Forget Starbucks – This Rising Coffee Chain Roasts the Competition

New leadership is breathing fresh life into a downtrodden Starbucks (SBUX).

Shares are up more than 25% since Brian Niccol’s surprise takeover was announced in August.

The market is betting on Niccol to work his magic – and historically speaking, that’s a pretty good bet.

Niccol successfully turned around a flailing Chipotle Mexican Grill (CMG), more than doubling the burrito chain’s annual sales in just a few years (reaching nearly $10 billion in 2023 versus $4.5 billion in 2017 before he took the lead).

But while everyone else is already buying into Starbucks’ turnaround story, we’re not quite convinced yet.

Rather than follow the crowd, we prefer to make data-driven decisions. So we did what we do best. We analyzed our real-time consumer insights to see if LikeFolio metrics support a bullish bet on SBUX…

And what we found may surprise you.

Why We’re Not Buying into Niccol’s SBUX Just Yet

LikeFolio data is a bit of a mixed bag for Starbucks right now.

On one hand, a newly revamped fall menu is likely to stoke consumer enthusiasm. SBUX released a slew of new beverages that are – well, complicated, you might say – but garnering positive reviews on social media.

Just listen to these names: Iced Apple Crisp Non-Dairy Cream Chai, Iced Apple Crisp Oatmilk Shaken Espresso, Iced Caramel Apple Cream Latte, Apple Crisp Oatmilk Macchiato…

Apparently, Starbucks is really leaning into the apple theme… and catering to a very specific consumer base. (This could be good or bad.)

On the other and perhaps more important hand, competition is mounting.

Consumers prioritizing speed and convenience are increasingly turning to drive-thru specialists like Oregon-based Dutch Bros (BROS) and Midwest favorite, Scooter’s Coffee.

Look at digital growth from the new players. The chart looks like the kickoff of a changing of the guard…

Starbucks vs. The New Guard

At the top, Dutch Bros is roasting the competition with an impressive 49% year-over-year boost in website traffic, followed by Scooter’s Coffee with solid 20% year-over-year growth.

In contrast to Starbucks’ convoluted drink offerings, Dutch Bros’ more straightforward menu is a little easier to order from – a sweater weather chai, pumpkin pie frost, or a caramel pumpkin cold brew.

BROS also taps into rising consumer trends like high-protein diets with its line of protein coffees, and America’s insatiable appetite for caffeine with its beloved line of Rebel energy drinks.

This menu specialization is an area Brian Niccol will likely tackle at SBUX.

The seemingly endless customizations of Starbucks’ beverages have hindered the company’s prep speed and even app experience. So many buttons. So many pumps.

Starbucks itself calculated more than 170,000 possible drink combinations available, but outsiders say that’s a serious underestimate.

These complicated orders are adding more stress on an already-fragile Starbucks workforce – and creating longer lines for consumers, with some reporting waits of half an hour or more.

This has opened the door for quick competitors like Dutch Bros and Scooter’s to capitalize.

The Better Coffee Bet

Dutch Bros focuses on a drive-thru model with smaller, 950-square-foot drive-thru buildings that keep costs down – and service moving quickly.

This laser focus on service comes with a robust rewards program and personable “broistas,” helping BROS become a favorite among the younger Millennial and Gen Z crowds.

Approximately two-thirds of all orders come from Dutch Rewards members. And mobile app ordering is expected to be in most shops by year end, giving loyal followers more value.

Looking ahead, we expect Brian Niccol to make some serious changes at Starbucks to bring it back to the coffee mecca it once was. But this may take some time… and we don’t see any positive traction in the data quite yet.

If we were going to take a bet to the upside on a coffee chain, it would actually be for SBUX competitor BROS – at least until we see signs that Niccol’s famous turnaround magic is working.

Up next, check out a stock that could win big from the Federal Reserve’s critical interest rate cut this week, featured in Tuesday’s issue of Derby City Daily.

Until next time,