Founded in 1992 by Dane and Travis Boersma, Dutch Bros started out as a “cart” business with the brothers peddling their brews around town in pushcarts. As the business gained traction, the brothers transitioned from pushcarts to drive-thru stands. This allowed busy Americans to conveniently enjoy a cup of coffee without exiting their vehicle.
The drive-thru coffee chain model proved to be a hit and the company gradually expanded to more than 471 outlets across the country. Dutch Bros offers specialty coffee, energy drinks, sodas, hot chocolate, and iced tea on the menu.
The companies robust growth makes Dutch Bros an ideal candidate for franchising. Before you do, however, you need to know what you’re getting into from a financial investment and potential earnings perspective. This article explains what you need to open a Dutch Bros outlet. You can also take our 8-minute franchise quiz to get matched with a coffee opportunity.
How Much Will it Cost to Open a Dutch Bros?
Dutch Bros beverages.
To open a Dutch Bros outlet, you need a liquid capital initial investment of $150,000 and a total net worth of $500,000. You also need to shell out $30,000 for the franchise fee.
It’s important to note that you can’t just have a Dutch Bros franchise just because you meet or exceed the financial requirements. There are stringent requirements and experiences Dutch Bros requires beyond the financial investment.
- You must be an existing employee of Dutch Bros to qualify with at least 3 years working in a Dutch Bros outlet. This ensures that all franchise operators understand the inner workings of the business before they get started.
- You should have at least 1-year of managerial experience in a Dutch Bros outlet.
- You should have a credit score of at least 675.
- You must write a 250-word essay stating and video explaining why you want to franchise a Dutch Bros outlet. The video also helps showcase your personality. These are straight-forward requirements after working in a location for 3+ years.
At first glance, it might seem the requirements are too stringent. It may also seem that Dutch Bros are constricting massive opportunities by limiting potential franchisees to employees.
But it makes sense and the coffee chain has proved the vetting process works. Considering that you’re planning to invest a large amount of money, it would be beneficial for you to experience the operations of a Dutch Bros outlet first hand. This 3-year practical work experience allows you to gain an insight into nuances of daily business operations, understand the brand’s market, how to make beverages and even train employees. This should enable you to create an informed decision on whether you’ll push through in opening your own Dutch Bros outlet or not. By the time you qualify as a franchisee, you’ll have a clarity on whether or not you actually want to run the business.
With such first-hand information, you’re basically being paid to get trained on running a coffee shop the Dutch Bros way. Getting paid while you learn a practical skill is a valuable proposition.
What’s the Average Profit of a Dutch Bros Franchisee?
The Dutch Bros records a robust average annual revenue $494 million in sales generated from 328 different locations out of 471. In other words, the average revenue per store is around $1.5 million in gross sales per unit before expenses like labor, goods, lease payments, and taxes.
Because the Dutch Bros follows a drive-thru model, coffee lovers find the chain safer and more convenient to enjoy their coffees during the pandemic. As such, the company enjoyed a growth of 7.7% in 2020 while other chains struggled to remain open.
Cold brew options.
Finally, in 2018, a Dutch Bros operator said his outlet sold around 1,500 drinks per day. This should give you a good idea of the potential sales volume if you’re interested in becoming a Dutch Bros franchisee.
SWOT Analysis
For more in-depth information so you can make a sound franchise decision, we made a simple SWOT analysis for the Dutch Bros.
Strengths
- Superior-quality beverages. In fact, many said that the quality of their drinks can allow them to compete internationally.
- A wide variety of drinks including coffee, shakes, energy drinks, smoothies, sodas, and more. Many customers turn to Dutch Bros for their specialty cold brews that are priced at a premium compared to drip coffee.
- Drive-thru coffee chain model makes the operations unique and versatile. I live in a suburb of Boise and can confirm that there are long lines outside of Dutch Bros units across the metro area especially on the weekends From the morning to afternoon, it’s not uncommon to see lines 10 cars or more deep waiting to be served.
- Strict franchising regulations that allow them to protect and maintain a strong brand and image.
- High-profit margins with a strong balance sheet. In 2021, the company reported only $150,687 of debt and total assets of $553,700.
- Dutch Rewards program. Until 2021, Dutch Bros ran a stamp card program where customers would get a free drink after a certain number of punches. Today, the company runs their loyalty program on an app. These loyalty programs have been proven to increase visitor frequency.
Weaknesses
- Slow implementation of new technologies, especially on the front-end processes.
- Growing customer dissatisfaction based on customer review. The dissatisfaction applies to both products and customer service quality.
- Does not have an international presence. All locations are currently in the United States. If the company wants to grow a global brand and get into thousands of locations like a Starbucks or Dunkin’, they’ll need to grow internationally.
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- Their drive-thru model can be replicated easily. An increasing number of coffee chains are utilizing this strategy. Chains like The Human Bean and Starbucks both capitalize on this service model. This is less of a differentiator than it was in the 1990s when the company was founded.
- Relatively slow return of investment despite high-profit margins and a stable balance sheet. In recent months, the companies stock price also dropped by around 50% from their previous trading value around $50 per share. At the time of writing, the company’s share price is sitting in the mid-$20s.
Opportunities
- Potentially bigger growth as they began trading in the New York Stock Exchange last September 2021 (Ticker symbol: BROS).
- The prevalence of digital marketing and social media along with the Dutch Bros. branding reduces its risk of entering the international marketing.
- In the same manner, digital marketing and social media give the company opportunities to expand and market exponentially.
- High standards of management allow you to maintain a high level of quality as a franchisee.
- Delivery apps can allow them to open coffee delivery services.
- The increase in customer spending can help them create a new business model.
- Increasing number of coffee lovers.
- More coffee-bean sources over the globe, which they could capitalize on. Many coffee chains have been challenged by supply chain issues over the past 2 years. By forming relationships with multiple suppliers the company will be able to spread out risk.
Threats
- Fast-changing government regulations and policies, especially when it comes to environmental policies.
- Increased commodity costs including coffee beans have increased in price over the past year due to supply chain issues, droughts in Brazil (big coffee bean producer), and inflation. Arabica bean futures alone rose by 76% in 2021, the biggest one year increase ever. If commodity prices get too high, the company might no longer be able to pass off those costs to customers.
- Imitations to the drive-thru business model are becoming more common. If too many other companies focus on drive-thru models, it could result in cannibalization among customers in some markets.
- E-commerce establishments that are selling high-quality coffee and the equipment to brew them. As prices get increasing more expensive, some customers will decide to brew their morning cup of coffee at home.
- Strict franchise requirements might hinder growth opportunities. As an investor, slower growth is not desirable.
- Employment shortage. All employers are dealing with this challenge right now. While an employee shortage and higher wages are good for employees, it’s not always a positive for store owners. Recent reports say there are 11.9 million job openings across the United States that aren’t being filled.
- Updated coffee processing technology is now available to any competitor.
Coffee Industry Analysis
Studying the SWOT of Dutch Bros isn’t enough. You should also have a clear insight into the coffee industry in the US as a whole. Here are some tidbits of information that can help you out:
- The coffee industry accounts for over 1.6% of the US GDP. That is an economic figure that injects more than $225 billion into the national economy.
- The US is the number one among the top countries that import coffee. It’s also the largest coffee consumer in the world. Drink up America!
- The US coffee industry generates 1.7 million jobs.
- Americans spend more than $74.2 billion on coffee, and this figure is still rising.
- The coffee industry generates almost $28 billion in taxes.
- $6 billion is spent on coffee-related goods such as sweeteners, creamers, flavorings, and paper goods.
- The coffee industry generates $30 to $32 billion a year, increasing at a rate of 20% each year.
- 56% percent of US adults drink coffee. This amounts to 66 billion cups in a year.
- The average daily consumption of coffee in the US is 3.1 cups daily.
- 50% of the American population drinks iced coffee, cappuccino, latte, or espresso.
Competition Analysis
Coffee chains like Starbucks are stiff competition.
Dutch Bros has a number of competitors, in no particular order:
- Johan & Nystrom
- Biggby Coffee
- Shokoladnitsa
- Auntie Anne’s
- Starbucks
- Dunkin Donuts
- The Human Bean
- Barista
- Philz Coffee
- Independent coffee shops
Except for the drive-thru business model that Dutch Bros utilizes, these competing brands have equal or superior quality when it comes to brands, service quality, and operations. Some of them offer both walk-in and drive-thru coffee services rather than purely drive-thru. Walk in coffee shops with a dining room are still appealing to some consumers who want to meet for meetings or get some free wifi.
A few of them such as Starbucks and Dunkin Donuts have outlets and franchises outside the US, putting Dutch Bros at a severe disadvantage when it comes to the international market.
Conclusion
As a popular American coffee chain, Dutch Bros Coffee is definitely a worthwhile coffee brand to consider if you want to franchise a coffee shop. The stringent franchise requirement of having to work for them for a three years I actually view as an advantage overall.
This experience lets you understand what working inside the business will actually be like. If you’re serious about starting this franchise, walk, run, or drive down to your local Dutch Bros and fill out an application for employment. This is essentially a no risk way to find out of the business is right for you. Take our 8-minute franchise quiz to get paired with an opportunity that fits your interest and budget.
Sources
- https://www.dutchbros.com/
- https://mobile-cuisine.com/franchise/dutch-bros/
- https://www.statista.com/topics/5945/coffee-market-worldwide/#dossierKeyfigures
- https://www.owler.com/company/dutchbros
