Monday 24 April 2017

Prefer a chai latte to a McChicken Sandwich? Starbucks poised to overtake McDonald's as top restaurant chain

A woman drinks Starbucks coffee outside a New York McDonald's restaurant
A woman drinks Starbucks coffee outside a New York McDonald's restaurant

Leslie Patton

Starbucks is poised to overtake McDonald's as the world's most valuable restaurant company, and the US coffee giant could ultimately have 50,000 locations - more than any current chain.

That's the prediction of Nomura analyst Mark Kalinowski, who named Starbucks his top restaurant stock for 2017 in a report on Tuesday.

He estimated that the company would increase its worldwide restaurant count by 8.4pc this year and boost same-store sales by more than 5pc.

There's more room for growth in the beverage industry - and less competition - giving Starbucks an edge over McDonald's and other more food-focused rivals, Mr Kalinowski said.

The Seattle-headquartered coffee chain's new upscale Reserve brand also could eventually generate $3bn (€2.87bn) in sales, helped by pricier drinks.

"It is only a matter of time before Starbucks overtakes McDonald's as the largest market cap restaurant stock, although likely not in 2017," Mr Kalinowski, an influential restaurant analyst who previously worked at Janney Montgomery Scott and was known for his McDonald's franchisee surveys, said.

Starbucks' stock is coming off a weak 2016. It fell 7.5pc last year, dragged down by concerns about slowing growth.

Ceo Howard Schultz also announced plans to step down, giving jitters to investors.

The overall industry isn't expected to have a bright 2017, according to a prediction by NPD Group.

US restaurants would see "little to no traffic growth" this year, the research company said in a separate report Tuesday.

Though Starbucks has set a goal of having 37,000 cafes open by 2021, up from about 25,000 last year, Mr Kalinowski saw potential for a much larger operation.

"Well beyond 2021, we would not be surprised to see Starbucks exceed the 50,000-store level," he said.

That would vault the company past the current total of Subway Restaurants, a closely held company that currently has the most locations of any chain.

Starbucks shares rose 0.1pc to $55.56 as of 10.09am on Tuesday in New York.

Mr Kalinowski, who has a buy on the stock, maintained his target price of $70.

Bloomberg

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