Dutch Bros opened 159 new units in 2023 and recently tipped past the 830-unit mark en route to its long-term goal of reaching 4,000. The pace of development is expected to continue near the 20% range in 2024, underscoring a heightened demand for the concept which has been around since 1992. Indeed, 35% of Dutch Bros locations have been open less than two years.
During the company’s Q4/full-year 2023 earnings call Wednesday afternoon, we caught a glimpse of how Dutch Bros is adjusting to keep up with this accelerated pace. For starters, it is launching a mobile ordering beta test at several units in Arizona, with a goal of having the functionality in most locations by the end of 2024.
“We recognize this could be a big opportunity for us and also understand the importance of getting this right, delivering on our core values of speed, quality, and service,” CEO Christine Barone said during the call. “As such, it is our goal to roll out this capability to the majority of shops by the end of the year.”
The potential here is massive. Consider Starbucks, for example, which just reported that mobile ordering surpassed 30% of total transactions in its U.S. system. The capability seems to fit Dutch Bros well, as its customers have proven they’re heavy mobile users. Dutch Bros Rewards members accounted for about 65% of transactions in Q4, and the company is now moving into what it’s calling the second phase of this program, which includes a more tailored approach to promotions.
“In Q4, we achieved our highest rewards penetration on record. Moving forward, our focus will be in refining our personalization capabilities. We are encouraged by the customer response, particularly with efforts like gamification and segmentation,” Barone said.
Dutch Bros is also increasing its paid media spend this year to drive incremental traffic and generate more brand awareness in new markets. This includes a focus on digital channels and local community activations.
“We’re very focused on (community building). We’re very pleased with the early results,” CFO Charley Jemley said.
And, the company is experimenting more with product innovation, as evidenced by the recent launch of its protein coffee. That innovation could very well include more opportunities in the morning, executives said, but the biggest potential ties back to that mobile ordering test.
“As we look at innovation going forward in building those sales layers, we’re really focused on mobile order and think this is something that can be really strong for us,” said Paddy Warren, director of investor relations and corporate development.
Finally, Dutch Bros is adjusting its real estate strategy, as initially mentioned during the company’s Q2 call in August. What that means, essentially, is “widening its penetration” to grow reach and create more demand. The company is also increasing its ground leases to react to diversified market conditions, versus the traditional ground leases signed in recent years. And, the company is adding a variety of different shop types to its portfolio and will continue to experiment with those. Barone said the company is continuing to update its real estate models as it grows, leveraging data from each of the new shops to continue to refine its strategy.
These initiatives are not only focused on supporting the brand through meteoric growth, but also driving traffic. Given the 5% of price and flat mix, traffic was roughly flat on the quarter, improving from a mid-single-digit decline in Q3. The improvement was driven not only by the company’s initiatives, but also “particular strength during the midday and afternoon dayparts.” Cold beverages also increased their mix.
There seems to be some traffic up for grabs in the category. Late last month, coffee giant Starbucks reported a “softening of the U.S. consumer,” specifically among those who occasionally visit in the afternoon. And, according to data from Placer.ai, visits to Dutch Bros were 10% higher in January 2024 versus January 2023, while overall visits in the coffee category decreased by 2.7% in the same period.
By the numbers: Q3
- Opened 37 new shops, 32 of which were company-operated, across 10 states
- Total revenues grew 25.9% to $254.1 million as compared to $201.8 million in the same period of 2022
- System same shop sales increased 5.0%, inclusive of the impact of the brand’s fortressing strategy
Full Year 2023 Highlights
- Opened 159 new shops across 13 states - the most new shop openings in the brand’s history
- Revenue grew 31% to $966 million
- Achieved over $1.4 billion in systemwide sales, 24% growth
- System AUVs reached $1.97 million, the highest on record
- System Same Shop Sales were 2.8%, in line with guidance of “low single digits”
- Adjusted EBITDA margin was 16.6%, expanding 430bps year over year
Contact Alicia Kelso at [email protected]