Dutch Bros on Wednesday reported same-store sales growth of 5.7%, including 4.7% growth in transactions. Revenue grew more than 25%. Earnings grew no matter how you parse the data. And then the company raised guidance for the year.
So what does it plan to do for an encore? More food.
The Tempe, Arizona-based beverage brand is planning to roll out an expanded food lineup systemwide next year, which it believes will boost sales further, including traffic. The reason is simple: The company believes they’ll attract more customers by giving them a broader option for breakfast to go along with their Rebel energy drinks.
“We’re at the very beginning of food, but incredibly encouraged by what we’re seeing early on,” Dutch Bros CEO Christine Barone told investors this week.
Dutch Bros traditionally had four food items in its shops, three muffin tops and a granola bar. The food program doubles that, to eight, including a sausage slider, a bacon slider, a chorizo wrap and a maple waffle. The expanded menu is now in 160 locations, and the company will roll that out gradually to the system by the end of next year.
About a quarter of the locations can’t offer hot food, because of the way the shops are set up, but Barone said the shops may “get creative” to adapt to the menu or, more likely, will be remodeled down the line given the program’s popularity.
The expanded food menu, however, gives Dutch Bros a big, potential lever to pull as comparisons get tougher.
The chain has been on fire this year, in the face of a host of challenges, including mounting competition, higher wages in California—where it operates a number of locations—and a difficult environment overall. But its same-store sales have risen at least 4% in each of the past nine quarters, and its recent growth has been driven largely by customer counts.
Food could help the brand maintain this momentum over the next year or two. A shop that adds the expanded menu can expect a 4% lift in same-store sales, including a 1% lift in traffic.
Dutch Bros has grown in a unique way, with a customer base that visits throughout the day, rather than the morning-heavy business of traditional coffee shops. Barone believes that more food could boost business in the mornings.
And offering those food items will enable Dutch Bros to sell more beverages.
One of the risks of expanding a menu like that, in a concept designed for a takeout customer, is operations. Dutch Bros’ new shops can generate long lines of customers. And until recently the only exposure its staff has had was to hand out a granola bar or a muffin top to a few morning customers. Now they’ll have to deal with egg sandwiches in addition to lattes and energy drinks. That could slow service.
But the chain was careful in its testing to ensure that operations worked. And Barone also noted that the company is only going from four items to eight. “This is still a very, very limited food program,” she said. “We will always be a beverage-first concept. So that’s really limited.”
She also said that the company has been measuring the impact of this program on service during peak times. “We’re feeling really good about the work that our teams are going to ensure that we are continuing to grow throughput, even as we put food into the shops,” Barone said.
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