3 things that can help Dutch Bros. grow

Drive-thru coffee chain Dutch Bros (BROS 1.09%) went public in 2021. There are many coffee stocks out there, but investors were immediately intrigued by the opportunity because of Dutch Bros.’s high growth potential.

When it comes to growth, the chain has not disappointed since its initial public offering (IPO) in 2021. Just look at the annual growth rate over the last few years.

Source: Dutch Bros; Table by author. YTD = year to date.

A company that can increase its sales growth at such a pace will see a staggering increase in its revenue. To illustrate, Dutch Bros’ total revenue for all of 2020 was $327 million; In the third quarter of 2024 alone, the company achieved higher sales of $338 million.

Studies have shown that revenue growth is one of the most important factors behind growth outperforming stocks S&P 500. Dutch Bros has certainly grown so far. But can it sustain this in the long term? The short answer is: yes. Here are three things one hopes can keep the growth going.

1. Dutch Bros is expanding its menu

Dutch Bros is a 950-store chain that sells almost exclusively beverages: iced coffee, tea, smoothies and more. However, there are some foods, such as muffins, that account for less than 2% of sales.

Management is conducting some limited testing to expand the menu, possibly with hot, savory items. CEO Christine Barone said: “Based on initial results, it is likely that a more robust food footprint will play a role for Dutch Bros in the future.”

Admittedly, the decision to expand the menu is not a guarantee of success for Dutch Bros. It is possible that attempting to prepare food disrupts the drink preparation process, resulting in lower customer satisfaction.

Still, it’s smart of Dutch Bros to at least try to expand the menu. If successful, it can drive sales growth and increase sales per location, thereby increasing profitability. And that is an opportunity worth seizing.

2. Mobile ordering provides a boost

At the beginning of 2024, the company entered into a partnership with Olo to start mobile orders and payments. This is not a revolutionary idea – Starbucks And McDonald’s Offer it too. But it’s having a profound impact on Dutch Bros’ sales.

Management noted that its customers using mobile ordering increased the frequency of their orders by 5% in the third quarter. There are still many customers who don’t use mobile ordering, but if order frequency continues to improve with the adoption of the technology, it could have a significant benefit to same-store sales growth.

3. How many locations can Dutch Bros have?

I saved the best growth lever for last. An expanded menu and increased order frequency through mobile technology can increase same-store sales for Dutch Bros. However, the biggest growth driver in the foreseeable future will be new locations for the drive-thru coffee chain.

Most of the growth since going public has come from opening new locations. The company only had 370 locations in seven states at the beginning of 2020; There are now 950 locations in 18 states. That’s a pretty impressive jump in less than five years.

Dutch Bros has announced that it is aiming for 4,000 locations in the USA in the long term. To get there, management wants to open 160 new locations in 2025. Assuming it will have 981 locations by the end of 2024, the 2025 pipeline represents growth of about 16%. And management says expansion should continue to accelerate in 2026.

Even at this 16% expansion rate, Dutch Bros could continue to grow for about a decade before it reaches its goal of 4,000 stores. In other words, investors can expect robust growth for a long time.

In summary, investing is about more than simply finding a company with tremendous revenue growth. However, increasing sales is very important and Dutch Bros is experiencing tremendous growth. In the coming years, a larger menu, greater concentration of mobile ordering, and hundreds of new locations can significantly increase the company’s sales. And that’s probably a really good thing for shareholders.