{"id":267203,"date":"2023-09-13T22:23:14","date_gmt":"2023-09-14T02:23:14","guid":{"rendered":"https:\/\/financhill.com\/blog\/?p=267203"},"modified":"2023-09-13T22:35:31","modified_gmt":"2023-09-14T02:35:31","slug":"starbucks-vs-mcdonalds-stock","status":"publish","type":"post","link":"https:\/\/financhill.com\/blog\/investing\/starbucks-vs-mcdonalds-stock","title":{"rendered":"Starbucks vs. McDonalds: Which Stock Is Best?"},"content":{"rendered":"<p><strong>Starbucks (<a href=\"https:\/\/financhill.com\/stocks\/sp500\/sbux\">NASDAQ: SBUX<\/a>)<\/strong> and <strong>McDonald&#8217;s (<a href=\"https:\/\/financhill.com\/stocks\/sp500\/mcd\">NYSE: MCD<\/a>)<\/strong> were both in the business of serving customers quickly but they weren&#8217;t exactly competitors, at least not until McDonald&#8217;s got into the coffee business and attempted to take market share away from Starbucks.&nbsp;<\/p>\n<p>Both companies have global reach, are extremely well capitalized, have loyal customer bases, and continue to expand, so between the two, Starbucks vs McDonald&#8217;s stock, which is best?<\/p>\n<p>The two chains have enjoyed tremendous growth for decades. Though McDonald&#8217;s popularized fast-food on-the-go, Starbucks made a name for itself as the &#8220;go-to&#8221; coffee brand that could deliver consistent quality in virtually every of the world. McDonald&#8217;s hasn&#8217;t let the grass grow under its feet though, and has diversified from burgers and fries to gourmet coffee, and even salads.<\/p>\n<h2>McDonalds Still Holds The Lion&#8217;s Share<\/h2>\n<p>As of 2023, the QSR industry, better known as the fast food industry, is valued at $650 billion, and has grown at a compound annual growth rate (CAGR) of 4.6% since 2018.<\/p>\n<p>In the U.S., <a href=\"https:\/\/www.statista.com\/forecasts\/1335761\/mcdonalds-restaurant-chains-brand-profile-in-the-united-states\" target=\"_blank\" rel=\"noopener\">McDonald&#8217;s leads the fast-food sector<\/a> with a 43% market share, based on 2022 data from Statista. Starbucks follows with a 14% share of market.<\/p>\n<p><iframe loading=\"lazy\" style=\"margin: 0 auto; border: 0;\" src=\"https:\/\/financhill.com\/widget\/charts\/MCD?defaultOverlays=EMA20%2CSMA50&amp;periodGrouping=daily&amp;defaultSeries=candlesticks\" width=\"720\" height=\"439\" frameborder=\"0\" scrolling=\"no\" seamless=\"\"><\/iframe><\/p>\n<p>But those numbers don&#8217;t reveal the full story because&nbsp;Starbucks holds a commanding 39% market share in the specialty coffee market, per the <a href=\"https:\/\/sca.coffee\/\" target=\"_blank\" rel=\"noopener\">Specialty Coffee Association of America<\/a>.<\/p>\n<p>When it comes to global traction, the two companies vie neck-and-neck with <a href=\"https:\/\/corporate.mcdonalds.com\/corpmcd\/franchising-overview.html\" target=\"_blank\" rel=\"noopener\">McDonald&#8217;s operating in 118 countries<\/a> and about 38,000 outlets while <a href=\"https:\/\/en.wikipedia.org\/wiki\/Starbucks\" target=\"_blank\" rel=\"noopener\">Starbucks has a presence in 84 countries<\/a> and more than 33,000 stores.<\/p>\n<p>In emerging markets, though, <a href=\"https:\/\/www.reuters.com\/business\/retail-consumer\/mcdonalds-china-owners-carlyle-trustar-plan-4-bln-exit-bloomberg-news-2023-07-13\" target=\"_blank\" rel=\"noopener\">McDonald\u2019s comes a close second with 5,400 outlets in China<\/a>&nbsp;compared to <a href=\"https:\/\/www.statista.com\/statistics\/277795\/number-of-starbucks-stores-in-china\/\" target=\"_blank\" rel=\"noopener\">Starbucks\u2019 6,019 stores.<\/a><\/p>\n<h2>Starbucks Leads On Revenues<\/h2>\n<p>After reading their latest financial reports, it&#8217;s apparent that Starbucks has the edge with $32.2 billion in sales versus <a href=\"https:\/\/corporate.mcdonalds.com\/corpmcd\/investors.html\" target=\"_blank\" rel=\"noopener\">$23.1 billion for McDonald&#8217;s<\/a>.<\/p>\n<p>Notably, McDonald&#8217;s, though it lags on revenues, posted a significantly higher operating income of $10.3 billion compared to the $4.4 billion reported by Starbucks management. That suggests McDonald&#8217;s is considerably more efficient at scaling operations than is its rival.&nbsp;<\/p>\n<p>It&#8217;s not entirely a surprise, however, when examining gross margins. McDonald&#8217;s has a 57% margin whereas Starbucks comes in significantly lower at just 26%.<\/p>\n<h2>Can Starbucks Catch Up?<\/h2>\n<p>Still, the past is the past, and for investors the question is can Starbucks improve and catch McDonald&#8217;s on the profitability metric? For that, we turn our attention to growth.<\/p>\n<p>When it comes to growth, Starbucks top brass has <a href=\"https:\/\/stories.starbucks.com\/press\/2022\/starbucks-enters-new-era-of-growth-driven-by-an-unparalleled-reinvention-plan\/\" target=\"_blank\" rel=\"noopener\">forecast growth between 10% and 12% through 2025<\/a>, primarily fueled by its international expansion.<\/p>\n<p><iframe loading=\"lazy\" style=\"margin: 0 auto; border: 0;\" src=\"https:\/\/financhill.com\/widget\/charts\/SBUX?defaultOverlays=EMA20%2CSMA50&amp;periodGrouping=daily&amp;defaultSeries=candlesticks\" width=\"720\" height=\"439\" frameborder=\"0\" scrolling=\"no\" seamless=\"\"><\/iframe><\/p>\n<p>On the other hand, <a href=\"https:\/\/news.yahoo.com\/mcdonalds-to-open-1900-locations-in-2023-us-franchisees-encouraged-by-growth-202224492.html\" target=\"_blank\" rel=\"noopener\">McDonald&#8217;s expects 4% unit growth<\/a> as a result of slowing consumer demand. A driver of growth for McDonald&#8217;s has been its franchise model and foray into healthier options as well as offering upscale coffee through McCaf\u00e9.<\/p>\n<p>Growth challenges for Starbucks lie in maintaining the quality of the coffee while scaling up whereas for McDonald\u2019s the ongoing public scrutiny over health concerns associated with fast food are a perpetual battle.<\/p>\n<h2>Starbucks Paved The Way for Online Ordering<\/h2>\n<p>You can&#8217;t count out Starbucks from identifying new and innovative growth drivers because its history has been impressive in so doing. For example, its mobile order and pay technology accounted for 25% of all its transactions in 2022 &#8211; its <a href=\"https:\/\/www.retaildive.com\/ex\/mobilecommercedaily\/starbucks-app-surpasses-70m-mobile-payments-transactions\" target=\"_blank\" rel=\"noopener\">app has processed an astonishing 70 million orders<\/a>.<\/p>\n<p>Meanwhile, McDonald&#8217;s partnered with <a href=\"https:\/\/www.engadget.com\/mcdonalds-ibm-ai-food-orders-131806578.html\" target=\"_blank\" rel=\"noopener\">IBM to help it launch AI-powered drive-thrus<\/a> &#8211; so far the initiative has been a roaring success, leading to a 10% increase in average ticket size in stores where this technology was implemented.<\/p>\n<p>The adoption of technology has naturally led to increased scrutiny from regulators over wages and employee conditions.&nbsp;McDonald\u2019s, in particular, has been subject to several lawsuits regarding its <a href=\"https:\/\/www.npr.org\/2019\/12\/12\/787126119\/mcdonalds-not-responsible-for-how-franchisees-treat-workers-u-s-agency-rules\" target=\"_blank\" rel=\"noopener\">franchise employment practices. <\/a><\/p>\n<p>On the flip side, Starbucks has generally been ahead of the curve, offering healthcare benefits and stock options to even part-time employees.<\/p>\n<h2>Valuation Insights<\/h2>\n<p>When we compare the two companies on valuation, Starbucks has a $111 billion market capitalization but analysts think it&#8217;s worth about 15% more, and have put a $112.85 price target on the stock.<\/p>\n<p>Perhaps surprisingly to some observers, McDonald&#8217;s market cap is almost twice that of Starbucks, and sits at $205 billion. Analysts are a bit more optimistic on its prospects and, among 32 analysts, the consensus price target is $328 per share, approximately 18% higher than where MCD share price sits.<\/p>\n<h2>Starbucks vs McDonald&#8217;s Stock Verdict<\/h2>\n<p>McDonald&#8217;s is almost twice as large as Starbucks and also has almost twice as much operating income despite Starbucks enjoying almost 50% more revenues than its fast food rival.<\/p>\n<p>Analysts are also more bullish on McDonald&#8217;s prospects going forward, placing higher upside opportunity to fair value on it, even though it&#8217;s growing slower.<\/p>\n<p>The lesson is clear for investors that Wall Street prefers an operationally more efficient company that is growing slower &#8211; McDonald&#8217;s &#8211; versus a higher-revenue generating, lower profit firm, even if it&#8217;s growing at faster rate. In short, McDonald&#8217;s is the better bet.<\/p>\n<p>A final addendum to the analysis is a note on dividends. Neither company can be separated much on yield with McDonald&#8217;s paying out a 2.16% yield while Starbucks offer 2.19%. On the measure of payout ratio, though, Starbucks comes second again because it has a payout ratio of 63.09%, which is a bit too high to be comfortable that it&#8217;s sustainable when compared to McDonald&#8217;s 54.3% payout.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Starbucks (NASDAQ: SBUX) and McDonald&#8217;s (NYSE: MCD) were both in the business of serving customers quickly but they weren&#8217;t exactly competitors, at least not until McDonald&#8217;s got into the coffee business and attempted to take market share away from Starbucks.&nbsp; Both companies have global reach, are extremely well capitalized, have loyal customer bases, and continue [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":528674,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[22],"tags":[334,372,874],"class_list":["post-267203","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-ndaq","tag-bpop","tag-sbux"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/financhill.com\/blog\/wp-content\/uploads\/2018\/10\/Untitled-design-2023-09-13T214733.001.jpg","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9czeV-17vJ","_links":{"self":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/267203","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/comments?post=267203"}],"version-history":[{"count":3,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/267203\/revisions"}],"predecessor-version":[{"id":528676,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/267203\/revisions\/528676"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/media\/528674"}],"wp:attachment":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/media?parent=267203"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/categories?post=267203"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/tags?post=267203"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}