Starbucks may be a household name, but Wall Street has a new fave in the coffee game. Dutch Bros CoffeeBROS

, which began as a modest Oregon pushcart in 1992 and has blossomed into a drive-thru coffee empire, has surged 120%+ over the past year by following many of the recipes that made its largest competitor a household name.

The next coffee contender: Last week, the coffee company opened its 1,000th store in Orlando, marking the latest milestone in its rapid nationwide expansion. That’s more than doubling the 470 stores it had when it went public in 2021. The secret to its growth and success is a familiar formula — drive-thru, mobile ordering, and scaling a rewards program to over 1M members. All of these factors are putting Dutch Bros in a contest with established players like StarbucksSBUX

, McDonald’sMCD

, and Dunkin’.

• At IPO, Dutch Bros planned to quadruple its stores to 4K locations over the next decade and test an expanded breakfast menu.
• Operated almost exclusively as a drive-thru, its small footprint has given it a competitive edge, with average sales per store exceeding the average Starbucks at ~$2M per location.

Getting Into The Morning Grind

Dutch Bros has historically enjoyed a balance of sales during the morning, midday, and afternoon. However, it’s now shifting its focus to morning sales, aiming to become a favored morning stop and capture early-hour beverage sales to compete more directly with traditional breakfast venues. To achieve this, Dutch Bros is strategically positioning itself along commuter routes to enhance morning traffic — a move that has boosted analyst confidence.

• Baird raised its price target to $70 from $60, a 16.7% increase to yesterday’s price, citing Dutch Bros’ strong operational momentum and potential to maintain premium valuations through 2025.
• TD Cowen maintains its Street-high estimate of 4.5% same-store sales growth for 2025, bolstered by the company’s successful rewards program.

Brewing innovation: Looking ahead, Dutch Bros is well-positioned to expand, with strategic initiatives poised to boost earnings by 29.2% and sales by 21.7% year-over-year in 2025. UBS analyst Dennis Geiger believes, “There is a scarcity of high-quality growth in the restaurant sector, and [Dutch Bros’] investors are paying up for that” (Barrons). With coffee costs accounting for less than 10% of its costs of goods sold, and strong sales leverage anticipated this year, Dutch Bros is set to maintain its momentum effectively. Let’s just hope they don’t price themselves out of a good thing and end up like Starbucks.