Dive Brief:
- Dutch Bros expanded its hot food program to about 160 shops by the end of the third quarter, CEO Christine Barone said on the chain’s Q3 earnings call.
- That marks an increase of about 96 stores compared to the end of the prior quarter, according to a research note from TD Cowen analysts.
- The breakfast offerings have driven ticket and transaction growth at the deployed stores, helping to contribute to the brand’s 5.7% increase in same-store sales, which included 4.7% transaction growth.
Dive Insight:
The growth of Dutch Bros’ breakfast program puts the roughly 1,080 unit chain in ever closer competition with legacy brands that offer food in addition to beverages like Dunkin’ and Starbucks and McDonald’s, which launched a premium beverage test in Colorado. The McDonald’s test did not have a significant impact on Dutch Bros. traffic in that market, where it has a significant presence, Barone said.
According to a research note from TD Cowen analysts, the brand is bucking the consumer trends in the restaurant sector, where younger consumers have pulled back in recent quarters. TD Cowen predicted the deployment of the food program and mobile ordering could lead to upward revisions of sales projections.
The food program is designed to strengthen Dutch Bros in the morning daypart specifically, Barone said.
Sharon Zackfia, a William Blair analyst, noted that the morning daypart comprises about one-third of Dutch Bros’ orders, compared to half of Starbucks’ traffic. The overall mix of food for Dutch Bros is about 2% of sales, according to Zackfia, while close competitors mix at about 25%, meaning the brand has dramatic sales opportunities.
“Based on early results, shops with an expanded food offering see a roughly four-percentage-point comp lift, with one-quarter of the improvement from increased transactions,” Zackfia wrote.
Barone said Dutch Bros is “aiming to be a one-stop shop during the morning daypart,” and will deploy the food program across its stores by the end of next year. However, about 285 units — 25% of the chain’s current base — lack the back of house space for the equipment needed to serve hot food, she said.
Dutch Bros, together with the similarly drive-thru focused 7 Brew, is raising the pressure on segment leaders like Starbucks, which has struggled with traffic and comps erosion since late 2023 and recently closed 400 locations.
Dutch Bros hit the 1,000-unit mark earlier this year and plans to open another 1,000 stores to reach 2,029 locations by 2029. 7 Brew crossed the 500-store mark last month and is poised to grow even faster in absolute terms following franchising deals with Franchise Equity Partners and the Flynn Group. Black Rock Coffee Bar, a smaller but still fast-growing coffee chain, went public earlier this year in an IPO that raised nearly $300 million, and plans to hit 1,000 locations by 2035.
