Dutch Bros. Coffee is the only restaurant that went public in 2021 and maintains share prices above its initial offering price, with current prices hovering around $38 compared to $22 at the time of its IPO. Last year was a banner year for restaurant IPOs, with five new options including Krispy Kreme entering the public market.
With rising recession concerns and a persistent bear market, it would appear that everyone could use a pick-me-up. The legendary Oracle of Omaha, Warren Buffet, once remarked, “Only when the tide goes out do you discover who’s been swimming naked.” Even the largest names in fast, personalized coffee service may feel the pressure to compete with “bro-istas.”
It may be premature to suggest that Dutch Bros. will dethrone the current market leader, but this Oregon-based company is making headlines as much for what it lacks as for what it possesses.
The effectiveness of caffeine in a recession
Dutch Bros. operates drive-thru coffee locations in the western United States, and the company continues to expand, with over 500 locations already serving Rebel energy drinks and freshly brewed coffees, teas, and frozen beverages. It is generally believed that consumer staples, such as food and beverages, are recession-resistant. In a prolonged economic downturn, Dutch Bros. may have an advantage due to the quick stop potential of drive-thru locations and lower overhead costs compared to traditional barista restaurants.
And the longevity of coffee’s potential is demonstrated by older, larger companies. During the height of the Great Recession, industry leader Starbucks fell to approximately $4 from previous highs near $20. It quickly recovered, doubling from that low by July 2009 and reaching a record high of $126.32 last year. This demonstrates how successful a West Coast coffee company can be in comparison to its lows during the recession.
A culture and strategy for ongoing success
Dutch Bros. promotes its “bro-ista” culture as one of its greatest market advantages. In an interview with Restaurant Business, CEO Joth Ricci remarked, “The stands have great chemistry.” “It is a wonderful place to work. People like it. It is a unique work environment compared to other drive-through locations.” This culture may be more important than ever as organizations continue to struggle with staff levels and labor issues, especially in the service and hospitality industries.
This positively viewed company culture contrasts sharply with Starbucks, which may be losing a pitched battle against unionization as workers strive to improve working conditions and negotiate for increased salaries and benefits at a time when consumer spending may soon begin to decline noticeably. Without this internal strife, Dutch Bros. would be able to reduce turnover and, in conjunction with its outreach and community service programs, begin to seize significant market share from rivals of all sizes.
Still, bears could maul the brothers.
Starbucks continues to reign supreme in the retail coffee market, while Dutch Bros. has a much smaller footprint, with only 538 locations compared to Starbucks’ 34,000. In its May earnings report, Dutch Bros. projected the potential for up to 4,000 new locations within the next 15 years.