Millennials' coffee preferences are wildly different from their parents' -- and Starbucks is set to reap the rewards

  • Half of Millennials under 24 polled in a Bernstein survey said they had drunk coffee in the past day.
  • A huge chunk of that group had bought it away from home. That’s good news for Starbucks.
  • Follow Starbucks’ stock price in real time here.


Millennials are less likely to drink coffee than their parents. But when they do, it’s not at home. That’s something Starbucks can cash in on.

New research from Alliance Bernstein shows that just under half of young adults drank coffee in the past day, with a huge chunk of them opting for away-from-home coffee rather than home-brewed joe.

“Our analysis suggests that away-from-home (AFH) coffee consumption is growing faster than the broader restaurant industry, driven by demographic shifts in the coffee-drinking population,” analyst Sara Senatore said in a note Monday morning.

“48% of 18-24-year-olds consumed coffee in the past day, vs. 58% among older consumers. But of those coffee drinkers, 42% of the youngest cohort chose away from home, vs. 31% among older groups. As the younger group enters peak coffee consumption years, this preference for AFH coffee should persist, supporting continued growth.”

The firm maintains its outperform rating for Starbucks stock, with a price target of $US67 — 28% above the stock’s price Monday morning of $US54.52. The firm’s target is slightly above Wall Street’s consensus of $US63.22, according to Bloomberg.

Starbucks still has a solid hold on away-from-home coffee, accounting for about 32% of the food-service coffee market share, according to Bernstein. But competition is heating up: McDonald’s and Dunkin Doughnuts are both well-positioned to also cash in on millennials’ appetite for coffee.

Given the coffee segment’s potential for growth, Bernstein is also bullish on McDonald’s, which it also rates as outperform. The firm has a price target of $US180 for shares of the fast-food chain — 9% above where the stock was trading Monday morning.

“Starbucks’ unit growth in the US has ticked up steadily and, at ~6% for F17 YTD, now matches the pace of growth of QSR servings, and is running ahead of total away-from-home coffee growth,” Bernstein said, going on to suggest that “Starbucks can continue to be a market share gainer.”

Starbucks is expected to report 4th quarter earnings on Thursday, November 2. Shares of Starbucks are down 1.41% so far this year, after reaching a $US64.87 peak in June.

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