January 8, 2024
Photo by Giorgio Trovato on Unsplash
Will Dutch Bros Brew Up Enough Success To Surpass Starbucks?
With Starbucks almost everywhere you look, success might seem daunting for smaller coffee chains. Dutch Bros is going against the grain and creating buzz with its approachable service, unique drinks, and fast growth. Even after seeing its stock take a hit following its 2021 initial public offering, the company is starting to bounce back. With Dutch Bros’s latest press release, the retailer has explained its plans moving into 2024.
“We are designing our executive leadership team to support the Dutch Bros mission and vision as we scale and grow to 4,000 shops. I’m excited to welcome best in class leaders who understand the industry and have effectively scaled operations while maintaining and valuing company culture.”
Christine Barone, CEO of Dutch Bros, via World Coffee Portal
Dutch Bros has been expanding rapidly, opening 37 new shops in Q4 of 2023 alone. Now, with 831 stores in total as of Dec. 31, 2023, and a 33% yearly revenue increase up to $265 million, this coffee brand shows us how to grow successfully. Thanks to its unique vibe and deep customer connections, it even saw a 4% rise in same-store sales.
Its staff, fondly called “Broistas,” ranked second in the people subcategory of Forbes’ first-ever list of Best Customer Service. They were praised for being friendly and engaging, even handing out monthly stickers to customers. This word-of-mouth branding is helping Dutch Bros carve out a name in an industry dominated by Starbucks.
Being a community-oriented chain, Dutch Bros is involved in numerous initiatives. It has raised money for local communities, ALS treatment and research, and local youth organizations. This has helped create a strong local presence.
The financial results are nothing to scoff at, either. With a significant 31% margin for company-operated stores and an almost 20% increase in average revenue for each store since 2019, Dutch Bros shows that a people-first approach can yield substantial financial gains.
As it aims for a total of 4,000 coffee shops, Dutch Bros is facing a challenge. The company needs to grow while preserving the distinctive qualities that have made it successful so far. However, extra funds from recent equity offerings and credit increases should help support this expansion.
Comparing Dutch Bros to Starbucks might seem unfair, as Starbucks boasts over 38,000 stores globally. However, the smaller coffee company is showcasing its own success. With a 23.9% yearly increase in the number of shops and a significant uptick in net income, Dutch Bros is already a strong contender.
Furthermore, the Oregon-based coffee chain has brought former Starbucks executives Sumitro Ghosh and Joshua Guenser on board for its ongoing expansion in the U.S. In 2023, the company opened 159 new stores (146 are company-operated), raising the total to 831 outlets across 16 states (542 company-operated and 289 franchised), with plans for about 160 more in 2024.
Ghosh will join Dutch Bros as the incoming president of operations, engaging with staff and regional leaders. Upon board approval, he will become the president of operations in June 2024, managing store operations, real estate, and supply chains. Ghosh has 12 years of experience at Starbucks and was recently the global VP of Nike Stores. Guenser will come on board in February 2024 as the chief financial officer, succeeding Charley Jemley. He held the same role at MOD Pizza and has had several financial leadership roles at Starbucks. Dutch Bros has also appointed Jess Elmquist as the chief people officer, responsible for human resources across the store network and its 16,500+ workers.
Founded in 1992, Dutch Bros is projected to have reached full-year profitability for 2023, having posted profits for the first three quarters of the year. The company earned $13.4 million in net income in the third quarter, a 38% increase from the previous quarter, and sales reached a record $264.5 million.
BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
Neil Saunders
Managing Director, GlobalData
Scott Benedict
Founder & CEO, Benedict Enterprises LLC
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Discussion Questions
Amid its growth phase, can Dutch Bros, with its people-first philosophy and community-oriented initiatives, usher in a new formula for success in the thriving coffee market, especially when compared to Starbucks? Considering Dutch Bros’ robust financial performance and ambitious expansion plans, is it plausible to perceive the brand as a potential game-changer in the worldwide coffee sector? As former Starbucks executives join Dutch Bros’ management team, what impact could this exchange of perspectives and strategies potentially yield on the transformation of the coffee industry’s competitive dynamics?
Poll
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Comparing Dutch Bros to Starbucks might seem unfair, or just plain foolish; indeed, tho one might not realize it from reading RW over the years, but there are actually other coffee shops than Starbucks, both local, regional and national brands. And insofar as some of them – either by default or design – can fall under the category of “Not Starbucks”, it’s probably more logical to direct the comparisons thusly.
I don’t perceive Starbucks and Dutch Bros as direct competitors. They differ significantly from the perspective of customer experiences.
Dutch Bros is not an indoor café like most Starbucks. Given price points and variety, I believe Dutch Bros competes more with Caffe Bene, Caribou, and Scooters. Starbucks competes with Duncan, Peet’s, Tim Horton’s, Coffee Bean.
Price points vary. A premium drink at Dutch Bros is $4.25, but a comparable size at Starbucks is $6.19.
Dutch Bros specializes in cold brew, freezes, frosts, energy drinks, smoothies, and chai. A greater difference comes in the food items. Unlike Starbucks, Dutch Bros. doesn’t offer a variety of breakfast and lunch items.
Dutch Bros will do well but Starbucks, with 36,000 stores (global) will not be threatened by Dutch Bros, nor any other coffee chain, at least not in the foreseeable future. – Db
Although they may seem similar, Starbucks and Duch Bros do not compete head to head. Indeed, our customer data show they each serve slightly different consumer segments. Dutch Bros is more about on-the-go, has a greater focus on value, and derives a higher proportion of revenue from novel beverages. Dutch Bros has significant scope for expansion in the US, and can grow without too much impact on Starbucks (share will be taken from other chains).
I have never even heard of Dutch Brothers prior to reading this post. And no, I do not live under a rock. Good luck to them, competition is always a good thing.
Yes. I doubt Starbucks is including them in its strategic plans.
As David and Neil point out, the comparison with Starbucks is fanciful. The headline in today’s discussion is laughable. If we want to talk about someone catching Starbucks, let’s talk about real challengers. Luckin’ (9,000 stores in China) and Cotti (6,000) stores in China are actually challenging SBX (7,000 with plans to double that by 2025). Will they come to the U.S.?
The real question is, can Dutch Bros break into this competitive business? Consider the chain that is ubiquitous in Manhattan. Matto is known for its pricing gimmick of charging $2.50 for all items, including food and beverages, regardless of size. Matto’s coffee comes directly from Northern Italy. Now there is a unique proposition.
They’re going to have a hard time getting traction in the Northland as well – Caribou has more locations than Starbucks in Minnesota, for instance, and also on an expansion kick. (Caribou is owned by the same fund that manages Peet’s, Panera, Krispy Kreme, etc., so they have the funding access they need.)
Dutch Bros. falls into the same regional or super-regional category as Caribou, Collectivo and many other chains around the country. (And let’s not forget about the growth potential of CosMc’s if the test market plays out.) I don’t see a 4000-store chain being an existential threat to Starbuck’s (or even Dunkin, for that matter) but any of these smaller chains can capture share in their chosen markets with the right combination of service and offerings.
Better to compare Starbucks to McDonald’s: Both chains sit on the top rung of the top of the mind awareness ladder. Ask a random person where to get a cup of coffee and you are likely to be referred to Starbucks. Ask about burgers and you will hear McDonald’s. It’s almost an unconscious response. No matter how good they are, it’s unlikely that anyone could knock the Kleenex of coffees off of its perch.
While I am not familiar with Dutch Bros, I know that it doesn’t need to be a big as Starbucks to be successful. There are gazillions of local coffee shops and small chains across the country that get along just fine in the same communities as Starbucks.
Dutch Brothers is a strong regional player, but when compared to Starbucks, they are not in the same league. The message here is that there is room in the coffee market for disruption and competition. Focus on your value prop, which Dutch Bros does well, which Caribou does well, and you can compete with Starbucks. But, even with the headwinds that Starbucks is facing at the moment, unseating them from the coffee throne is a long way off.
Undoubtedly, Dutch Bros has found the formula for success in the expanding coffee market. However, comparing that success to the industry’s goliath is less valuable than whether or not the company can fight off McDonald’s latest nostalgia coffee experiment, CosMc (pronounced Cosmic). The beverage-first spinoff utilizes a similar drive-through model with no seating as Dutch Bros and a menu of fun energy drinks.
The selection of former Starbucks executives to fuel future growth makes sense in bringing greater credibility to the c-suite; however, outside of growing store count, the future growth business model for Dutch Bros should not resemble that of Starbucks; the two companies present different value propositions and consumer needs.
I really don’t know where to start. I mean Dutch Bros’ press release sound so bullish I’m sure Starbuck’s is quaking in its lattes. As Craig Sundstrom correctly points out, “Yes Virginia Starbuck’s isn’t the only coffee game in town.” There are lots of independent and franchised local and regional operations that are doing just fine thank you. And a goal of 4,000 shops is impressive, let’s remember Starbuck’s operates ~35,711 stores in 80 countries, roughly 15,873 of which are located in the U.S. So … 4,000? Well, let’s just say Dutch Bros. has a way to go. And, Gene Destroyer is right … to a degree. While he called the headline on this piece “laughable” I think it’s closer to an over-caffeinated hallucination, One last thing … scale impacts service. That’s what ought to give independents a service edge. Dutch Bros’ current store total is about 2.3% of Starbuck’s. Let’s revisit that service model again when they close that 97.7% store gap.
This is not really a valid comparison- Starbucks is a global giant and Dutch Bros is a regional chain.
Starbucks would be well served to keep an eye on all up-and-coming smaller competitors, as they are very innovative.
Competition is good. The biggest companies know they are not immune to competition. Whoever thought Amazon would have a competitor? Or Google? And yes, Starbucks?!
After Starbucks succeeded in bringing me into the realm of the coffee-drinking public, I never imagined that any other company could cause me to switch to their brand.
While living in College Station, Texas and teaching at Texas A&M, Dutch Bros opened a number of locations in town, and I gave them a try. I found their service was better, and their product was more consistently prepared. Their prices were lower, and their people seemed happy to work there. Then I noted former Starbucks employees shifting over to work at Dutch Bros, and they confirmed their preference for work at DB.
They are clearly doing something right. The market is clearly big enough for multiple players, and Dutch Bros executes new locations very well.
Just announced: Starbucks plans to operate 1000 stores in India by 2028, opening the equivalent of one new location every three days for the next four years …one every three days.
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Comparing Dutch Bros to Starbucks might seem unfair, or just plain foolish; indeed, tho one might not realize it from reading RW over the years, but there are actually other coffee shops than Starbucks, both local, regional and national brands. And insofar as some of them – either by default or design – can fall under the category of “Not Starbucks”, it’s probably more logical to direct the comparisons thusly.
I don’t perceive Starbucks and Dutch Bros as direct competitors. They differ significantly from the perspective of customer experiences.
Dutch Bros is not an indoor café like most Starbucks. Given price points and variety, I believe Dutch Bros competes more with Caffe Bene, Caribou, and Scooters. Starbucks competes with Duncan, Peet’s, Tim Horton’s, Coffee Bean.
Price points vary. A premium drink at Dutch Bros is $4.25, but a comparable size at Starbucks is $6.19.
Dutch Bros specializes in cold brew, freezes, frosts, energy drinks, smoothies, and chai. A greater difference comes in the food items. Unlike Starbucks, Dutch Bros. doesn’t offer a variety of breakfast and lunch items.
Dutch Bros will do well but Starbucks, with 36,000 stores (global) will not be threatened by Dutch Bros, nor any other coffee chain, at least not in the foreseeable future. – Db
Although they may seem similar, Starbucks and Duch Bros do not compete head to head. Indeed, our customer data show they each serve slightly different consumer segments. Dutch Bros is more about on-the-go, has a greater focus on value, and derives a higher proportion of revenue from novel beverages. Dutch Bros has significant scope for expansion in the US, and can grow without too much impact on Starbucks (share will be taken from other chains).
I have never even heard of Dutch Brothers prior to reading this post. And no, I do not live under a rock. Good luck to them, competition is always a good thing.
Yes. I doubt Starbucks is including them in its strategic plans.
As David and Neil point out, the comparison with Starbucks is fanciful. The headline in today’s discussion is laughable. If we want to talk about someone catching Starbucks, let’s talk about real challengers. Luckin’ (9,000 stores in China) and Cotti (6,000) stores in China are actually challenging SBX (7,000 with plans to double that by 2025). Will they come to the U.S.?
The real question is, can Dutch Bros break into this competitive business? Consider the chain that is ubiquitous in Manhattan. Matto is known for its pricing gimmick of charging $2.50 for all items, including food and beverages, regardless of size. Matto’s coffee comes directly from Northern Italy. Now there is a unique proposition.
They’re going to have a hard time getting traction in the Northland as well – Caribou has more locations than Starbucks in Minnesota, for instance, and also on an expansion kick. (Caribou is owned by the same fund that manages Peet’s, Panera, Krispy Kreme, etc., so they have the funding access they need.)
Dutch Bros. falls into the same regional or super-regional category as Caribou, Collectivo and many other chains around the country. (And let’s not forget about the growth potential of CosMc’s if the test market plays out.) I don’t see a 4000-store chain being an existential threat to Starbuck’s (or even Dunkin, for that matter) but any of these smaller chains can capture share in their chosen markets with the right combination of service and offerings.
Better to compare Starbucks to McDonald’s: Both chains sit on the top rung of the top of the mind awareness ladder. Ask a random person where to get a cup of coffee and you are likely to be referred to Starbucks. Ask about burgers and you will hear McDonald’s. It’s almost an unconscious response. No matter how good they are, it’s unlikely that anyone could knock the Kleenex of coffees off of its perch.
While I am not familiar with Dutch Bros, I know that it doesn’t need to be a big as Starbucks to be successful. There are gazillions of local coffee shops and small chains across the country that get along just fine in the same communities as Starbucks.
Dutch Brothers is a strong regional player, but when compared to Starbucks, they are not in the same league. The message here is that there is room in the coffee market for disruption and competition. Focus on your value prop, which Dutch Bros does well, which Caribou does well, and you can compete with Starbucks. But, even with the headwinds that Starbucks is facing at the moment, unseating them from the coffee throne is a long way off.
Undoubtedly, Dutch Bros has found the formula for success in the expanding coffee market. However, comparing that success to the industry’s goliath is less valuable than whether or not the company can fight off McDonald’s latest nostalgia coffee experiment, CosMc (pronounced Cosmic). The beverage-first spinoff utilizes a similar drive-through model with no seating as Dutch Bros and a menu of fun energy drinks.
The selection of former Starbucks executives to fuel future growth makes sense in bringing greater credibility to the c-suite; however, outside of growing store count, the future growth business model for Dutch Bros should not resemble that of Starbucks; the two companies present different value propositions and consumer needs.
I really don’t know where to start. I mean Dutch Bros’ press release sound so bullish I’m sure Starbuck’s is quaking in its lattes. As Craig Sundstrom correctly points out, “Yes Virginia Starbuck’s isn’t the only coffee game in town.” There are lots of independent and franchised local and regional operations that are doing just fine thank you. And a goal of 4,000 shops is impressive, let’s remember Starbuck’s operates ~35,711 stores in 80 countries, roughly 15,873 of which are located in the U.S. So … 4,000? Well, let’s just say Dutch Bros. has a way to go. And, Gene Destroyer is right … to a degree. While he called the headline on this piece “laughable” I think it’s closer to an over-caffeinated hallucination, One last thing … scale impacts service. That’s what ought to give independents a service edge. Dutch Bros’ current store total is about 2.3% of Starbuck’s. Let’s revisit that service model again when they close that 97.7% store gap.
This is not really a valid comparison- Starbucks is a global giant and Dutch Bros is a regional chain.
Starbucks would be well served to keep an eye on all up-and-coming smaller competitors, as they are very innovative.
Competition is good. The biggest companies know they are not immune to competition. Whoever thought Amazon would have a competitor? Or Google? And yes, Starbucks?!
After Starbucks succeeded in bringing me into the realm of the coffee-drinking public, I never imagined that any other company could cause me to switch to their brand.
While living in College Station, Texas and teaching at Texas A&M, Dutch Bros opened a number of locations in town, and I gave them a try. I found their service was better, and their product was more consistently prepared. Their prices were lower, and their people seemed happy to work there. Then I noted former Starbucks employees shifting over to work at Dutch Bros, and they confirmed their preference for work at DB.
They are clearly doing something right. The market is clearly big enough for multiple players, and Dutch Bros executes new locations very well.
Just announced: Starbucks plans to operate 1000 stores in India by 2028, opening the equivalent of one new location every three days for the next four years …one every three days.