Dutch Bros focuses on Texas, Oklahoma and California as expansion accelerates
Dutch Bros is going south.
The Oregon drive-thru chain plans to accelerate its growth plans over the next year, expanding at its fastest rate yet as it aims to bring the popular Northwest brand into new territory from California to Texas and Oklahoma.
“Each opening propels our brand awareness,” CEO Joth Ricci said Wednesday on the company’s first quarterly earnings call since its initial public offering in September. He said the chain spends relatively little on marketing, depending on “word of mouth” from Dutch Bros’ customers to promote the brand whenever it enters new markets.
As Dutch Bros seeks to grow from 370 stores at the end of 2019 to more than 650 at the end of next year, Ricci said the chain it is barely feeling the inflationary pressures and labor shortages that are buffeting other brands.
“We’re kind of boring in that sense,” Ricci told Wall Street analysts, “and also very fortunate in that sense.”
Founded in 1992 and still headquartered in the small southern Oregon town of Grants Pass, Dutch Bros is now one of Oregon’s largest companies. It has more than 13,000 employees and a market capitalization of more than $10 billion, making it the state’s third most valuable public company.
Dutch Bros has built an almost fanatical following among its customer base – they call themselves the “Dutch mafia” – who enjoy the cold brews and Blue Rebel energy drinks that comprise most of the chain’s sales.
Wall Street is nearly as enthusiastic. The company’s stock, which has nearly tripled in value since its IPO two months ago, was up another 6.7% in aftermarket trading Wednesday.
Investors hope Dutch Bros drive-thru business model can open a new frontier in the highly competitive beverage market.
Its kiosks are relatively inexpensive to build, operate and staff, and its energy drinks make it a destination for more than just morning coffee. Ricci said Wednesday that its customers arrive in roughly equal measure in the mornings, noon hour and afternoons.
Dutch Bros said Wednesday that third-quarter sales were nearly $109 million, up from about $67 million in the third quarter of 2020. It says sales are rising again in the current quarter, to at least $125 million.
Dutch Bros posted a $115 million loss last quarter, compared to an $8 million profit in the same period of 2020. The company said the loss was driven by $125 million in stock compensation associated with its IPO.
Sales at existing stores grew 7.3% last quarter amid the broader expansion. The company said Wednesday that it’s counting on new stores for most of its future revenues and reiterated that it hopes to have 4,000 kiosks someday – up from 471 last summer.
By comparison, Starbucks had just 165 cafes when it went public in 1992, according to CNBC. The Seattle chain hit 1,000 locations four years after that, and topped 2,000 in two more years.
Dutch Bros hasn’t said when it hopes to reach its 4,000-store target. It will eventually bump up against other popular brands, from Starbucks to Dunkin Donuts and regional chains that have their own loyal followings.
So for now, Chief Financial Officer Charley Jemley said one of the company’s main challenges is opening kiosks rapidly enough to meet demand in new markets before other locations are overwhelmed by demand.
“We’re speeding through Texas as fast as we can get there,” Jemley said.