The Coffee Giant in the Making: Can Dutch Bros Follow in Starbucks’ Footsteps?
When it comes to coffee stocks, one name stands out: Starbucks (NASDAQ: SBUX). With a staggering return of over 10,000% since its IPO in 1992, it’s the benchmark for coffeehouse operators. Now, a new player is emerging: Dutch Bros (NYSE: BROS), which went public in September 2021. Can this up-and-coming coffee chain replicate Starbucks’ success?
A Different Brew
While both companies operate coffeehouses, their concepts are distinct. Starbucks aims to provide a high-end coffee experience with a local feel, whereas Dutch Bros focuses on drive-thru convenience and affordability. Its locations typically lack seating areas, with most stores ranging from 800 to 1,000 square feet in size.
Shared Success Factors
Despite their differences, both companies share a common trait: their biggest sellers aren’t traditional cups of coffee. For Starbucks, cold drinks make up around 75% of beverage sales, while Dutch Bros’ sales are split between coffee-based drinks (50%), energy drinks (25%), and other beverages. Hot coffee accounts for only about 16% of Dutch Bros’ sales.
Growth Opportunities Abound
Dutch Bros has several areas where it can follow in Starbucks’ footsteps. One is food, which currently accounts for only 2% of sales. Online ordering is another area of potential growth, as digital orders have driven sales across the quick-service restaurant industry. However, the biggest opportunity lies in expansion. With only 950 locations currently, Dutch Bros aims to reach 4,000 stores over the next 10 to 15 years.
Valuation and Potential
Comparing Dutch Bros’ valuation to Starbucks based on the price-to-sales (P/S) ratio, we see that Dutch Bros trades at 4.3 times trailing sales, while Starbucks trades at 2.8. While Dutch Bros may not become the next huge coffee stock winner, it has a lot of long-term opportunities ahead. If the company can grow its store base by four times over the next decade, it’s likely to be a solid winner.
A Good Buy, But Not a Generational One
Before investing in Dutch Bros, consider that its growth, while strong, may not be enough to generate the type of returns needed to set you up for life. However, Dutch Bros looks like a good potential buy, with a lot of long-term opportunities ahead.
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