bros was able to flourish during the pandemic when other coffee chains failed. In 2021, comparable sales grew 8.4% after moderate growth in 2020. In addition to opening 98 additional stores in 2021, the firm already has 538 sites in 12 states, split evenly between franchised and company-owned locations.
This rapid development and white-space prospects create a bull thesis for Dutch Bros, as the business sees an opportunity in the market for 4,000 shops. The company’s drive-thru strategy distinguishes it from other coffee shops, such as Starbucks, and its high average unit volume indicates significant demand. Dutch Bros concluded 2021 with average store revenues of $1.85 million, which is more than most quick-service restaurants.
Dutch Bros is also thriving on an annualized basis, and its income should expand as it gets brand awareness and grows. Dutch Bros is an expensive coffee stock, but the underlying business is solid, and the stock should reward investors if the company successfully builds 4,000 outlets.
9. Black Rifle Coffee Company
Black Rifle, which went public via a SPAC merger in February 2022, puts a distinctive spin on a commodity product by branding for a specific client niche — particularly conservative Americans and veterans. The company’s purpose is to provide excellent coffee and information to current military, veterans, first responders, and Americans who love their country.
This company’s direct-to-consumer beginnings and direct-to-consumer marketing have helped it rapidly establish brand awareness and revenue. Because of the pandemic’s stay-at-home character and the company’s e-commerce positioning, revenue in 2020 is anticipated to double to $164 million. Revenue climbed by 55% over the first three quarters of 2021.
Unlike the traditional coffee company, Black Rifle defines itself as a media company and lifestyle brand in addition to being a coffee brand. The business publishes a magazine and is engaged in political and cultural topics through its blog and social media. With a brand that also serves as an identity, a crucial component of its strategy is the sale of branded items, such as clothes and equipment, which helps raise brand recognition and provides customers with a method to express their brand loyalty. In 2020, merchandise sales accounted for 12% of total income.
Black Rifle has begun opening its storefronts, which it refers to as “outposts,” and as of September 30, 2021, had nine sites. It also offers ready-to-drink and bagged coffee through shops such as 7-11, Publix, and Walmart, in addition to online.
Even though Black Rifle’s business strategy is still maturing, its distinctive brand has a devoted fan base, which may be a valuable asset in a competitive sector like coffee.
10. Coffee Holding Co. (JVA)
The Coffee Holding Company owns three distinct coffee brands, headquartered in New York. Increasingly significant to customers, the firm concentrates on organic and fair trade coffee, and the Harmony Bay range of ground coffees takes the company’s natural gourmet coffees into consumers’ homes.
The Organic Products Trading Company imports premium beans from small organic and fair-trade coffee producers worldwide. Sonofresco manufactures coffee roasting equipment for commercial use.
Coffee Holding Co. is now selling for less than $5 a share, making it a very inexpensive investment option in the coffee sector. Before investing in any penny stock, buyers must be aware of its volatility.
However, this company saw a breakthrough in January, gaining almost 10 percent in a few days. The share price has been generally stable over the past six months and is about 30 percent higher than last year’s.
Should You Buy Coffee Stocks?
Coffee stocks are a wise investment, particularly for individuals with a long-term investing horizon. Coffee is a component of the consumer products industry, often seen as recession-proof.
In general, individuals continue to purchase consumables such as coffee even during difficult economic times. For many individuals, coffee is essential to a joyful morning ritual.
Numerous coffee firms have successfully shifted their emphasis to ground coffee beans, single-serve coffee pods, and home coffee makers. This allows its consumers to continue drinking their favorite beverages at home.
During the pandemic, coffee shops had an advantage over full-service restaurants because they could swiftly transition to takeaway. This modification allowed stores to maintain sales even while everything was closed. Now that normalcy has been restored, coffee shop companies have the opportunity to grow profits even further.
As part of the third-wave coffee revolution in recent years, many customers have gravitated toward high-quality and ethically-sourced coffees. Several of the world’s largest coffee companies have switched to organic and fair-trade beans to compete with independent coffee stores.
Final Thoughts
Coffee is a high-margin industry for the world’s leading consumer goods manufacturers. It is also a timeless product that will likely gain appeal as the middle class expands in China and other countries and customers seek alternatives to sugary beverages like soda.
Although the coffee sector is highly competitive, it presents chances for both consumer discretionary and consumer staples firms. Many investors can discover a suitable option whether they are seeking growth or dividend stocks. There may not be many pure-play changes in the industry, but portfolio-boosters could investigate the ten best coffee stocks listed above.
