Dutch Bros. ($BROS) – Are they the next $SBUX?

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by MotownGreek

For anyone who has read my stock picks you’ll notice I only discuss established companies. Dutch Bros Inc. ($BROS) has been in business for nearly 30 years but only just started trading on the NYSE. I typically avoid IPOs and rarely invest in a company within one year of its IPO. However, $BROS may change that narrative.

What is Dutch Bros.?

Dutch Bros. is a drive-through coffee chain in the western United States. They experienced a surge in business last year thanks to their business model and regional COVID restrictions. The company and its founder, Travis Boersma, were featured on the American television show Undercover Boss in 2013. I would recommend a quick watch of that episode to get a good idea of the company and their core values.

Financial numbers

~50% CAGR (compound annual growth rate)

Q2 revenue growth year-over-year was 53%

36% expected revenue growth in 2022

Adjusted EBITDA % of revenue was 20% in Q1/Q2 2021.

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4% operating margin

What does the future hold?

Dutch Bros. has transitioned from a franchising model to a corporate owned model. While current franchise owners can, and are, expanding the main goal moving forward is opening new corporate owned locations. Franchise revenue has fallen while corporate owned locations has increased. $BROS has publicly stated they wish to grow to 4,000 locations in the United States (currently operating ~500 locations. For context and comparison, Starbucks ($SBUX) has over 16,000 locations worldwide. $BROS, while competing directly with $SBUX in local markets, is not a worldwide force yet. The consensus is that it will take approximately 14 years for $BROS to accomplish their expansion goal. With the expansion and growing revenue numbers this could be a strong investment for the coming decade.

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The company has experienced 14 consecutive years with positive same store sales growth. There is no reason to expect this to change with their high CAGR. Additionally, the core customer demographic leans towards woman and under 35 years old. Compared to $SBUX customer demographic which tends to be a little older, $BROS could be building a strong loyal base of customers that will keep returning for many years to come.

Another key difference between $BROS and $SBUX is their business model. $BROS is all about efficiency and good customer service. $SBUX is about atmosphere and indoor seating. As we have seen during this pandemic, efficiency in a drive-through business model has been ideal. Whether or not this business model will continue to thrive is something only time will tell. $BROS needs little real estate with their business model and can open locations on smaller plots of land which could lead to their expansion goals being realized by the end of the decade.

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Finally, ask yourself this, should you invest in $SBUX or $BROS? $SBUX remains a strong company with a consistent dividend. They’re not going anywhere any time soon. $BROS is a growth company in a competitive market that should give $SBUX a run for their money in competing markets. Your risk tolerance will dictate which of the two you choose, or you could just choose both!

Is $BROS a fad, or are they the real thing? That’s the real question!

Disclaimer: I currently have no position in $SBUX or $BROS.

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.


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