Coffee Wars, Part III - feeling too much buzz?

Posted by: Aaron Pressman on October 05, 2006

We’ve seen in recent months McDonald’s (MCD) reporting early success with its high-end coffee play, while Wendy’s-owned Canadian coffee and donut joint Tim Hortons (THI) did a successful IPO to expand into the lower 48. At the same time, Coke (KO) and PepsiCo (PEP) are battling for more shelf space for ready-to-drink coffee beverages. And the triple-headed monster of LBO firms that bought Dunkin’ Donuts, of course, says they plan to spread out all over.

Today, the latest salvo in the Caffeine Nation Chronicles: Starbucks chairman Howard Schultz says he plans to double his numbers in the US and eventually be running 40,000 stores worldwide. “We have never been more enthused and more aggressive,” he told analysts today on the heels of the company’s sweet surprise that same store sales rose 6% last month, about double what analysts expected.

Putting a flag in the sand for future reference, note that most of these stocks have had a pretty good run over the past year, especially Starbucks. Starbucks is up 6% today to just over $38. It’s up 44% over the past year. Tim Hortons is up 3% to almost $27 and about 12% since it went public in late March. McDonald’s is steady around $40 today and up 22% over the past year while Pepsi, sitting under $65, has gained only 13%, a tad better than the S&P 500 over the same period.

But with competition heating up, over the long-term the prospects can’t be as rosy. Maybe coffee futures are the place to go? Any ETF vendors interested?

Update - The reference to a coffee ETF was tongue in cheek but one is already trading in London that will be available to US investors in a month or so, according to Roger Nusbaum.

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Businessweek’s Emily Thornton, Amy Feldman, Ben Levisohn, and Ben Steverman focus on matters great and small for investors, from the views of a hot fund manager to an explanation of the latest products devised by Wall Street’s rocket scientists. Exploring trends in any area, from bonds and stocks to closed-end funds and futures, always with an eye towards giving investors a better understanding of the sometimes confusing and often chaotic world of finance. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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