Up-and-coming coffee chain Dutch Bros (BROS -1.04%) stormed into the public markets back in 2021, raising nearly half a billion dollars in its initial public offering (IPO) with a first-day closing price of $36.92 per share. But Dutch Bros shares have largely languished since then despite strong growth from its underlying business.
If you're considering whether Dutch Bros stock might be worthy of a spot in your portfolio, here are three things you'll want to know.
1. Dutch Bros' Rewards program is driving massive repeat visits
Like any good coffee chain, Dutch Bros knows the value of a good rewards program to foster loyalty and drive repeat sales. Its number of rewards member registrations climbed by 1.65 million people in the first three quarters of 2023, bringing its total to nearly 5 million members and accounting for 63% of all transactions in its latest quarter.
By comparison, global coffee chain behemoth Starbucks saw its own Starbucks Rewards membership base grow by 14% year over year last quarter to 32.6 million people, representing around 57% of total U.S. sales.
But Dutch Bros' management also realizes that a good rewards program can serve to solidify its presence in new locations as well. Among several "business-building initiatives" laid out in its most recent quarterly call, Dutch Bros CFO Charley Jemley said the company intends to "aggressively [use] our rewards program to attract new customers and retain existing ones with a particular focus on building engagement in newer markets."
2. Dutch Bros wants to more than quadruple its number of shops
Dutch Bros has already achieved a stunning increase in its number of locations in recent years, more than doubling its shops from 370 in fiscal 2019 to 831 in 2023. But Dutch Bros also expects to more than quadruple its current base from here, to 4,000 shops over the longer term.
If that sounds overly ambitious, keep in mind Starbucks already boasts over 16,000 locations in the U.S. alone. It's also no coincidence that to guide the company through this next phase of growth, Dutch Bros recently brought in former Starbucks executive Christine Barone to take over as CEO in the place of company founder Joth Ricci, effective Jan. 1.
Considering Dutch Bros issued fresh guidance last week for total system shop openings in 2024 in the range of 150 to 165, that should leave the company with an enviable runway for growth that will last years as it introduces its obviously scalable concept to the masses.
3. The company shifted its growth strategy last year
In addition to bringing in Barrone as CEO starting this year, Dutch Bros also astutely shifted its growth strategy last year to more effectively expand its geographic footprint amid elevated buildout costs.
Previously, the company's real estate strategy revolved around a "fortressing" approach, where it would enter a market and stockpile multiple stores in the area to build brand awareness and shorten drive-thru times -- even if it meant shifting some sales from existing locations to newer ones.
Dutch Bros will, however, begin to pursue a "wider" vs. "deeper" approach, with a greater mix of newer markets and slower infill rates within those markets. Rather than focusing on sites that enabled ground leases as it had before, a strategy that stemmed in part from supply chain and construction pressures in recent years, Dutch Bros now has the luxury of pursuing a more diverse range of leases and shop formats. These will include both larger stand-alone locations with lobbies, and smaller end-cap locations that more closely echo Starbucks' historical permeation strategy.
In all, it's clear that Dutch Bros is holding steady in the near term. If the company is able to balance its heady growth ambitions with steadily improving operational efficiency at scale, I see no reason its stock price won't eventually follow suit.
