According to a New Survey, This Coffee Brand Is the 3rd Most Popular Restaurant Chain in America -- and It Isn't Starbucks
Every year, foodservice research group Technomic surveys thousands of consumers to create a list of America's favorite restaurant brands based on factors such as value, hospitality, and ambiance.
This year, a coffee chain broke into the top 10, and it wasn't coffee giant Starbucks. Rather, Dutch Bros (NYSE: BROS) snagged the No. 3 spot, according to Nation's Restaurant News.
Relatively unknown in the eastern U.S. but well known by Oregonians, Dutch Bros has ambitious plans to capitalize on its surging popularity. And it's why the company has captured the attention of many investors.
It's time to meet Dutch Bros
Founded in Oregon by brothers Dane and Travis Boersma in 1992, Dutch Bros is a relatively young restaurant chain and a pioneer of the drive-thru coffee trend. Today it has around 800 locations, the largest concentration of which are still in Oregon.
Technomic says Dutch Bros is the third most popular restaurant chain right now, but there's more to attest to its popularity. Consider that Dutch Bros tracks sales at locations that have been open for at least 15 months as part of its same-shop sales -- other companies often call refer to this metric same-store sales or "comps". Dutch Bros' same-shop sales are expected to increase in full-year 2023, which would represent its 17th consecutive year of comps growth.
In other words, a Dutch Bros location consistently generates more sales over time. That's a great indication of its growing popularity.
Dutch Bros wants to capitalize on this tailwind with an ambitious expansion plan. As mentioned, the company has around 800 locations today, but it plans to grow to 4,000 U.S. locations over the long term.
That sounds like a lot, but for perspective, Dutch Bros would still only be a fraction of the size of Starbucks if it succeeds. As of its fiscal 2023 fourth quarter (ended Oct. 1), Starbucks had 16,352 U.S. locations. Therefore, growing to 4,000 locations can certainly be done.
What should investors watch?
With $13.7 million in net income through the first three quarters of 2023, Dutch Bros is already profitable. But considering its market capitalization is about $5 billion as of this writing, it will need to grow its profits considerably over the long term to be a winning investment.
Greater profitability can be unlocked for Dutch Bros with ongoing same-shop sales growth. Inflation aside, higher sales per location generally lead to higher profits. That's what investors want to see, and it's why the company's long track record of comps growth is so encouraging.
That said, this is also an area for investors to watch closely. When companies are expanding, many find that popularity and sales volumes are lower outside of their core markets.
Dutch Bros opened more than 150 new locations in 2023, and it already has a strong pipeline through 2025. Many of these new openings will be outside of the company's home base. Therefore, it will be important to track how sales volume holds up.
Moreover, the larger a company becomes, the more likely it is to bump up against more competition, and the same will be true for Dutch Bros. There are already regional drive-thru coffee chains in the eastern states. And don't forget about CosMc's -- the new drive-thru coffee chain from McDonald's that's off to a steaming-hot start in Texas.
Considering Dutch Bros stock is down more than 60% from its all-time high, this might be a buy for investors who have their eyes wide open. The fast-growing brand is profitable and already the No. 3 favorite chain in the U.S. according to the Technomic survey.
In short, there are reasons for long-term investors to be bullish. However, Dutch Bros may experience growing pains within the next couple of years, so it's important for shareholders to keep their finger on the pulse of the company's expansion in case some of its key performance metrics take a step back in the process.
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Jon Quast has positions in Starbucks. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.
According to a New Survey, This Coffee Brand Is the 3rd Most Popular Restaurant Chain in America -- and It Isn't Starbucks was originally published by The Motley Fool
