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It's hard not to compare the performance of Starbucks and Dutch Bros recently.

Here’s why Dutch Bros is doing better than Starbucks right now

Dutch Bros’ strategy is carefully executed, and the restaurant brand holds the ‘cool kid on the block’ status, while Starbucks is flailing

It’s hard not to compare the most recent quarterly performances of Dutch Bros and Starbucks. Starbucks, the undisputed leader of the coffee/café restaurant category, had its worst fiscal quarter since the peak of the pandemic three years ago, with global same-store sales down 4% and a decline in rewards members from Q1 to Q2 (the first time that has happened in a decade). Meanwhile, Dutch Bros was one of the few success stories this quarter, with the Oregon-based coffee chain reporting 10% same-store sales growth and positive traffic trends.

To underline the differences between the quarterly performances of these two coffee chains, Dutch Bros currently has slightly higher AUVs than Starbucks, at $1.973 million vs. $1.955 million, according to the most recent data from Technomic. While Starbucks is still indisputably the number two foodservice chain in America, and Dutch Bros only operates a fraction (5%) of the cafes that Starbucks does in the U.S., the younger coffee chain has been on a hot streak with 24% year-over-year unit growth from 2022 to 2023, according to Technomic Top 500 data.

Beyond hard numbers, the two companies have recently taken very different operational strategies. Whereas Starbucks has been constantly churning out new menu items with complex SKUs — including last year’s Oleato, which received very mixed reviews; this year’s lavender matcha latte; the spring lineup of “swicy” drinks; and most recently, the release of summer beverages with boba-like pearls — Dutch Bros’ menu innovation strategy has been more measured. In a recent interview with Nation’s Restaurant News, Dutch Bros CEO Christine Barone discussed how the brand is not only focused on staying on top of trends (like boba, which Dutch Bros also released this year), but also on knowing what the brand’s customers’ want.

“What are our customers asking for? What are we seeing out in the market that that might make sense for us?” she said. “We had two big launches this quarter: our protein coffee, which really seemed to resonate with customers and something we saw drive repeat purchases over time, and boba, which was so much fun for customers and we saw them adding boba to all sorts of drinks.”

In comparison, Starbucks’ LTO release schedule is more frequent and feels more frantic. Some of the flavors and ingredients Starbucks is adding also seem to be more niche and add more complexity to operations, like olive oil, lavender, and proprietary chili powder mix in the “swicy” lemonade Refreshers. The Oleato also appears to have garnered mixed results from customers. According to Technomic data, the Oleato has a below-average purchase intent score as compared with other similar LTOs in the category (though now it has been added to the permanent Starbucks menu).

Dutch Bros’ strategy of measured operations seems slow-moving in comparison. This year, Dutch Bros will be launching mobile order and pay for the first time, and while that may seem like a belated tech add for a quickly-growing QSR chain, Barone said that the executive team wants to make sure that they get the launch right, and not add more friction for either customers or “broistas” — a strategy that is consistent across the Dutch Bros business.

“We've invited a number of customers to test out the app and what we’re looking for is, ‘Is it seamless? Does it have the options that our customers want? Is it working well for our broistas? How do orders come in? Does it upset operations?’” Barone said. “Ultimately, what's most important to us is that this is something that is a positive experience for both our customers and our baristas.”

While Starbucks’ mobile order and pay is more than a decade old, this quarter, Starbucks CEO Laxman Narasimhan admitted that customers are becoming more frustrated lately with the experience, to the point that they are abandoning their shopping carts in the app.

“Despite strong mobile order and pay sales, we saw a mid-teens percent order incompletion rate within the order channel this past quarter,” he said during Starbucks Q2 earnings call this month. “In other words, customers using mobile order and pay put items into their cart and sometimes chose not to complete their order, citing long wait times of product and availability.”

Lone lines and wait times for Starbucks mobile order and pay guests have been a challenge for quite some time, and Starbucks has been working on rolling out equipment to improve efficiencies in stores and make operations easier and less chaotic for baristas. Despite long wait times, particularly during peak hours, most Starbucks cafes still don’t have digital order status boards, which were originally announced in February as part of the company’s commitment to improve store accessibility.

In addition to a jam-packed LTO schedule and some operational challenges to solve, Starbucks has made many more announcements over the past several months, as part of a reinvention plan to improve store-level experiences and traffic trends. The lengthy list includes rewards partnerships with Delta and Bank of America, a commitment to introducing more snacks and beverage platforms, and tech partnerships with Microsoft, Apple, and Amazon (while simultaneously shutting down its short-lived Odyssey metaverse program).

Recently, former Starbucks CEO (and Laxman Narasimhan’s predecessor) Howard Schultz made the observation that the company was biting off more than it could chew in a LinkedIn post, where he wrote about Starbucks’ poor quarter.

“There is a natural tendency to try to do too much too soon,” Schultz said. “Don’t try to do everything at once. Leaders must model both humility and confidence as they work to restore trust and increase performance across the organization.”

He suggested instead that Starbucks leadership gets back to the basics of “a maniacal focus on the customer experience,” which should start with a reinvention of the mobile order and pay platform.

To Starbucks’ credit, it’s easier to start a mobile payment platform from scratch like Dutch Bros is doing than to reinvent a decade-old system. It’s also somewhat easier to be in the position of the Dutch Bros brand, which not only benefits from “cool, new kid on the block” energy, but has a long runway of growth ahead. However, even at a fraction of Starbucks’ size, Dutch Bros’ strategy of well-researched, measured decisions that carefully consider customer wants and employee needs, is something to learn from.  

As Dutch Bros slowly makes its way to its long-term goal of 4,000 stores nationally — though it’s less than one-quarter of the way there — the brand becomes more of a competitive threat to the biggest coffee chains out there. Dutch Bros’ momentum is not something Starbucks can afford to ignore.

Contact Joanna at [email protected]m

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