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00:00Let's talk about that growth story, a West Coast brand that continues to creep further
00:04towards the East Coast. Give me a sense here about the pace of that expansion
00:08and when we actually start to see that populated up and down the eastern seaboard.
00:12Yeah, so we are growing quickly. We have a goal to get to 2,029 shops in 2029. We'll add
00:19at least
00:19185 shops this year, so a really rapid growth. But that growth is all predicated on our team
00:25and our people being ready. So we grow from within and we have over 500 operators, which is
00:31our first level above shop, ready to move to new states and move to new areas to open those Dutch
00:37Bros. Well, give me a sense here. We talk about 2029 by 2029. That's a lot. I mean, I was
00:43looking
00:43at the numbers that you had already and I mean, the pace that you would have to have to get
00:48there
00:49would have to increase from where you are right now, wouldn't it? And the pace of new stores that
00:53are actually? Yeah, correct. So we are getting ready for that rapid growth and we've already
00:58been growing very quickly. And really, again, it is about our people. And so are our people ready
01:03to take on those new shops? Are they trained? Are they excited to move to new markets? And they are.
01:09And as we introduce ourselves to new communities, it's all about our teams and providing that happy,
01:16friendly drive-through service. Of course, anytime a restaurant, anytime a sort of consumer company
01:21starts to make that sort of broader push, there's always questions about the return that you get on
01:26a per location basis. And I am curious as to what's sort of the runway, the number of years or
01:32maybe
01:32even months that you need where you see a material return on a new location. Yeah. So as we look
01:37ahead
01:37at our locations, we do a really nice job of driving returns. So our average unit volume and our drive
01:43through shops is about 2 million. And as we look at that average unit volume, we also have very high
01:49shop
01:49level margins. So our shop level margin goal is about 30%. And then our build out cost really
01:55range depending on if we do a build to suit where our developers help us build it out, or if
01:59we're
01:59actually developing all that land ourselves. And so our cash on cash returns are among some of the
02:05highest in the industry. For those who aren't familiar with sort of the Dutch Bros model, this is
02:10basically a drive-through model. Yeah. And I am curious. I understand in the West Coast, which is
02:15very car centric. I can understand how that works, even in the Midwest. And you've had some success in
02:20the Chicago area. But as you get further east, you're going to start to enter markets that maybe
02:24are a little bit less car dominant. Does the Dutch Bros model work in that environment?
02:29Yeah. So we are very focused on our drive-through model that works well. So as we look at how
02:33many
02:34shops we'll have across the U.S., it really is thinking through where people are likely to drive.
02:39And it is with that drive-through model. That being said, we did open a unit in Southern California,
02:46right near the USC campus, that's doing incredibly well, that is a walk-up. And so rather than the
02:52party and the drive-through, we actually have the party and the patio. The party and the patio.
02:57Party and the patio. And that's the other sort of ethos, too. You know, obviously this idea that
03:01your workers, the way that they greet people, the way they interact with people, I mean, that's a big
03:06part of it. You drive up to the window and they say something witty to you and you have a
03:10good
03:10moment there. How do you sort of, how does that translate across the country, though? Because
03:15you have to find, obviously find, the right type of employee with the right type of personality
03:20to be able to sort of elicit that. How do you do that? So a couple of ways. So one,
03:24we have that
03:25really deep operator pipeline that I mentioned. So that's over 500 folks in our operator pipeline.
03:30They have on average seven to eight years of tenure with Dutch Bros. They really know and love
03:36the Dutch Bros brand. And then we oftentimes will move some of the leadership team out as well. So
03:42maybe the shop manager. And so really understanding what our culture is, is where we start. And then
03:48we hire great people. And we find great people all over the country, really, too. And then I think
03:54what we need to do is, and what we always do, is provide a great environment within our shop.
03:58And that great environment with each other and with team members really translates then to our
04:03customers. I do have to ask you just about, kind of, as you expand, this idea of what a coffee
04:08shop
04:08is supposed to be. You mentioned the walk-up locations. But I think about the big reimagining
04:13that Starbucks has been doing. You obviously have a lot of familiarity with Starbucks, where they're
04:17going back to this idea of the third place, the third space of people sitting and lingering and
04:22buying things. The Dutch Bros model is kind of grab and go. Is there not pressure that you feel
04:29that maybe the trends right now are moving back to more of a sit-down, in-store experience?
04:35You know, I think most, actually, beverage is consumed on the go. And so most customers
04:40out there actually want something rather quick. I think what we do very differently is we have
04:45the best service in the industry. And so we are able to provide incredible service, but
04:50very quickly. And I think that's the magic of Dutch Bros.
04:53What about the types of drinks in the menu, the way you look at the menu? Is the idea to
04:57keep
04:57things relatively stable, relatively simple? Are you going to be experimenting with different
05:02flavors, different combinations? What's the goal? Yeah, so we have an incredibly customized
05:08menu. And you can make your drink however you want it. About half of our sales are coffee,
05:14but the other half is energy-based beverage teas and lemonades. And what we're seeing right
05:19now, especially as Gen Z is coming into the market, we're seeing huge growth in that energy
05:24space. We're the category creator of customized energy beverages and have just the broadest
05:30portfolio there in the industry. That's a really competitive space right now. I mean,
05:34obviously Starbucks is pushing that, Dunkin'. I mean, you name a major national chain, McDonald's.
05:40They're all doing these types of energy drinks or refreshers or, you know, they all have different
05:44names for them, but they're all kind of akin to that. Has that become almost too competitive
05:48of a space to be in? How do you differentiate yourself? Well, we've been around since 1992.
05:53We grew up in the Pacific Northwest, so we are certainly very familiar with competition as we've
05:59grown. And we really differentiate ourself through our people. And it's through that service. It's
06:05through that highly customized offering. So with energy beverages in particular, you can get them
06:10blended. You can get them iced. You can get them sugar-free. Any types that you want, we really have
06:17highly, highly customized offers, which is what a customer is looking for today. I have to ask you
06:21about your costs. Obviously, food inflation has been a big topic of conversation. How do you manage
06:28that, whether it's what goes into your coffee specifically, your dairy products, et cetera? How are you
06:34managing and maybe keeping that cost base stable? Yes, we're very focused on our customer value
06:39proposition. We've taken very little price over the last couple of years. We have seen inflation in coffee
06:46prices, and that's just a market that has continued to stay at elevated paces. That being said, we're
06:52really thoughtful for our customers. And we actually do our pricing based on customer willingness to pay
06:57where we sit in the market. You've been adding food. We have been adding food. How's that been going?
07:02It's been going really well. So we've been rolling out food across the country. We started with four
07:07SKUs. We now have about nine SKUs. So it's a very limited food program. That being said, in the morning,
07:15protein-based items are quite important, things like breakfast sandwiches. So we've been able to
07:19add those to our menu. Well, give me a sense here. I mean, because when I bring that up, we
07:24know that
07:24the consumer has been under pressure. And I was looking at your most recent results. The comp sales
07:27growth were great, close to 6%. But then when you actually look at the transactions, that increase
07:33was only up by less than 2%. Yeah. So obviously, there's this idea that maybe you're getting more sales in
07:40terms of people into the store. But are they just buying less or spending less per visit? Is that the
07:46story
07:47right now? No. So we're actually both for Q2, we grew both our ticket and we grew our number of
07:52transactions.
07:53So really healthy in this market as you look at what's going on there. And I think as you think
07:58each year to grow your
07:59transactions, we have very healthy transaction growth in Q2. Are people willing to spend more on, you know, items,
08:06meaning, you know, those add-ons and other things before they walk out the door? Or are they keeping
08:11it simple with, you know, the basic drinks? Yeah. So one of the things we saw with food, and that
08:17really
08:17is an add-on item, is that our customers, it was one of the number one things they were asking
08:22for.
08:22They said, I love your beverages the most, but sometimes I'll go somewhere else to grab my food in the
08:27morning. So this was an important piece that our customers really wanted. And I think in consumer,
08:32when your customers are asking for something, it's usually a great idea.
08:37I saw you, you gave, you were speaking, I think a week or two ago with investors and you kind
08:42of use
08:42this idea saying that the competition in this space was overblown. Everybody looks at this
08:47proliferation of coffee shops, whether it's the older incumbents like Starbucks or the newer entrants
08:52out there. And is there a sense here that maybe there is just too many coffee shops out there,
09:00too many drinks, places out there trying to compete for the same customer?
09:05Well, I do think beverages are very popular right now. I also think that it's really important to
09:10be differentiated versus others. And I think Dutch Bros is clearly differentiated versus other
09:15competition, both from our offering perspective with that really strong energy offering, but also
09:22in our service. And I think if you come through our drive-through experience, how incredible our
09:27Bro-Eastas are, it really is a differentiator for us.
09:31And finally, just as you expand, I mean, we talked about a couple of the locations you have in
09:35Chicago that are doing well. And as you come out east, I know that part of your expansion has been
09:40acquisition, the idea of finding existing locations out there that can be quickly converted into.
09:45But you've also run into a problem, and this gets to the competition issue, of being outbid by other
09:49folks that are looking to do the same. And of course, there was obviously the whole Seven Brew thing.
09:54And I know that's not necessarily settled, but it gets to this idea that other companies are
09:58looking to do the same as you. Is there a threshold that you're willing to pay for some of these
10:04locations, even if maybe they're a little bit higher than what you originally had set out to have?
10:09Yeah, great question. So as we look at growing, typically we'll grow just in finding new sites.
10:16We'll find new greenfield drive-through sites, but we're also always looking for conversion
10:21opportunities. In particular, with the acquisition opportunity you're talking about, we're incredibly
10:26disciplined with our capital approach. We have a very, very strong market planning,
10:31so we know what a site is going to look like when it opens. And so the price just got
10:36to
10:36do something that it didn't make sense for us.
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