Founded by literally two bros of Dutch descent in 1992, Dutch Bros ($BROS) compounded its coffee shop chains over years and went public in 2021.

Source: Earnings Presentation

I looked into what makes the company tick and it looks like they've found an "aha!" customer experience formula they've been able to replicate and multiply over and over. Now with over 600 stores across the US, they grew sales last quarter at 44% YoY and they're borderline profitable.

So here are their core tenets:

That doesn't mean much until you figure out what the experience is like. Dutch Bros are drive-through shops. A runner comes out to you as you queue up in your car with a tablet, captures your order, sequences it, and by the time you're at the store window, coffee's ready. Now drive off and go on with your day.

While I rarely go to Starbucks in my country - sometimes for the WiFi and the temporary workspace for the price of a coffee, it's easy to see the stacks of people on a workday queueing up to grab a few orders in paper cups and go off. Dutch Bros seems to directly appeal to that rapid service system. And the interesting thing is that since they're not large outlets, and the new shops are about 850-950 square feet, the rent isn't that big a cost. Starbucks would just have bad economics on average compared to pure drive-throughs. The locations are selected near 25,000 square feet or so lots so the volume of cars driving by is relatively large. The unit economics, on a high enough volume, work really well given the low real-estate prices per branch. That could help with the price of coffee/beverage which may keep customers loyal and recurring.

Fun fact: The servers are called "Broistas" (I know!) and seem to be aggressively happy - but hey some of that mildly cult-like culture works when you're expanding fast.

$BROS is on par for EV / Gross Profits vs Starbucks. However, BROS is on a 40% YoY growth rate, and SBUX is relatively flat but pretty FCF generative. Assuming you do your research and find a quality company in BROS, the current price could be really attractive. Dunkin, Starbucks, Mcdonald's, Wendy's... these stocks have all worked on simple quality + compounding over the years. Many have beaten the S&P 500 over the last decade.

Dutch Bros also seems to be a fast-food reasonably priced coffee proposition and while downmarket consumers may start making their own coffee at home, upmarket customers may move downmarket to Bros instead. At least that's a working recession theory. Worth a look!