Dutch Bros’ coffee drive-thrus are better received than rivals’ stores, according to one survey.
This up-and-coming company, however, is also quite small compared to its competitors.
Its aggressive growth plans seem achievable given the connection it’s fostering with customers.
If you're not quite sure what to make of Dutch Bros(NYSE: BROS) stock here, you're not alone. The coffee drive-thru chain's continued growth pushed shares sharply higher in 2024 and into early 2025. Then, like so many other tickers in February, this one was upended by tariff fears and has been drifting sideways ever since.
Does that mean it's not the growth stock many investors thought it was after all? Or, maybe it's exactly the growth stock it's been deemed to be, and the crowd just needs to be more patient, recognizing all the bigger-picture stuff it's doing right that will matter in the long run -- even it doesn't mean much in the short run.
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That's arguably the case right now in light of new data from consumer market research company Chatmeter, which ranks Dutch Bros as consumers' favorite coffee and premium beverage choice for a wide range of criteria. But first things first. What's Dutch Bros?
Dutch Bros, the un-Starbucks
The coffee chain had a little less than 1,000 stores up and running at the end of last year, so it's certainly possible you've never heard of it. That's particularly true if you live in the eastern half of the United States, since Dutch Bros' roots are planted on the West Coast even as it is growing its way across the country.
Don't let its relatively small size fool you, though. This little company offers a lot of growth potential, mostly thanks to what makes it unique.
This uniqueness is relative to industry titan Starbucks(NASDAQ: SBUX). So a comparison of the two companies is the best way to describe what Dutch Bros is, and why it's succeeding as much as it is.
Whereas Starbucks has spent the last five decades perfecting a polished, universally uniform (even if somewhat cold) sit-down coffeehouse experience, Dutch Bros has gone in the exact other direction. In every possible way.
It only operates drive-thrus, and each locale is unique in the experience -- and vibe -- it offers. Its baristas, or broistas as it calls them, are more likely than not to engage in some sort of casual, personal conversation with customers that has nothing to do with coffee, further differentiating itself from competitors.
Apparently, it's this authenticity that consumers increasingly want. Dutch Bros' growth numbers say as much, and not just Dutch Bros' results.
Dutch Bros' authenticity proves itself as a business driver
It's a premise that seemed sound enough to anyone was keeping their eye on the company. But there had been no serious empirical evidence to confirm the marketplace is headed to where Dutch Bros is waiting.
Now there is. Using artificial intelligence to analyze customer reviews of rivals Starbucks, Dutch Bros, and Dunkin' Donuts in addition to a recent survey of over 1,000 U.S. adults, Chatmeter determined that Dutch Bros outperforms its two top competitors in a wide range of metrics, including customer service, value, in-store experience, and its drinks themselves.
These weren't marginally better scores, either. There's some significant separation between Dutch Bros and its nearest competitors for all these metrics. Its reviews specifically lauded the friendliness of the staff, too, underscoring the idea that its personal-engagement ethos helps draw a crowd.
This might come as no true surprise, though. As data from by digital commerce intelligence provider Nosto highlights, since (and perhaps because of) the pandemic, 88% of consumers say authenticity plays a key part in their decision to do business with a particular company. And for half of consumers, authenticity is very important when it comes time to spend their hard-earned money.
This shift in consumers' preferences also raises the question of how -- or even if -- Starbucks could shift cultural gears at its 17,122 U.S. locations that were built from the ground up to largely operate as the opposite of what Dutch Bros is.
Far more upside than downside
Don't read too much into the data -- Dutch Bros isn't perfect. Its customers also complained of lengthy wait times. This could be the result of its drive-thru structure, which limits the number of orders that can be taken and prepared at any given time. It also leads investors to wonder if its broistas are chatting with customers too long rather than proceeding to the next customer.
Investors should also note that the company has been issuing stock to pay for its growth, diluting current shareholders as a result. The market also fears new tariffs could make it more expensive to source ingredients. If a company is going to face challenges, however, too many customers and growth opportunities worth funding are certainly better than the alternative.
Image source: Getty Images.
And tariffs? Maybe they'll make a measurable impact. But coffee drinkers are pretty committed to the habit and will likely absorb any extra cost if need be.
More than anything, though, you might want to take Chatmeter's data at face value and come to the conclusion that Dutch Bros is connecting with consumers in a way that its top competitors just can't.
This bodes particularly well for its expansion plans, too, which were recently raised from an end goal of around 4,000 stores to eventually more than 7,000 at a time when Starbucks as well as Dunkin' both appear vulnerable. While that's a long-term task that could take more than a decade to accomplish, the stock is likely to reward the profitable progress made along the way.
Bottom line? Dutch Bros may be a bit more speculative than the average blue chip, but not by leaps and bounds. Its long-term growth isn't even really in question, in fact. The only questions here are how much will it grow, and how quickly will it do so? It may be worth plugging into here and now, even if there's no clear answer to either question just yet.
The analyst community seems to think so anyway. While its following isn't huge, 12 out of the 17 professionals covering Dutch Bros still consider it a strong buy despite its recent weakness.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
