Drive-thru coffee chain Dutch Bros (BROS -0.32%) went public in 2021. There are many coffee stocks out there, but investors were immediately captivated by the opportunity with Dutch Bros due to its high-growth potential.
When it comes to growth, the chain hasn't disappointed since its 2021 initial public offering (IPO). Just look at its annual growth rate in recent years.
| Year | Revenue Growth |
|---|---|
| 2020 | 37% |
| 2021 | 52% |
| 2022 | 48% |
| 2023 | 31% |
| 2024 YTD | 32% |
Source: Dutch Bros; table by author. YTD = year to date.
A company that can compound revenue growth at a rate such as this sees its top line swell at an eye-popping pace. For perspective, total revenue for Dutch Bros was $327 million for all of 2020; in the third quarter of 2024 alone, the company generated revenue greater than that at $338 million.
Studies have shown that top-line growth is one of the most important factors for stocks that outperform the S&P 500. Dutch Bros has certainly grown so far. But can it keep it up in the long term? The short answer is yes. Here are three things that it hopes can keep the growth going.
1. Dutch Bros is expanding the menu
Dutch Bros is a chain of 950 locations, and it almost exclusively sells beverages: iced coffee, tea, smoothies, and more. That said, it does have a few food items, such as muffins, which account for less than 2% of its revenue.
Management is doing some limited tests to expand the menu, potentially with hot savory foods. CEO Christine Barone said, "Based on the early results, it is likely a more robust food venue will play a role for Dutch Bros in the future."
Granted, choosing to expand the menu doesn't guarantee success for Dutch Bros. It's possible that trying to cook food will disrupt the process of preparing beverages, leading to lower customer satisfaction.
That said, Dutch Bros is smart to at least try to expand the menu. If successful, it can drive top-line growth and lift sales per location, boosting profitability. And that's a chance worth taking.
2. Mobile ordering is providing a boost
Earlier in 2024, the company partnered with Olo to launch mobile ordering and payments. This isn't a revolutionary idea -- Starbucks and McDonald's offer it, too. But it is having a profound impact on Dutch Bros' sales.
Management noted that its customers who are using mobile ordering increased the frequency of their orders by 5% in the third quarter. There are still plenty of customers who don't use mobile ordering, but if order frequency continues to improve with the adoption of the technology, it could have a material benefit for same-store sales growth.
3. How many locations can Dutch Bros have?
I saved the best growth lever for last. An expanded menu and increased order frequency from mobile technology can lift same-store sales for Dutch Bros. But the biggest driver of growth for the foreseeable future will be new locations for the drive-thru coffee chain.
Most of its growth since going public has been due to opening new locations. The company had only 370 locations in seven U.S. states at the start of 2020; it now has 950 locations in 18 states. That's quite an impressive jump in less than five years.
Dutch Bros has said that it's aiming for 4,000 U.S. locations long term. To get there, management intends to open 160 new locations in 2025. Considering it should have 981 locations at the end of 2024, the pipeline for 2025 represents about 16% growth. And management says the expansion should accelerate further in 2026.
Even at that 16% expansion rate, Dutch Bros could grow for about a decade before hitting its goal of 4,000 stores. In other words, investors can expect a robust rate of growth for a long time.
In conclusion, there is more to investing than simply finding a company with tons of revenue growth. That said, increasing revenue is very important, and Dutch Bros has growth in spades. In the coming years, a larger menu, a higher concentration of mobile ordering, and hundreds of new locations can profoundly lift the company's revenue. And that's likely to be a really good thing for shareholders.
