Joth Ricci once spent more than four years as president of the Stumptown Coffee Roasters chain and admittedly is a consumer of drip coffee.
Which is interesting, given that the chain he currently runs, Dutch Bros, does not in fact sell drip coffee.
Oh sure, it sells a typical selection of Nitro Cold Brew and espresso-based drinks, and more than a third of its sales come from those beverages. But Dutch Bros’ lack of drip coffee makes it a “coffee chain” in a broader sense than you’d think.
In reality, it is nearly as much of an energy drink chain. Almost a quarter of the beverages the chain sells is of its unique “Blue Rebel” energy beverage.
And thus its competition comes from a rather different group than just Starbucks and Dunkin’. “Red Bull and Monster are more of a competitive set than anything that comes out of a Dunkin’ or a Starbucks,” Ricci said.
The popularity of Blue Rebel highlights growing demand for energy drinks. Sales at Monster Beverage Corp., for instance, increased 50% since 2016. Some 7.9 billion cans of Red Bull were sold in 2020, meanwhile, according to the company.
Dutch Bros sales by product
Nearly a quarter of Dutch Bros sales comes from energy drinks and the vast majority of the beverages it serves are cold.
Source: SEC filings
Dutch initially sold Red Bull, in fact, until a franchisee wondered what would happen if they flavored the drink more than a decade ago. The chain ultimately decided to do the drinks on its own, creating Blue Rebel in the process.
Dutch Bros now has five flavors of energy drink, such as “Electric Berry,” “Aftershock,” “Shark Attack,” Double Rainbro” and “Peach.”
The strong sales of the chain’s energy drinks provides Dutch Bros locations with a steady stream of sales all day. Only about 39% of the chain’s sales come before noon. It gets more sales, 45%, between noon and 7 p.m. The company does sell more of its espresso drinks and cold brew coffees in the morning and more lemonades, teas and energy drinks in the afternoon.
The balance helps the chain’s operations.
“I do more business between 1 p.m. and 5 p.m. than I do in the morning,” Ricci said. “We like that model. It helps with labor, it helps with staffing.”
Dutch Bros sales by daypart
The drive-thru chain’s business comes during all dayparts, not just in the morning.
Source: SEC filings
Some of Dutch Bros’ other products also speak to the evolving nature of the coffee business—even if the chain isn’t a strictly coffee chain.
Younger consumers in particular have gravitated toward colder beverages over the years. And chains have been giving it to them. Starbucks has been selling more of its cold beverages, including its Refreshers drinks and Nitro Cold Brew. Cold beverages represented three-quarters of that chain’s sales in the company’s fiscal fourth quarter, which ended in September.
For Dutch, the number is even higher: Only 16% of the chain’s sales come from hot beverages.
“More and more people have turned from coffee to iced coffee,” Ricci said. “Coffee cold is a better experience than hot coffee. The chemistry and flavor compounds like cold more than they like hot. The making of cold brew is just a better cup of coffee than hot coffee.”
But, again, Dutch is not just a coffee chain but a beverage chain. And that makes the market much bigger. But so is the competitive set. “Beverage is one of those products that is available anywhere,” Ricci said. “In the office environment, c-stores, stadium. We are an element, a place for people to get their beverages. We’re not necessarily tied up to one. The pie is bigger when you take that look at it.”