Dutch Bros CEO Joth Ricci joined the chain in September 2018 when it stood at 317 shops.
The objective was to reach 800 stores nationwide by the end of 2023. To get there, the coffee shop used data to inform better decision-making and a disciplined brand strategy, he said. It also wanted to use technology to improve the customer experience and add fresh talent to its leadership team. The biggest tenet, which ties closely to development, was building connections with communities.
All boxes have been checked as the brand officially crossed its stated 800-unit goal in October. And as Ricci steps down and makes room for Christine Barone as the new CEO in January, he couldn’t be prouder of how far the chain has come.
“Through all of the changes and progress we’ve made over these past five years, it is important to remember that we’re growing in order to share opportunities for our crews, brighten our customers’ days, and bring connection to our communities,” Ricci said during the company’s Q3 earnings call. “We do this while recognizing the responsibility to build long-term shareholder value.”
In Q3, Dutch Bros opened 39 new shops across 11 states, including new markets in Kentucky and Alabama. Overall, the beverage brand now operates in 16 states. The company projects to open at least 150 stores in 2023, of which at least 130 shops will be company-operated. Expect this to dictate how the brand will grow for the foreseeable future. Starting in 2008, Dutch Bros only awarded franchises to those already in the system. In 2017, the chain decided to stop franchising and moved to a company-operated strategy with all operators recruited from within the system. Franchise partners continue to open new shops in their high-demand areas, but most growth will come from corporate units.
A lot of the expansion has come in Texas. Dutch Bros debuted in the Lone Star State in January 2021, and it ended Q3 with 148 shops.
“As we’ve gone into that market, we’ve rapidly been able to build scale, and we believe that our brand awareness is catching up with us a little bit in that market,” said Barone, a former Starbucks exec who served as CEO of True Food Kitchen before coming to Dutch Bros. “So again, given the rapid, rapid growth that we’ve had in the state, we’re quite pleased with where the AUVs are.”
The brand has long stated it wants 4,000 locations in the next 10 to 15 years. It is currently the third-largest beverage brand in the U.S. in terms of units behind Starbucks and Dunkin’. The brand ranked No. 33 on this year’s QSR 50.
The current pipeline comprises more than 325 qualified operator candidates, with an average tenure of seven years. At scale, Dutch Bros anticipates each operator will be capable of leading three to seven shops on average. Over the past two years, nearly 50 people have been moved to the position of operator. These workers started as hourly employees and worked their way up the ranks.
The company follows a “smiley face” growth strategy across the U.S., meaning from the Pacific Northwest through California and Texas, up through the Southeast and Mid-Atlantic.
“We’re absolutely still super excited by what we’re seeing with response as we go into new markets, new cities, new states, and have just an incredible responsiveness to the brand,” Barone said. “We send pictures around of the awesome long lines that we get to see. It’s really like a party when we open a new Dutch Bros and love to see how excited both the broistas are and the customers are when they get to visit us for the first time. And it’s pretty amazing to be 800 shops in and still have this really awesome reception as we go and enter new markets.”
As Dutch Bros moves forward with development, the chain will shift its real estate strategy. Instead of fortressing stores in a market to build awareness and shorten drive-thru times, the brand will spread out where it places shops in new trade areas. It will also find more build-to-suit leases, which require a lower upfront cash commitment, and develop new prototypes to generate stronger unit economics.
The company will begin to feel the impact of these changes in 2025.
“When we look at what we’re doing from a development strategy, it really is just taking a little bit more time, in many cases, maybe just a matter of months as we go into a new market,” said Barone, describing Dutch Bros’ updated approach. “And that’s really just to allow that brand awareness to build a little bit. I think the lines are a double-edged sword, right? So, we have that our customers learn about us sometimes from seeing those awesome long lines as we go into a market and then they also become the thing that they want us to change, and they want us to shorten our lines so that they can come more often. But we do think that that’s an important element of brand building as people kind of seeing that brand, seeing others love the brand, and coming into the market that way.”
Dutch Bros delivered record top and bottom line figures since its IPO in 2021. Revenue was $265 million, a 33 percent bump year-over-year in the third quarter, and adjusted EBITDA was $53 million, a 91 percent jump versus last year.
In Q2 2022, it surpassed $1 billion in trailing 12-month systemwide sales. Since 2019, the brand has increased its AUV by almost 20 percent. In the trailing 12 months ending September 30, company-operated AUV was $1.9 million. That includes $1.71 million for units opened in 2018 and before and $2.04 million for shops coming online between 2019 and 2021.
System same-shop sales increased 4 percent in Q3, rolling over 1.7 percent growth in 2022. There was an 8–9 percent pricing impact in the quarter.
Barone attributed the positive comps to a variety of factors, starting with three seasonal LTOs—the Chocolate Crunch Cold Brew Freeze and Frost, Carmel Pumpkin Brulee, and Sweater Weather Chai. The brand also relied on the strength of its rewards program with specific campaigns and targeted dayparts. The chain ran double point Tuesdays in Q3 and a visit frequency challenge. Currently, members drive 63 percent of transactions. There were also promotions like the Fill-A-Tray program (any four medium drinks for $15) and increases in paid media.
“As we look at traffic specifically, we saw a little bit of deceleration between Q2 and Q3 but are really pleased with the overall direction in which traffic is headed,” Barone said. “When we look at Q2 versus Q3, we saw a couple of things. One, we had a little bit of a harder lap than we had last year. The second thing is we took pricing in Q3. As we take pricing, we typically see a little bit of dip in traffic as we first take that pricing. But we’re very pleased with the results of the pricing that we took and saw what we would have expected to see from a traffic perspective with that pricing.”