In light of the recent market downturn, several growth stocks have experienced declines from their peak values, including Dutch Bros (BROS -3.92%). This coffeehouse operator is seen as having several potential growth catalysts over the next few years, which could benefit its stock performance.
Expansion Story
For restaurant stocks, store expansion is typically a major growth driver, as evidenced by companies like McDonald’s, Chipotle, and Starbucks (SBUX -0.96%). Dutch Bros appears to be well-positioned in this regard, having ended last year with 982 locations, 670 of which were company-owned. Currently, it operates in 12 states primarily located in the western United States, with its easternmost presence being three locations in Tennessee. Oregon remains its largest market with 155 locations, followed by California with 149. In comparison, by year’s end, Starbucks operated 17,049 total locations in the U.S., including over 3,000 in California alone.
Dutch Bros locations are typically modest in size, ranging from 800 to 1,000 square feet, lacking indoor seating, and utilizing a walk-up window alongside multiple drive-thru lanes. This setup allows for relatively low construction costs and strong returns. Last year, Dutch Bros added 151 new stores, with 128 being company-owned. This year, the company plans to open approximately 160 new locations, marking an approximately 16% increase in unit growth. Most of this expansion is anticipated in the latter half of 2025, following a reevaluation and optimization of the company’s real estate strategy.
However, expansion alone doesn’t guarantee success, as seen in the case of Krispy Kreme, which underwent rapid expansion in the early 2000s before facing bankruptcy. Dutch Bros is reportedly pursuing growth prudently by using operating cash flow to build out its store base.
In addition to expansion, Dutch Bros reported solid same-store sales growth, with a 6.9% increase last quarter, driven by price hikes and a 2.3% rise in transactions. Company-operated stores reported even better figures, with comparable-store sales up 9.5% and transactions up 5.2%. The introduction of mobile ordering has been a significant factor in this growth. While implementation was delayed, it is now available in 96% of stores, though only 8% of orders are currently placed via mobile devices. There is potential for growth in this area, particularly through integration with the loyalty program, which is aimed at maintaining customer engagement and encouraging frequent visits.
A significant opportunity for Dutch Bros to increase same-store sales lies in its food offerings, currently accounting for only 2% of sales compared to nearly 20% for Starbucks. The company has been testing new food concepts at select locations, showing promising initial results. However, careful consideration is being given to ensuring these offerings do not detract from the core business of beverage preparation or impact employee job satisfaction.
The company acknowledges that it may have missed some business opportunities due to a limited food menu, as customers often prefer a single stop for both food and coffee in the mornings. Although still in the early stages of food testing, this area holds significant growth potential for the future.
A Good Buying Opportunity
The recent market downturn has resulted in Dutch Bros’ stock falling 25% below its all-time high, resulting in a forward price-to-sales (P/S) ratio of 4.9 times analysts’ estimates for 2025 and 4.0 times for 2026, compared to approximately a 3.0 multiple for Starbucks for the same periods.
Despite the premium on Dutch Bros, the growth prospects over the next 10 to 15 years are considered much greater than those for a more established company like Starbucks. Consequently, this presents a viable entry point for investors who are optimistic about Dutch Bros’ transition from a regional to a national player.
Disclosure: Geoffrey Seiler holds no positions in any of the mentioned stocks. The Motley Fool owns and recommends positions in Chipotle Mexican Grill and Starbucks, while also recommending Dutch Bros and offering options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
