Fizzy Drinks, Energetic ‘Broistas’ Are Fueling Dutch Bros’ Rise as the Next Big Coffee Chain

Dutch Bros, a coffee chain founded in 1992 by brothers Dane and Travis Boersma, has been gaining attention on Wall Street due to its unique culture and high-energy staff. The company has achieved a 10% growth in same-store sales last quarter, while Starbucks’ North America and US same-store sales dropped 3%. Dutch Bros’ profit jumped 40% year over year to $54.3 million, while revenue increased 39% to $275 million.

Dutch Bros’ stock is up 34% in the last 12 months, despite uncertain macroeconomic conditions in the broader food industry. Starbucks shares have fallen 26% over the past year, while Tim Hortons’ parent company Restaurant Brands International (QSR) fell 8%. McDonald’s, which is getting into the coffee game with its latest concept CosMc, is down roughly 11%.

Dutch Bros’ success can be attributed to its humble beginning and a unique culture. The company was founded by Dane Boersma, who franchised a Dairy Queen at the age of 22, and Travis Boersma, who then became a college student, to roast espresso together. The team strove for a “fun and cool” working environment from the get-go, without a “big, bad boss standing over your shoulder.” Employees are given autonomy on how to serve customers and encouraged to be “cool and creative” in their interactions.

Dutch Bros’ menu is a point of differentiation, as is the extremely customer-friendly culture the company has cultivated. The company’s energetic customer service is an important leg up, considering that Dutch Bros’ price point isn’t “meaningfully” different from Starbucks’.

In Q1 2024, the company opened a record 45 new shops, marking the 11th quarter of 30 or more new openings. To ensure consistency in its culture and product, Dutch Bros brings in the “mob,” a group of more experienced broistas, to work with new shop staff. The company-owned locations boast a margin of 29.8%, which is “quite high” for the industry.

Dutch Bros’ current go-to is an iced Creamy Vanilla Protein Milk Latte, and in between juggling her three kids’ busy schedules and traveling, Barone mixes up different concoctions to discover the next big hit.

Dutch Bros’ success is a testament to its unique culture, strong leadership, and commitment to customer satisfaction. As the company continues to grow and expand, it is expected that Dutch Bros will continue to thrive in the face of consumer resistance to high prices and poor execution.

Dutch Bros, a coffee chain, has been expanding its presence in the US by hiring new executives, including Starbucks alums Sumi Ghosh and Josh Guenser as president of operations and CFO, respectively. Ghosh, a former Nike executive, first crossed paths with Barone when he was a regional vice president at Starbucks. Guenser met Barone while both were rising through the ranks at Starbucks, where he later became the senior vice president of finance.

Barone also recruited former Carl’s Jr exec Tana Davila as chief marketing officer. The company’s growth is driven by its focus on consumer trends and behavior, which led to the creation of high-protein coffees, protein coffee, strawberry boba, sodas like Double Rainbro (strawberry, peach, and coconut) and Laser Cat (raspberry, coconut), and customizable Rebel energy drinks.

Dutch Bros is expanding geographically from its northwest origins down to southwest Texas, then southeast, with plans to open 30% of its new shops in Texas and a $13 million roasting facility on a 6.5 acre plot. However, brand awareness has been an obstacle in its rapid expansion. As real estate value and financing costs rise, developing new locations will also become increasingly expensive.

Dutch Bros is taking lessons from the Lone Star State as it spreads its footprint in Florida and Tennessee. For example, it is building stores five miles apart instead of one mile apart, then building a third shop in between once the previous two have attracted a following. Investors can expect a different buildout speed than in the past, as they probably won’t have 175 of them after two and a half years; it will be kind of slower and broader in terms of getting to markets and establishing the brand.

The company will still focus on local marketing, but may explore national advertising, which it hasn’t yet done, per Davila. As of its latest quarter, there are 876 Dutch Bros locations, 582 company-operated, and 294 franchisees, though the company is no longer accepting new franchise operators.

Dutch Bros plans to introduce mobile orders at most of its restaurants by the end of 2024, following Starbucks’ successful mobile order and pay system. The system works differently at each location, with customers taking orders on their tablets and inputting vehicle descriptions. For mobile orders, customers can share a description of their car in the app, and broistas will deliver their orders from the shop to the car once they drive in.

Approximately half of the shops have installed “escape lanes,” which allow cars to drive out of the line and leave once they receive their drinks. Aaliyah Ortiz, a shop manager in the Phoenix area, said her team’s goal is to have 20% to 25% of its customers exiting the line. However, drivers at shops without an escape lane will have to park and use the walkup window or wait in the car line as usual.

Dutch Bros’ service-oriented culture includes drinks handed out by chatty broistas, unlike the industry’s typical pickup lane design. The ability to order ahead could complement the business in different ways, such as increasing customer spending and frequent visits. Mobile order also offers the check and mix benefit, allowing customers to discover greater customization options more seamlessly.

It remains to be seen whether each location will need more staff or if the additional demand will overwhelm the already busy system. Boersma believes that “tension is healthy” as the company looks to scale and expand. He emphasizes the importance of being cognizant and self-aware of the business’s needs and a never-ending improvement mindset. In the meantime, Barone will be watching the progress firsthand as she trains at every shop she visits.

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