In terms of daypart, the brand is seeing most decreases in the afternoon and evening, with drinks like iced classics, smoothies, cold brew, frost, and iced tea. Ricci suggested this traffic was potentially transferring to convenience stores.
“I have talked about the interaction between convenience and Dutch Bros and how that can interchange,” the CEO said. “Do we know exactly where it's going? No. But what we are after now is to start to isolate Dutch Rewards in our programming, our promotion programming, our customer interface back into that afternoon, evening customer and bring that back because we still saw morning dayparts improving and actually saw growth in morning dayparts. So we've really got it isolated down to category, time of day, and who we think that customer is.”
The Dutch Rewards program has proven to be a useful tool since its launch in 2021. Roughly 63 percent of transactions came via loyalty in Q2. The app surpassed 4 million users, with 2.6 million being active within the past 90 days, as of June 30. Almost 450,000 90-day active members were added in the quarter. It's about 4,000 active consumers per shop.
“We believe there is a runway to expand this program as digital penetration is about 15 points higher in our legacy markets relative to our newer markets,” Ricci said. “The benefits of Dutch Rewards continue to evolve. We have begun providing customized offers that personalize our members' experience and drive trial frequency and upsizing. In Q2, we began to activate and target lapsed users, seeing increases in visit frequency and targeted users and an uptick in 90-day active users.”
In Q2, Dutch Bros took about 3 percent pricing. The brand typically uses price hikes to cover costs that are expected to remain elevated and then absorb temporary inflation. However, the company has seen traditionally transitory expenses turn into longer-term problems. With that said, Dutch Bros will consider more pricing actions in Q3. Food, beverage, and packaging costs increased 230 basis points to 27.1 percent year-over-year, but that’s a deceleration from the 400-basis-point jump seen in Q1. Labor costs grew 120 basis points to 29.4 percent.
Staffing continues to be a bright spot for the brand. Trailing 12-month shop-level turnover was 66 percent in Q2, well below the industry average. The chain entertained 64,000 applicants in the second quarter, and hired 3,500.
For managers, turnover was in the low double digits, while operator turnover was almost nonexistent. In the past year, Dutch Bros promoted 50 operators. As of June 30, 115 of these employees are running 336 company-run shops, which averages out to 2.9 units per operator.
“We're not having any problem hiring good people, and that goes across the system,” Ricci said. “Turnover moderated. And so we haven't really needed to play the market challenge game. I think a year ago, we were talking about hiring, bonuses, and things like that. Well, we never did any of that because we really wanted to focus on working at Dutch Bros and the value of working at Dutch Bros and why that was important and how we have that combination of good wages and tips. But we'll remain agile. We'll remain responsive to what the market needs, and we'll continue to evaluate it. But so far, the strategy we put in place about 18 months ago has held.”
For 2022, Dutch Bros is expecting at least $715 million in revenue and flat same-store sales growth. Adjusted EBITDA is projected to be $90 million. Capital expenditures are expected to be between $175 million to $200 million, including $15 million to $20 million for a new roasting facility that should open in late 2023 or early 2024.