Why You Should Invest in $BROS
Dutch Bros sells stock, we buy stock. Dutch Bros sells coffee, we buy coffee. That's what I call a win-win-win-win.
☕️ + 🤳 + 💙 = 💰💰💰
In the Pacific Northwest United States, we live on coffee.
It’s the first thing we think about every morning when we pull open the shades to reveal yet another dreary, rainy day.
Compared to the densely packed East Coast United States, the West Coast has way more space. Guess how we fill that space?
With coffee stands.
The East Coast US has nothing similar. I spent 7 years in North Carolina during and after college, and never once did I see a coffee stand.
People still got out of their cars to get coffee. Isn’t that crazy? They actually parked their car, got out, walked into a place where they have to stand in line for burnt coffee, next to 20 other grumpy under-caffeinated people, order from someone wearing a visor and uniform, and then wait in line AGAIN to receive their coffee.
The user experience for coffee on the East Coast is god awful.
The West Coast skipped that altogether and went straight for convenience.
They said: “I want coffee from my car, some light-hearted conversation from bubbly young people, and some free stickers.” The market delivered in spectacular fashion with Dutch Bros.
💡 5 Signals That Matter
1. They sell damn-good coffee by the single cup and wholesale online
I’ve tried my fair share of DTC coffee and Dutch competes at the top. There’s no reason to believe that IF they decide to double down on DTC sales, they’d crush it.
2. They have a happy cult of customers
I’m serious. They’re called Dutchies.
It doesn’t stop at the customers either.
There’s a team of go-getters that helps new franchises pop off.
They’re called The Mafia and they host all-day grand openings. Here’s a peek at a grand opening in Southern California.
LOOK AT THAT LINE!
3. They’re doubling down on a franchise model
Dutch Bros is investing heavily in its franchise model.
It’s their own Reverse Manifest Destiny, with a plan to expand from 400+ stores on the West Coast to 4,000+ stores across the US, 10x’ing their current footprint.
But there’s an important caveat here. As of 2008, they stopped selling franchise locations to anyone outside of the Dutch Mafia. Instead, they run on a lottery system within the company.
Talented daily operators can move up the ranks into management.
From there, they can continue moving up into a position where they manage one or more franchise locations.
This means that the Dutch brand stays strong as ever. And the franchise owners have walked the walk all the way to owning their locations. The incentives to join as a junior-level Broista working the bar are there from Day 1: “do a stellar job and one day, this could all be yours!”
4. They’re not in the coffee business; they’re in the convenient drinks business
You’ve heard of the outrageous orders at the Starbucks counter, right?
Dutchies all have their own orders.
Large white chocolate Double Torture with cinnamon sprinks and SoftTop™
For the laymen and women out there, this is a 32oz iced espresso (6 shots!) with white chocolate sauce, cinnamon sprinkles, and their signature cold foam.
I’ve had one and it’s unreal.
What you’re really paying for is a caffeine-induced panic attack and good vibes.
Spoiler: it’s worth it, you’ll be fine.
5. They’re in the software business
Their mobile app is killer.
Much like Starbucks “scan-in-store” feature, you can show your phone to your Broista at the window and they’ll scan to pay and add points to your account.
No contact, no problem.
They also give you virtual stickers that you can earn by completing challenges and shopping at Dutch on a regular basis.
What would prevent them from selling NFTs right in the app?
What’s their secret weapon?
Dutchies stick together. When one of my roommates is going to Dutch, we’re all hopping in the car and going to Dutch.
It’s a happy cult. I mean that in the nicest way possible.
It’s a brand-building flywheel.
People that shop at Dutch ends up working at Dutch. If you work at Dutch long enough, you get promoted to Manager. You enjoy managing a location, why apply for own your own location?
All the while, you’re consuming the product, trying new drinks, LOVING the drinks, engaging with the brand.
Even when you leave Dutch, you still shop there. Once you’re in, you're in for life!
Why are they going public?
Dane and Travis Boersma opened their first coffee stand in the early 1990s. They continued to operate together until 2009 when Dane passed away from ALS.
Travis continued to operate but I imagine he’s exhausted by now, having spent most of the past 30 years building a retail coffee chain that he founded.
In 2018, Travis sold an ownership stake to private equity group TSG Consumer Partners. As with most of these deals, TSG probably laid out a plan with Travis to take the company public and keep growing the business.
A public offering will also give them capital leverage to invest in their franchise model and achieve the 10x location growth they’ve outlined.
🐂 Bull case
You believe in American’s chemical addiction to caffeinated drinks
You believe Dutch will survive the current crises at play (supply chain, pandemic, climate)
You believe that they can expand from 400 to 4,000 locations as stated in their plan
🐻 Bear case
You believe that Starbucks and Dunkin will continue to dominate the convenience coffee market
You believe that the crises will put Dutch out of business
You don’t believe that they can scale from 400 to 4,000 locations
NOTE: this is the type of financial writing I’d love to do more of. If you enjoyed this “analysis,” hit the heart button. It’s free and tells the newsletter robots to send me more readers. (like you!)