Thanks to its outsize growth potential, Dutch Bros (BROS 2.15%) has drawn keen interest from some investors as a possible long-term holding in a diversified portfolio. However, this upstart drive-thru coffee chain has yet to reward shareholders. The stock currently sits some 64% below its all-time high and just a tad above its 2021 initial public offering price.

There's still hope, though. Should this business make substantial progress toward management's goals, the shares might be a big winner. However, I'm here to tell investors they should just forget about Dutch Bros altogether -- and consider an already dominant coffee stock instead.

Cracks under the surface

Investors love to see companies grow, and Dutch Bros has been doing plenty of it, opening 39 net new locations in just the third quarter alone. This brings its total store count to 794, which is up from 641 a year ago. Clearly, aggressively opening new locations is a key part of the leadership team's strategy, as it sees the potential for 4,000 stores one day.

To its credit, Dutch Bros does possess some attractive qualities that have supported its success. For starters, the company's stores are drive-thru only, which caters to the convenience and accessibility factors that consumers became so used to thanks to the coronavirus pandemic. This can drive greater volume per store, while at the same time limiting overhead costs because there is no indoor seating.

Additionally, Dutch Bros operates a franchise model. This means part of the capital to fund growth comes from third parties. Done successfully, this setup can be very lucrative.

But despite these positive attributes, I see glaring red flags that investors need to pay attention to now. Dutch Bros' impressive store growth can easily mask weak same-store sales gains. This is one of the most important metrics for any retail business as it looks at the change in revenue at locations open at least 15 months. In the third quarter, this figure rose by just 4%, a possible indication that Dutch Bros could be saturating the markets it's currently in.

I also don't see the presence of an economic moat for this business. Dutch Bros is small enough that many people in this country, especially those in the eastern half of the U.S., have likely never heard of it. This gives it poor brand recognition. And due to aggressive store investments, profits aren't anything to write home about so far. This business posted an operating margin of 6% through the first nine months of this year.

Dominating the industry

The areas that Dutch Bros lacks are exactly where Starbucks (SBUX 0.89%) shines. In its most recent fiscal period (fourth quarter of 2023, ended Oct. 1), the world's biggest coffeehouse chain saw its same-store sales rise by 8% in North America, a faster pace of change than Dutch Bros reported.

You'd expect the smaller, earlier-stage business to post faster growth than the massive Starbucks. This could be a sign that Starbucks has more levers to pull, whether via its top-notch tech foundation or through employee productivity training, to boost its store-level sales volume.

Next, Starbucks indeed possesses an economic moat, which is supported by its incredibly strong brand. This is without a doubt one of the most widely recognized consumer brands in the world. And it helps Starbucks charge premium prices for its food and beverages.

The company isn't done growing, either. Starbucks is already one of the largest restaurants concepts on the face of the planet, with 38,038 stores worldwide, but management has set a target of having 55,000 locations by 2030. It's not hard to have confidence in this goal due to the fact that Starbucks has a proven playbook that it simply needs to replicate.

For long-term investors looking to own an already successful business that still has meaningful potential, Starbucks clearly looks like the better stock to own than Dutch Bros.