For years, Starbucks (SBUX 1.06%) has dominated the fast-food coffee market with no close runner-up. At one point, Dunkin' was expanding rapidly in hopes of challenging Starbucks, but those ambitions have since faded.
Now, Dutch Bros (BROS 1.87%) appears to be the hottest growth story in coffee, and though it's still much smaller than Starbucks, it's growing quickly and has developed a loyal following.
If you're looking to get exposure to the coffee industry, you're likely taking a close look at these two stocks. Let's break them down side by side to see which is the better buy today.
Image source: Getty Images.
Business model: Dutch Bros vs. Starbucks
Dutch Bros and Starbucks both operate coffee chains, but there are several important differences between the two companies. Perhaps the biggest difference in the business models is that Dutch Bros stores are focused around the drive-thru concept, while Starbucks is best known for walk-in stores in high-density, urban locations.
Operating as a drive-thru first business offers several advantages for Dutch Bros. First, a drive-only or primarily drive-thru coffee business needs less square footage. If customers never come into your store, you don't need any space or seating for them. You can design your stores for the single purpose of serving customers at the drive-thru window.
The drawback is that you're likely losing the volume you'd get from offering both a walk-in business with seating and a drive-thru. Starbucks is also known for operating in premium real-estate locations.
Starbucks has been a pioneer in digital payments with Starbucks Rewards, and, similarly, it has also made mobile order and pay a key part of its business. Dutch Bros has a rewards program as well, but it is still ramping up its operations and services.
Historically, Starbucks has struggled with growing its food business and setting it up so that it complements the beverage business well. Dutch Bros, on the other hand, gets nearly all of its sales from beverages, but sees an opportunity in food.
Both companies use a mix of company-operated and franchised, or licensed, stores, though Dutch Bros is prioritizing company-operated stores with its growth.
NASDAQ: SBUX
Key Data Points
Financials: Dutch Bros vs. Starbucks
Dutch Bros and Starbucks are at different stages of their life cycles. Dutch Bros is ramping up growth after going public in 2021, while Starbucks is still growing, but it is a much more mature business.
In 2024, Dutch Bros reported a 32.6% increase in revenue to $1.28 billion, which was primarily driven by new store openings. Same-store sales were up 5.3% in 2024, while transactions declined 0.1%, showing that same-store sales growth was primarily driven by price increases.
The company added 151 stores last year to reach 982, though nearly all of those were company-owned, explaining the outsized increase in revenue. Dutch Bros delivered strong growth across the board on the bottom line as adjusted net income rose from $50.2 million to $87.8 million.
Starbucks, meanwhile, has been struggling with weak demand, which led to the company bringing in CEO Brian Niccol, who previously led Chipotle and was in charge as that restaurant chain recovered from its 2015 E. coli crisis and managed strong returns since then.
In Starbucks' recently reported fiscal 2025 first quarter, comparable sales fell 4% on a 6% decline in transactions with sales down in both North America and international markets. Revenue was flat, and operating margin was down 390 basis points to 11.9%.
Niccol has announced a series of changes under the "Back to Starbucks" plan, including not charging for non-dairy milk substitutions, offering free refills for in-store consumption, improving the coffeehouse experience, and speeding up service, especially during the morning rush.
NYSE: BROS
Key Data Points
Valuation: Dutch Bros vs. Starbucks
Dutch Bros is priced like a growth stock, trading at a price-to-earnings ratio of 117 based on its adjusted earnings per share. That valuation seems to reflect high expectations for the company's long-term growth as Dutch Bros sees potential for at least 7,000 stores nationwide. The company's recent results show it's opening profitable stores, and it only operates in 18 states, giving it plenty of room to expand.
Starbucks, on the other hand, trades at a more reasonable price-to-earnings ratio of 29.4, though that seems to assume the company returns to growth because it represents a premium over the S&P 500. Starbucks also pays a dividend, currently yielding 2.5%.
Which is the better buy?
There's a credible buy case for both of these coffee stocks. Dutch Bros has executed on its growth strategy -- the stock is delivering solid results, and its margins are expanding.
Starbucks, meanwhile, has a turnaround strategy in the works, and the stock should rebound if Niccol returns the company to growth.
Of these two stocks, Dutch Bros looks like a better buy at the moment. Both Dutch Bros and Starbucks are expensive, but Dutch Bros' recent performance has been solid and it has a long runway of growth ahead. On the other hand, investors seem to be pricing in a recovery at Starbucks that hasn't yet materialized. Both stocks are trading down in 2025 due largely to macroeconomic headwinds, suggesting some discounted pricing for long-term investors.
If you're a risk-tolerant investor with a long time horizon, Dutch Bros looks like a good choice.
