In Boston and its suburbs, Dunkin’s coffee prevails, and in Manhattan, there’s a Starbucks on nearly every other block, but out west, Dutch Bros. Coffee maintains a strong presence.
It has 421 locations and is expanding at a rapid pace, despite the pandemic. It’s spread out among nine western states including Oregon, California, Washington and Arizona. It’s the largest privately-owned coffee chain in the U.S.
What has kept it going during the pandemic is its strong reliance on drive-thru sales, making it a safer alternative.
Dutch Bros. Coffee has grown in two ways: via franchised and company-owned locations. Of its 422 stores, it’s split between 247 franchised and 175 company-owned.
Despite many coffee chains turning cautious over the pandemic, Dutch Bros. Coffee opened 53 outlets in 2020, owning 42 of them and franchising 11.
And it’s stepping up expansion in 2021. It expects to open 85 new outlets in 2021. Of that number 71 will be company-owned and 14 will be run by existing franchisees.
Dutch Bros. Coffee launched in 1992 in Grants Pass, Oregon, on the farm of two brothers, Dane and Travis Boersma, who were of Dutch descent. Hence its name. They started selling their own coffee by pushcart on the farm, and it developed from there.
And it’s still headquartered in that town, and all of its coffee beans are roasted in Grants Pass, so it stays true to its roots.
Travis Boersma serves as CEO, and Dane Boersma died in 2009 from Lou Gehrig’s disease. Travis and his family maintain a controlling interest.
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But in October 2018, it sold a minority stake to TSG Consumer Partners, a $9 billion private equity firm based in San Francisco. Having capital from TSG Consumer Partners has been instrumental in helping Dutch Bros. Coffee expand.
Boersma calls TSG a “valuable thought partner and strategic partner. They’re playing a key role in capitalizing the growth.”
Though the franchise model enabled it to grow and existing franchisees are grandfathered in, it’s concentrating on owning shops to enable it to preserve its culture, he says.
He describes its culture as filled with “positive energy. It’s a contagious customer service. No one waits for a check.” Its employees listen to music while they’re working and are bouncing to the beat.
But Boersma is clear about why it has thrived despite the pandemic. “We have a niche in the market with the drive-thru. It’s about 97% of our business,” he declares.
“We have some sit-down coffee houses,” he acknowledges, but that’s only a sliver of its business.
Most of its locations are about 860 square feet, with either one or two drive-thru lanes. Some stores offer outdoor or patio dining.
Furthermore, it aims at being located in rural and suburban locations, where people rely on their automobiles, and gravitate to drive-thru coffee. It’s not targeting metropolitan areas.
And why are they attracted to drive-thrus? “Simply put,” Boersma explains, “people are in a hurry. They love to be in their cars, whether it’s hotter than the gates of hell or cold and frigid.”
Because the pandemic has quarantined so many people and kept them away from social gatherings and movies and concerts, “People are starving for connection,’ he says.
Once the pandemic struck and Dutch Bros. Coffee was deemed an essential business and permitted to stay open, its first priority was ensuring the safety of its employees. It eliminated cash payments, made everything contact-less and even suspended its loyalty program.
It relies so much on drive-thru that unlike most eateries and coffee bars, it doesn’t offer third-party delivery. “We want the quality of the product to be top-notch and don’t want to compromise what makes it special,” he says.
He acknowledges that it has considered third-party delivery and is constantly evaluating it, but at this point, “It’s not a need.”
All of the coffees served are espresso-based, except for its cold brew.
When it opened new outlets during the pandemic, it didn’t do any formal marketing and yet drew a crowd. “We opened quietly and we’ve seen insane volume right out of the chute,” he cites.
He thinks that people have been so cooped up during the pandemic that when something new opens, they flock to it. Anything to break the monotony.
It’s opening in its tenth state, in Texas, in College Station, aiming for mid-January. And next up is Oklahoma, its eleventh state, later in 2021.
Boersma expects that it could add 300 to 400 new outlets in the next three to five years, nearly doubling its locations. “I’d like to see us providing key opportunities for our beloved baristas. We have a pipeline of 200 of them,” he explains.
He pinpoints the keys to its future success as: making sure technology is part of its DNA, developing a new loyalty program, and continuing its disciplined brand strategy.