Coffee giant Starbucks (SBUX -0.24%) has been around for a long time, and its stock has created incredible shareholder value for longtime owners. It's been struggling for the past few years, but with new CEO Brian Niccol, the company is demonstrating improvement, and it pays an enticing dividend.
However, if you're a growth investor, there's a new coffee chain that might whet your investing appetite instead. Consider Dutch Bros (BROS -1.55%), which has been growing by leaps and bounds and still has a huge opportunity.
Image source: Dutch Bros.
Not your corner coffee shop
Dutch Bros has established a name for itself as a fun and vibrant coffee destination, where "broistas" give friendly service and come get your order while you wait at the drive-thru.
Most of its stores are drive-thru only, but it has some dining rooms and walk-up windows depending on the location. Since 80% of its market is for to-go orders, most of its locations are small and provide takeaway only.
The company has a careful real estate strategy and is meeting demand where customers are. It is in a hyper-expansion mode, and is opening stores with current trends in mind. That gives it a leg up on larger operations, since it's harder to revamp an established chain of stores than start from scratch.
Dutch Bros stands out in a number of ways besides its agility, fun, and drive-thru stores. It has unique beverages, and the vast majority of sales are for cold drinks, not your typical hot coffee.
This market is growing five times as fast hot drinks, and they drive 87% of Dutch Bros' sales -- for Gen-Z, that reaches 94%. Customers can order drinks like it Rebel energy series and protein coffee, and it's constantly launching new beverages.
The company also is experimenting with its food menu, and like its real estate strategy, it has a deliberate rollout plan to generate sales.
Capturing market share across regions
This recipe is proving successful across different markets as Dutch Bros expands throughout the U.S. It's almost as old as Starbucks, but it remained a small chain for several decades, starting in Oregon and moving through California. Management developed a national expansion strategy with a focus on franchising a few years ago, and the concept is catching on.
One of the risks in this kind of situation is if a company can't scale up well, but management made the smart move to bring in a new CEO and revamp the C-suite with seasoned executives, including several who moved over from Starbucks. Dutch Bros is opening a new operations center in Arizona as it takes the chain eastward, and it's growing successfully and profitably.
Revenue increased 28% year over year in the 2025 second quarter, with a 6.1% increase in same-shop sales (comps). Most of its new stores are company-owned, including 30 out of 31 that opened in the quarter, and company-operated comps were up 7.8% in the quarter.
Company-operated comps' gross margin improved 60 basis points from last year to 24.3%; company-operated contribution margin improved 30 basis points to 31.1%. Adjusted net income increased from $31.2 million to $45.5 million.
Dutch Bros is doing an excellent job keeping costs down despite expanding, and capital expenditures have been relatively steady, while free cash flow is turning positive.
A Dutch Bros in every state?
Dutch Bros had 1,043 stores in 19 states as of the end of the second quarter. That's about double the number it had when it became a public company only four years ago. It plans to open at least 160 stores this year, and then to accelerate openings to reach 2,029 stores by 2029. After that, it sees the opportunity to reach 7,000 stores over the long term.
That's still a drop in the bucket compared with Starbucks' store count, which is nearly 42,000 worldwide and more than 17,000 in the U.S.
Investors shouldn't necessarily give up on Starbucks, which is still opening new stores all over the world and whose dividend yields 2.9% at its recent price. But Dutch Bros could be an outstanding stock to own over the next decade and longer.
