Dutch Bros. Coffee sees big traffic boost vs. Starbucks & Dunkin' Donuts: RPT

Ethan Chernofsky, Placer.ai CMO, joins Yahoo Finance to discuss Dutch Bros. Coffee’s foot traffic and competitors in the coffee industry.

Video transcript

ALEXIS CHRISTOFOROUS: Welcome back. Shares of the coffee chain Dutch Bros are up better than 30% since they went public back on September 13. And a new report from data intelligence platform Placer.ai says the newly public coffee chain may be giving other chains like Starbucks and Dunkin' a run for their money.

Joining us now is the CMO of Placer.ai, Ethan Chernofsky. And we're also joined by Yahoo Finance's Brooke DiPalma. Ethan, thanks so much for being with us. So let's talk about how a smaller-- I mean, in comparison-- a much smaller coffee chain, Dutch Bros, may actually be a real contender up against the big guys like Starbucks and Dunkin'. What makes them a formidable competitor?

ETHAN CHERNOFSKY: So I think to start, you speak about a product that people clearly love. So, beyond seeing visits going up over time, we see that visits per location number going up, which really indicates that loyalty. So I come once, I like it, I keep on coming back. But I think what's really interesting about Dutch Bros is this disciplined approach they have to locations. So they're not really trying to compete with that full-on Starbucks third place experience. Instead, they're really focused on getting-- get the product, get out in a really positive way, drive-through and that fast service model.

And that enables them to grow really quickly in a really efficient manner. And you think even more, they're still only operating about 500 some odd locations, whereas Starbucks is at 15,000. So that room for expansion is really significant as they look to grow, not just in terms of net locations, but their overall regional reach.

BROOKE DIPALMA: Ethan, Brooke here. So in early 2021, as you noted in your report, they introduced their first Texas location. Then they also have plans to expand into California and Oklahoma. Now you mentioned briefly about how they are much smaller than Starbucks, but what sort of market share do you think that they might take from Starbucks and Dunkin'? Are customers going to multiple different stores, or are they loyal to one?

ETHAN CHERNOFSKY: So I think what we're going to see is, they are going to take an ever-growing piece of the market until they become a real true competitor to Starbucks. We were a long way away just because of that, the nature of how many locations Starbucks has, the reach they have in the suburbs and in cities, their ability to go, really, cross-channel in the coffee space, so the sit-down experience, drive-through, takeaway in major cities across the country.

But there is a really unique opportunity for Dutch Bros to expand out. And I think one of the really interesting things to see will be, do they remain disciplined to their approach and in so doing, really be a piece of the wider puzzle? Or do they really go head to head with a Starbucks or a Dunkin', trying to expand out what happens in each specific location?

ALEXIS CHRISTOFOROUS: How do you think Starbucks and Dunkin' should be viewing Dutch Bros? I mean, do you think that they see them as a company they actually need to respond to in some way and worry about?

ETHAN CHERNOFSKY: I think there is always a key need to understand what's happening when you have a rising player like Dutch Bros. And I think that the really important element here is not just the expansion, but the loyalty happening in these specific locations. So it's not just growth in visitors because stores are expanding, but it's people coming back to that location in a higher number.

But if I'm Starbucks, I don't want to get overly caught up in what a smaller competitor is doing. I want to focus on what I do extremely well. And looking ahead to the holidays, it's this really amazing opportunity to see all of those things that Starbucks has really championed, not just within the coffee space, not just even within dining, but across the retail landscape, things that have made them uniquely strong over really extended period of time.

BROOKE DIPALMA: And Ethan, you actually give us a first look at a new Starbucks report that's coming out this week. And in that report, you noted that you're expecting exceptional end to 2021 for Starbucks, you know, one of the major players in the fast-- sorry, the coffee industry. So what exactly is driving that projection as we make way towards the holidays?

ETHAN CHERNOFSKY: So I think there's a few things that are really working within the Starbucks brand favor. And the first element is how COVID cases are going. So we obviously saw them rise late August. We saw retail visits drop as a result. But when we see those cases start increasingly to decline into that holiday season, that means something really important, that you have this pent-up demand for retail overall and brick and mortar retail specifically. People missed their families last year. Maybe they want to stock up a little extra on those gifts as they travel across the country.

And that's going to mean really substantial visits to malls, to shopping centers. And in general, when we see that type of behavior, we see a really big surge for Starbucks. Because let's be clear, when you go shopping for a long day, there is nothing that helps make that day a little bit easier than a coffee, maybe two, at some point along that trip.

The other element that Starbucks really has going for it is a lot of their key daily spikes, when you look overall at the calendar, tend to happen in November and December. So like we said, Black Friday, a major shopping day, those days building into Christmas, really big shopping days. But also, Free Red Cup Day, which is not something we generally think of as a huge national event, is consistently the peak in visits for Starbucks. It shows that they're able to generate demand, even when there's no real, quote unquote, reason for it, other than them giving a really powerful opportunity to their audience.

BROOKE DIPALMA: And Ethan, you know, holiday season coming up. Innovation at Starbucks is one of their main drivers, with so many different drinks and especially right now in pumpkin spice latte season. What sort of foot traffic do those drinks bring in?

ETHAN CHERNOFSKY: I mean, it's always amazing because you look at the pumpkin spice latte launch, and there is always this feeling, like, well, they can't do it again. And they keep on bringing it forward a little bit every year. And we said last year, it was in the midst of the pandemic. There's no way this is going to have the same impact. And yet, it did. You saw these really big visit jumps. And again, this year, you see these big visit jumps.

And what it shows is just how powerful a position Starbucks plays within the coffee sector, but within the wider zeitgeist, in the sense that when they launch something, people are excited and willing to try it. And what's even more brilliant is they know when to launch which type of product. So something that's a little bit more of a hey, let's just try this thing, like a tie dye frappuccino a la 2019. That's going to come in the summer when visits are usually not at their height.

But in the winter, that's when they go with their real kind of heavyweight punches, the things that are going to drive a lot of interest and a lot of traffic. And I'd expect to see more elements like that this year.

ALEXIS CHRISTOFOROUS: Yep, marketing at work big time, companies like that. Ethan Chernofsky of Placer.ai, thanks for being with us.