While nearly everything seems to cost more today than it did at the start of the year, at least the thing that gets most people's day started is cheaper than it was. Coffee beans are going for $2.10 per pound, down 13%, which is good news for coffee shops that are seeing the number of customer visits decline from the effects of inflation.
Geolocation data analytics firm Placer.ai says that as consumers have felt the pinch of rising prices, whether it be for food or gas, they are now cutting back on their visits to their local coffee shops.
Foot traffic at Starbucks (SBUX -0.80%) fell 4.1% in June, while it tumbled almost 8% at Dunkin' Donuts. In fact, traffic is down across the whole sector and has fallen below the quick-serve space as a whole for the first time in two years. And the two big chains aren't making any ground over their pre-pandemic levels, either.
Where Dunkin' is flat compared with its June 2019 numbers, Starbucks dropped 6.6% in the three-year comparison. Yet, there is one coffee shop that's still growing, and investors should give this java slinger a closer look.
Drive right up
Dutch Bros (BROS -0.26%) is a rapidly growing coffee shop chain that's accelerating its expansion plans despite the inflationary environment we're in.
At the end of the first quarter, it had 572 locations in 12 states, with plans to open a total of 130 stores this year on top of the 107 it's opened over the past 12 months. Revenue jumped 54% in the quarter, mostly on the new store openings, but it also enjoyed a 6% increase in comps. That's likely to continue when it reports second-quarter earnings, if Placer.ai's data holds up.
The data analytics firm, which uses anonymized data from smartphone locations, found that where Dunkin' and Starbucks saw traffic declines last month, Dutch Bros saw visits surge 22.8% in June, and they're up over 178% since 2019.
While these gains are the result of an expansion that the drive-through coffee chain is undergoing -- per-location visits have basically flatlined, down 0.4% for the month -- it shows that even though Dutch Bros is not immune to the impact of inflation, its customers are not cutting back quite as much as they're doing at the competition.
Moreover, Dutch Bros' customers are willing to drive further to visit a store. According to Placer.ai, over the past four years the number of miles customers have driven to its stores has grown from 36.9 to 54.5 square miles, indicating a level of loyalty to the shop.
The high cost of energy
Inflation is going to be the biggest challenge for Dutch Bros, its competition, and the quick-serve industry as a whole. Commodity costs are taking a bite out of profits, and while Dutch Bros was able to beat analyst expectations, dairy inputs were especially intrusive and led the chain to lower its full-year outlook.
While the cost of coffee beans themselves is falling, production costs like roasting, grinding, packaging, and labor are causing the price at the coffee shop to rise. Even Dutch Bros has had to raise prices, though a cup of joe is still cheaper than at its rivals.
The National Coffee Association says 66% of American adults drink coffee, consuming some 517 million cups a day, with 84% of us having it with breakfast. Some 27% of people have their coffee away from home, an 8% rise over 2021, and as more and more people return to their offices, those numbers are likely to grow. That's good news for coffee shops, and for investors thinking about Dutch Bros' growth prospects in the years ahead.