Starbucks' locations are catching up to McDonald's -- but at a cost

In the battle between coffee goliaths, Starbucks is gaining on McDonald's -- but its growth might be coming at a cost. 

Starbucks now operates about 13,900 locations in the U.S., putting it within sipping distance of the 14,400 restaurants operated by McDonald's. In the past 12 months, Starbucks has opened almost 1,000 new stores in the Americas, which includes the U.S., Canada and Latin America.

That growth appears to be coming at a cost for Starbucks, according to Bernstein analyst Sara Senatore. The new stores may be cannibalizing traffic from existing stores, potentially diverting 1 out of 7 transactions, she estimated. 

Take Burlington, Vermont, where for years a Starbucks location on a main road was the sole location on the south side of the city. But recently, another Starbucks location opened -- directly across the street from the older cafe. 

There's never been so much competition to get American consumers to open up their wallets for a cup of coffee. McDonald's McCafe and Dunkin' Donuts are also vying for the latte crowd with their own versions of sweetened espresso drinks, but at a much lower cost than Starbucks. 

"Starbucks is no longer really in the customer acquisition phase," Senatore said on a conference call about the company. "It's no longer about telling customers who Starbucks is or what it does."

She added, "It's now competing with others to retain the customers it has and to activate new customers. And that's sort of the definition of maturity in my view."

The tailwinds are coming at an inopportune time for Starbucks. It's recovering from a racial incident that sparked protests and boycotts, tarnishing its image with some customers. And co-founder Howard Schultz, the public face of the company, said this week he would step down as executive chairman.

Even so, it should be a prime time for Starbucks. Coffee drinking among Americans is at a six-year high. Even more important, consumption of espresso drinks -- like Starbucks' pumpkin spice latte -- is at an all-time high, with one out of every four consumers drinking one in the past day, according to Senatore's data. 

Some of the growth is coming from a new habit: drinking coffee in the afternoon. And that's where McDonald's and rivals may be taking share from Starbucks. If you want food and a cup of joe, for instance, it's likely to be less expensive to stop at a McDonald's than a Starbucks to grab both a meal and coffee, which may be sapping Starbucks' appeal. 

The data sheds light on Starbucks' slowing growth, as well as its embattled stock price. It shares have declined 8 percent in the past 12 months, compared with an almost 14 percent gain in the S&P 500.

Same-store sales, a key retail metric tracking the performance of locations open at least a year, rose 2 percent in the most recent quarter, far below the 7 percent growth recorded as recently as 2015. 

Return on investment for new stores is also waning, with new locations reporting ROI of about 60 percent, down from 75 percent previously, Senatore noted. That coincides with the growth in new locations, she pointed out. 

Starbucks isn't the only chain to encounter headwinds after rapidly expanding. McDonald's faced slowing growth after enlarging its footprint, as The Wall Street Journal noted

Facing unhappy shareholders, McDonald's appointed a new CEO, who shuttered some stores and refocused the menu. 

The data showing slowing growth at Starbucks, among other issues, "brings us to the question of, "should Starbucks strategy change?" I think if you've been paying even halfway attention, you can conclude that I think the answer is yes," Senatore said. 

Her view: "My suggestion would be to slow unit growth." 

Until then, the Starbucks habit just got a little more expensive for current customers. The company says it's raising the price of a regular drip coffee by 10 cents to 20 cents this week in most U.S. stores. It says a small brewed coffee is now $1.95 to $2.15 in a majority of locations. The company said Thursday prices remain unchanged on drinks such as lattes and iced coffees in most stores.

The Associated Press contributed to this report.