You could argue Dutch Bros was a bit late to the mobile ordering game when it started testing earlier in the year in Arizona. But the brand didn’t view this point as a downspin. Rather, it was able to plot a digital journey on its own terms and with a customer base eager to embrace access versus needing a funnel to discover loyal guests. A case in action—by October, consumers placed roughly 2.8 million mobile order transactions as the functionality lived in 90 percent of restaurants, and 96 percent of company-operated shops. It mixed 7 percent of sales, with ample runway given some locations reported twice the average.
And feedback metrics reported equally compelling—more than nine out of 10 customers said they were likely to try it again and recommend to a friend. Those same guests visited 5 percent more often.
Dutch Bros saw more than a million registrations in Q3, the highest figure since launch (40 shops in Arizona, California, and Texas by June 30 and 200 by the end of July before getting to 90 precent of the system last quarter). In Q3, 67 percent of transactions flowed from loyalty users. And, CEO Christine Barone said, it was all coming via word of mouth and consumers seeing signage as they moved through the drive-thru at the point of purchase.
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While the brand didn’t have an order-ahead option before, it did boast a drive-thru design built for the business. Many stores feature double drive-thru setups that include an “escape lane,” which could, in practice, become earmarked for mobile orders. After checking in, mobile order users would direct to the right-hand lane, with a runner bringing the drink out if it was ready before the guest reached the window. The customer then “escapes” using that open lane to the right, eliminating a potential bottleneck. Many locations are already using the operational tactic, Barone said.
Plus, mobile ordering has the potential to lift Dutch Bros’ walk-up business, too, which mixes 10 percent. Most digital customers choose this ordering method.
Yet back on the awareness point and current growth, Dutch Bros made a small investment in digital marketing last quarter around mobile ordering and deployed a tool in its app that made it visible and obvious to the digital guest. That was it.
Employees fulfilled mobile orders with 95 percent accuracy and the company witnessed tip rates higher in the channel versus others. Barone credited some of the seamless integration to kitchen display units and separate production bars at the drive-thru and walk-up window.
Barone and CFO Josh Guenser recently presented at William Blair’s 2024 Consumer Discovery Day and shared further updates on the digital expansion, along with other key drivers that led to a pivotal year for the 1992-founded brand. Despite larger macro challenges and what’s been a tepid traffic climate (Starbucks saw its transactions drop 10 percent in Q4), mobile ordering helped Dutch Bros reach its highest same-store transaction growth quarter in two years in October. Same-store sales and transactions increased 2.7 and 0.8 percent, respectively, relative to the year-ago period. Comps climbed 4 percent in Q4 2023, giving Dutch Bros a two-year stack of 6.7 percent. Revenue also upped 27.9 percent to $338.2 million.
Alongside this mobile access point entering the fold, Dutch Bros believes it was able to buck traffic dips with ongoing investments in staff and service, on-trend beverage innovation (Cookie Butter Latte and Caramel Apple Rebel energy beverage are recent launches), and more targeted paid media deployment. Additionally, there’s a more refined real estate strategy in place to align the pace of new market penetration with demand.
Dutch Bros told William Blair this was a lesson learned from its rapid densification of Texas, where 200 locations hit the market in three years (development calls for an acceleration to at least 160 new systemwide openings in 2025, up from 150 in 2024).
Breaking points apart, in late 2023, Dutch Bros began leveling up digital spend in new markets to drive awareness, which resulted in increased productivity in new shops, Barone said last quarter. She added the marketing push drove a material change in sales trajectory in new trade areas, and, in Q3, the company started expanding paid advertising to more areas, including existing markets.
Dutch Bros, which primarily grows via company-operated locations, opened 38 new shops in Q3, putting it at 950 stores nationwide. The pipeline includes more than 400 operate candidates with average tenure north of seven years.
Dutch Bros has eclipsed unit development goals since going public in 2021. It nearly doubled in size from September of that year to this past August, when there were 912 stores. It’s opened 30 or more restaurants for 13 straight quarters and should exit 2024 on the doorstep of 1,000 units.
That Texas experience, as mentioned, clarified future goals. Fortressing locations in the state (a Domino’s-famous model) bumped awareness and lowered drive-thru wait times as stores served as demand valves for one another. A downside, however, was sales transfer and lower revenue at each location.
That led Dutch Bros to a decision to switch up its path by focusing on higher AUV shops. So a higher percentage of new market openings and slower infill rates. The company also decided to remove stores from its pipeline that didn’t meet updated investment criteria, resulting in stronger openings.
AUV earlier in Q2 clocked at $2 million—matching a record set to start 2024. That’s above Starbucks’ $1.8 million and Dunkin’s $1.3 million, although, admittedly, at much different measures of scale.
But to the point shared at William Blair’s event, Dutch Bros heads into this coming calendar with a revamped process that now looks site by site at each parcel, what the impacts are, and whether or not the company has confidence it will produce AUVs near that higher range. It’s working to rebalance the pipeline toward more capital-efficient lease arrangements as well and reduce per-unit development costs. That means more build-to-suite leases instead of ground ones.
And as these restaurants arrive, Dutch Bros will rely more on improvement marketing versus density: Menu innovation, ramped up paid advertising, rewards program deployment, and mobile ordering.
Dutch Bros shared at William Blair’s event mobile ordering has already yielded incremental traffic in the morning daypart, which represents about a third of Dutch Bros’ sales compared to nearly half at Starbucks. The brand expects mobile to help diversify channel mix as more customers, to the earlier observation, use the walk-up window after ordering digitally. Notably, William Blair said, Dutch Bros is well equipped from an operational standpoint to support mobile sales since it invested in labor ahead of launch and has multiple production zones within shops. Orders don’t all converge onto the same make line and slog service.
Mobile ordering also drew members into Rewards alongside higher frequency. Rewards should remain a key sales driver, too, as Dutch Bros accelerates segmentation efforts, William Blair said, to reach customers more efficiency and provide personalized orders.
The chain also discussed a test of sweet and savory food at six locations that included expanded bakery offerings and hot options. Plans remain in place to expand the pilot in 2025, with the opportunity for food to become a more robust part of Dutch Bros’ business in 2026. Today, food represents less than 2 percent of sales—it’s 23 percent at Starbucks.
That runway could bump overall sales, particularly in the morning. Management believes Dutch Bros loses beverage purchase consideration given the lack of food.
In other terms, some customers head to competition solely because Dutch Bros isn’t a one-stop breakfast shop. Food would change that and lead to more drinks, not just more food.
Observations from 2024 showed mobile ordering over-indexed in the morning with coffee-based beverages, which supported Dutch Bros’ plan to boost this segment.
Additionally, over time, the brand said in Q3, it expects most transactions to involve a single drink, given the channel is often used on a commute or when a customer is in a hurry.
So it flows both ways. Mobile ordering both enables Dutch Bros to widen its offering horizon and opens the chain to more convenience-fueled occasions. It aids in customization as well, which has been a natural extension of the cold beverage rise. Personalization and the ability to deliver quickly has become table stakes in beverage.
“And so, as we say strategically about food, we believe it’s not only an opportunity to drive attach but the more important opportunity might actually be for that beverage occasion,” Barone said.
While the company said it hasn’t yet experienced an impact from higher coffee prices, coffee (up 70 percent-plus so far this year) represents 10 percent of its overall commodity basket and could provide a modest headwind next year to margins. Still, William Blair said, it believes Dutch Bros’ pricing power remains strong and there will be options to consider modest incremental price hike in 2025 as needed to guard margins.
Dutch Bros will reveal more in Q1 when it hosts its first investor day in brand history. There are calls to grow revenue 20 percent annual on mid-teens unit expansion and low-single-digit comps, which includes estimated sales transfer/cannibalization of 2 to 3 percentage points. William Blair also sees opportunity for Dutch Bros to expand its target from its IPO whitespace of 4,000 locations. At the time, Dutch Bros outlined the goal based on growth west of the Mississippi and south of the Mason-Dixon line. The long-term view from William Blair: annual revenue exceeding $6 billion on at least 4,000 U.S. locations, translating to annual EBITDA of more than $1.4 billion.
