Why The Third-Largest Coffee Chain In The US Actually Sells Barely Any Hot Coffee – CoffeeTalk

Dutch Bros, a coffee and beverage chain founded in 1992 by two Oregon dairy farmers, has swiftly become the third-largest coffee chain in the U.S. by sales and locations, positioning itself as a competitive force against Starbucks and Dunkin’. While Starbucks holds about 48% of the U.S. coffee-chain market, Dutch Bros has started to chip away at this dominance, particularly among Generation Z consumers drawn to their unique energy drinks and customizable cold beverages, like the OG Gummy Bear Lemonade and Shark Attack Rebel, which contains a staggering 111 grams of sugar for an iced large.

The chain, which operates 1,140 locations, emphasizes a menu with approximately 90% of its offerings served cold—aligning with younger consumers’ preferences. Chief Marketing Officer Tana Davila highlights the importance of customization, stating that the brand has developed a proprietary energy drink, Rebel, allowing extensive personalizations, including flavor combinations and toppings. This customizable approach is foundational to the brand’s identity and appeals to the growing energy drink market, projected to outpace coffee growth.

To contend with intensifying competition, particularly as Starbucks plans customizable energy drinks and McDonald’s introduces new cold beverages, Dutch Bros indicates a strategic focus on maintaining and broadening its market edge. Challenges persist, including convenience—many customers cite the lack of nearby locations—as a hurdle against bigger brands. In response, Dutch Bros aims to enhance its loyalty program and streamline customer experiences through ordering options.

Although only a third of their sales occur in the morning, Davila emphasizes the potential for growth in this segment. Dutch Bros plans to launch a bakery assortment and breakfast options to entice morning customers, aiming to reduce barriers to visitation. With only 14% of current orders utilizing mobile ahead ordering—which has been a longstanding feature for competitors—Davila stresses a tailored approach, emphasizing the unique aspects of their brand.

In addressing lower food sales relative to Starbucks, Dutch Bros is revamping its food offerings. They have traditionally offered limited snacks, but aim to diversify, adding items like breakfast sliders to broaden appeal. Engaging Gen Z is a prime focus, capitalizing on their preference for iced beverages, personalization, and social media presence. The use of promotions such as merchandise giveaways has proven successful in attracting younger customers.

Dutch Bros accelerated its store growth by 16% last year, surpassing many competitors. Davila asserts this was achieved through innovative product offerings and engaging loyalty programs, where about 73% of transactions are tied to their Dutch Rewards program, incentivizing repeat visits through point accumulation for free drinks. To further increase brand awareness, Dutch Bros aims to expand beyond its West Coast origins towards the Midwest and Northeast, intentionally creating market density to establish a recognizable presence. Currently, Texas hosts over 200 shops, primarily established in recent years, to foster brand familiarity and customer loyalty.

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