Dutch Bros is testing a seemingly simple expansion of its food menu, from four to eight items. But it won’t expand the menu at the expense of its operations.
As such, the Grants Pass, Oregon-based chain is being deliberate in its approach. It has slowly expanded the test, from eight stores initially to 32 now. And it doesn’t expect the broader menu to be available systemwide until next year.
The company is analyzing the test to ensure that the chain’s shop workers, which it calls “broistas,” can operate a broader menu successfully.
And speed matters, too.
“We are looking at ensuring that the food works really well within our current cycle time,” CEO Christine Barone told analysts at the William Blair Growth Stock Conference, according to a transcript on the financial services site AlphaSense. “We want to continue to increase the speed of our transactions. So whatever we’re doing from a food perspective, it really has to fit within that cycle time.”
Dutch Bros is primarily a beverage concept and only 2% of its sales come from food. Its four menu items feature three muffin tops and a granola bar. The expanded food menu includes two sliders, a chorizo wrap and a Dutch waffle, Barone told analysts on Thursday.
Expanding that test on the surface doesn’t make sense, because food comes with a lower profit margin than beverages. But Dutch Bros believes it can capture more beverage occasions from customers that would prefer a breakfast sandwich to go with whatever drink they get in the morning.
In short, by offering food, Dutch Bros believes it can sell more beverages.
“We see this as hopefully driving that incremental transaction in addition to a higher ticket that should be able to leverage your fixed cost structure,” CFO Joshua Guenser told analysts. “I think from a gross margin perspective, oftentimes food is a lower gross margin product. But with the ability to add incremental transactions and incremental ticket, we see this as nicely overall accretive.”
But moving from a small amount of simple food items to a moderate amount of items that need warming takes a bit more work.
The food items will be reheated, which will require new equipment, including some ovens and some freezers. And the company is getting some tongs and a paddle to pull the items from the ovens.
So far, Barone said, “our broistas have been really successful operationally.”
That’s why the brand felt confident to expand its test from eight to 32 locations. But Barone said there remains a lot of time before it is expanded everywhere.
“We’re really, really, really in the early innings on food,” Barone said.
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