Facing growing pains and weak sales, Dutch Bros looks for traffic

As its sales lag competitors, the growing drive-thru beverage chain is working to build sales, and traffic, behind new Company President Christine Barone.
Dutch Bros sales
Dutch Bros generated the highest sales day in company history in late March. / Photograph: Shutterstock.

One of the first moves Christine Barone made after she took over as president of the beverage chain Dutch Bros earlier this year was to dust off some of the company’s old marketing ideas.

On the last Wednesday in March, for instance, the chain ran its “Fill-a-Tray” promotion, offering four medium beverages for $16. The promotion lasted just six hours. But it worked wonders, driving the best sales day in company history, generating traffic that would last much of the day. Same-store sales that day were 40% higher than a typical Wednesday.

“My priority is driving traffic, and continuing some of the momentum we had in March driving transactions,” Barone told investors on Tuesday.

For Dutch Bros, lifting sales and traffic is critical. The drive-thru beverage chain has been one of the industry’s strongest growth concepts in recent years, prompting its 2021 IPO. But it has struggled to generate sales momentum as consumers have shifted toward more normal activities and the brand experiences a few growing pains. Same-store sales in the first quarter declined 2%. By comparison, the giant Starbucks reported 11% same-store sales growth in the same period.

The company has largely blamed its sales challenges on its aggressive opening of new locations in existing markets. But on Tuesday, executives acknowledged some challenges convincing consumers in the brand’s newer markets what the concept is all about.

“When you’re running a 30-year brand, some markets are stable and are going to grow, and there’s other markets where we’re still teaching the consumer about Dutch Bros,” CEO Joth Ricci said. “We still have a lot of work to do as we’re building a brand.”

Investors weren’t necessarily convinced. Dutch Bros stock declined 5% in after-hours trading on Tuesday.  

Dutch Bros announced the hiring of Christine Barone, former CEO of True Food Kitchen and a Starbucks veteran, in November, and it tasked her with generating traffic. The company’s efforts began to take hold in March, which helped its same-store sales improve in the latter part of the quarter.

That performance, particularly with that Fill-a-Tray promotion, proved the brand could get customers enthused, Ricci said. “We know we can drive traffic,” he said. “We know we can attack different needs based on the market.”

But the company is also taking steps to market directly to its loyalty customers to get them to come in more frequently. As is, nearly two-thirds of the chain’s traffic in the first quarter came from members of its Dutch Rewards loyalty program. The company is doubling down on targeted promotions through the app and executives believe changes made in that program recently will enable them to take more advantage of one-on-one marketing opportunities.

“That gave us the flexibility to invest more surgically,” Barone said, noting that the company can “move away from a one-size-fits-all strategy.”

But there are also some questions about newer locations. Dutch Bros has been aggressively moving eastward recently, opening in Knoxville, Tenn., in the quarter, for instance. It has also aggressively added locations in Texas, including 16 in San Antonio. Some of those new stores have not quite performed as well as earlier stores.  

Yet the brand is not concerned about the performance of those stores.

“We’ve opened 112 new locations in Texas in 27 months,” Ricci said. “We’re trying not to buy customers. We’re trying to curate customers. Every market is going to be a little bit different. But we remain pleased with the reception we’ve had in all markets.”

And, he said, the company would not slow its pace of growth in new markets. Company executives said that its store margins remain healthy.

We do not have any intention of slowing down here as we look ahead,” Ricci said. “We’re very pleased with the way our new units have executed. We’re pleased with the response in every community in Texas.”

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