Conference Transcript - BROS 2026-06-02

Sharon Zakthia, Analyst — William Blair

Hi, I'm Sharon Zakthia with William Blair. Thanks for joining us today. Really excited to have with us from Dutch Bros, Christine Verones, President and CEO, and Joss Gensler, who is the CFO. For those of you who don't know Dutch, you can now go and see them in the suburbs of Chicago. It's hard to explain Dutch if you haven't been there. We're going to try. But they're very well known for just the kind of the experience and the extremely kind and friendly customer service that they have. And I'd encourage all of you to try to make it out to one of the Chicago suburbs or elsewhere to see Dutch. But certainly one of the most exciting things is the rate of expansion of the brand. So they have less than twelve hundred today. We've been promised two thousand twenty nine by twenty twenty nine in twenty twenty nine. in 2029. And then on their way to, I think it's 7,000 is the TAM right now, which may be understated because I think that was based on brand awareness about a year ago and that continues to rise. So a very exciting story. Christine's going to go over a few slides and then we're going to

Christine Barone, CEO

do some Q&A. Great. Thanks so much, Sharon. I'll just intro a few things about the brand so you

Sharon Zakthia, Analyst — William Blair

can learn more and you can advance the slide. Great. There's a complete list of research

Christine Barone, CEO

disclosures and potential conflicts of interest. Perfect. Okay. So we are one of the fastest growing brands out there as Sharon shared. We have about 1200 shops right now. We did just open in Melrose Park. So that's the closest to where we are today. And there's still very long lines there. So if you do go out and venture out there to see it, I would add a little time for to wait in our fun and friendly line we continue to grow into more states as well so we are now in 25 states so continue our march across the country we are incredibly intentional about how we grow so we really plant a flag and then plan to densify into those neighborhoods that we go into so that we can really become that everyday occasion and that's that is how we are growing we have incredible innovation too as we grow. So we are really leading the beverage market in innovation. We were the first to launch protein coffee back in 2024. I'm sure we will get into it later, but we launched, just launched Mist, which is a great add to our energy platform. So as customers are coming into the beverage market, they're drinking a lot of customized energy and we have an incredibly complete offering across that. So then our strategy. So as we're growing. We're really focused on a number of different things. So the first thing is we always start with our people. We are growing from within. So as we open all of these new shops, we've shared that we'll open about 185 shops this year. We are growing with our own people. So we have about 500 operators. That is our first level right above our shops who are ready to go and open those new shops. They have about seven years of average tenure with the brand. So they know our brand. They love our brand, and they oftentimes will have a tattoo of our brand as well as they grow with us across the country. And it's a very lucky and enviable place to be in to really be able to grow your brand with people that know and love your brand, have invested in the culture, and are invested in bringing on broistas that can really represent that culture. The second piece, we're growing our shop face. So as Sharon shared, we are planning to open 2,029 shops by 2029 or in 2029. And as we look at that growth, we're growing from people. But we have an incredible pipeline now of shops to go and open across the country. Super intentional about how we're growing. So we really have the country mapped out. So before we go into a market like Chicago, will actually know where we want to go. So we'll be very thoughtful about putting those seeds, what we call them, our shops, as we go into these markets and make sure that we are maximizing that opportunity we have. Beverage is very driven by convenience and location. So as you think about your daily routine, you want a coffee shop to be close to you as you grow those occasions. Then we're growing our transactions. So we're doing that in a number of different ways. So as I shared, we are an innovation leader in beverage, continue to both offer great LTOs where we have new and exciting flavors to offer our customers. We just brought back our mango natto flavor yesterday, which is one of our rebel beverages, and we brought back a coconut latte as well. We also are growing our Dutch rewards program. So that helps us grow transactions. Seventy four percent of our transactions come through that program. So we have a really great way to talk to our customers, interact with them, tell them about all the new news that's coming. We also have additional drivers, things like we are rolling out a food program right now. So we started with a bakery platform, had four SKUs. We now, as we roll out a hot food program, we'll have nine SKUs in our shop. So we are very much a beverage company, but do want to have that add-on of food for our customers as we grow. We also launched mobile order a couple years ago and continue to invest in that experience, really making it great for our customers that continues to grow. It's about 15% of our sales now are coming through mobile order. So it's a really convenience play for our customers. And then finally, we grow our margins. So we have a long-term goal to have about 30% margins in our shop. We're close to that goal, but coffee, the agricultural crop, has had a lot of fluctuations lately, so we've got a little room there right now, but we plan to continue to expand our margins, really keeping that shop margin, continuing to invest in our people and our labor line as we grow, but we can leverage G&A. And so that's a little bit of the introduction of Dutch Bros, and now we'll dive in with you, Sharon.

Sharon Zakthia, Analyst — William Blair

So I think we will start out with competition, because that has been the topic of 2026 within this market space. So can we maybe talk, and Christine, you've been in this business a long time. Josh, you've been in the beverage business as well. Can you talk about how the competitive landscape has evolved and where you think Dutch's biggest differentiation is? and maybe delve into what you're seeing, particularly on the QSR side, and whether you think that has impacted your business either now or when it was in test.

Christine Barone, CEO

Yeah, so a couple of things there. So just kind of starting big picture. We've been around since 1992, and we grew up in the Pacific Northwest. So we are no stranger to competition and have not been really for our entire life as a company. And as we look at competition, I think the beverage market is something that lots of customers are coming in. It's continuing to be a bright spot in the consumer space that we are still seeing growth within the beverage market. We are certainly outpacing that growth. At Q1, we grew our revenue at 30%, so very, very high growth overall. But as we look at the overall competition, that trends are changing in the beverage market. So what we continue to see is a need for customization, a need for cold, a real growth in the energy space, and then all with great service. So as we look across those things, we think we are incredibly well positioned. Our biggest differentiator is our people. We are oftentimes ranked really as the leader across the broader food and beverage industry on the service dimension. and we want our broistas to make everyone's day brighter as they come through that line to delight them both with the high quality beverages we have the speed that we serve it with and that that smile that you get from coming through our line and then looking at the different parts of competition you know we do have competition from traditional qsrs who are maybe more food focused but do come into beverage there's also lots of large beverage players out there And I think given the growth and the direction in the market, you know, we continue to see smaller players as well. One of the things that we look at it is actually competition overall probably hasn't changed that much, you know, certainly in the last three or five years. As some players get bigger, maybe it feels like it's changed or some players come more directly into the energy space. But it's actually always been quite competitive. And I think you really need to operate and deliver your best service as you as you look at this market.

Sharon Zakthia, Analyst — William Blair

You talk, I mean, it's it tends to be a view that this is a stable pie, right? So a company is growing. Another company has to be shrinking. We know that's not the case because beverage is growing quite quickly. But where is your incremental customer coming from and where do you see the most white space for the brand?

Christine Barone, CEO

Yeah. So as we continue to grow, as you know, the market itself is growing. and energy and iced are particular areas that are really growing in beverage. We're also taking share. So the market's growing. It's not growing at 30%. And so we are taking share. And I think as you look at what customers want, we're just incredibly well-positioned to take that share, not only in energy, but also on the coffee side of the business as well.

Sharon Zakthia, Analyst — William Blair

If I think back to 2022, so it was shortly after the company went public. It was before either of you joined. but there was a clear impact from gas prices on the business in March of 22 when Russia invaded Ukraine. You haven't seen that this year. What has changed in the business? Why are you more economically resilient in 2026 than four years ago? Yeah, so we've really built out a lot of

Christine Barone, CEO

capabilities over the last four years in the business. And so some of the big places that we've been investing in is one in the Dutch Rewards Program. So we launched that program It's a digital program back in 21. By 22, we really just had the ability to, you had the ability to collect points within the program. What we have built now is that back and forth, we've got the app that you can download and mobile order now. We really have segmenting capabilities so we can watch what is happening with our customers' patterns and understand, hey, when might they need an extra offer? Or when would it be cool to introduce a new beverage to them that they haven't tried before? So we've built a lot of capabilities out and really to talk to our customers. We've also invested a lot in building brand awareness over this time. So a couple of key things we've done there is, one, built out our paid media capabilities. So we were largely doing retargeting before. Now we are actually focused on finding customers that have not been to a Dutch Bros before and then rapidly getting them into that Dutch Rewards program. We find that once you've tried Dutch Bros for the first time, you actually very often come back. And so really making those investments to be able to talk to you, get you in the program, and find you in the first place. We've also done things like launched CPG. So now in the markets where we have a physical Dutch Bros, we also have grocery stores and other large retailers that have Dutch Bros products. And so when you're walking down doing your grocery shopping, you see the Dutch Bros logo, and it really helps drive brand awareness. So we've done a lot of things to actually focus on, you know, building the resiliency within our base. The other piece I would note is from a value proposition perspective, we've really invested in continuing to enhance our value proposition. We're really the leading player in the beverage industry from a value proposition. So we've taken very little price over the last couple of years. We continue to invest in things that really drive value for our customers, things like mobile order, investing in food as we continue to roll that out.

Sharon Zakthia, Analyst — William Blair

It's actually a good segue. Maybe, Josh, can you talk about the dynamics of really lagging the coffee market increase in price? Because you're clearly playing for the long game and not trying to necessarily optimize margins in 2026. and then help us understand how food plays into the margin structure as that fully rolls out this year.

Joshua Guenser, CFO

Yeah, so to your point, you know, coffee's been elevated now for probably about 18 months, and that does take some time to flow its way through our P&L. We really saw that spike in our P&L here in Q1 of this year, and coffee's remained quite elevated. Back to your point, though, on our overall pricing perspective, we do feel like we have a very strong value proposition. We do lots of surveys with our customers to understand our relative value proposition. We look at how we're priced relative to others, the size of our beverage and the relative price point, knowing that we have actually quite a bit of room and feel we have quite a bit of pricing power that we could take if we wanted to with our customer. But felt like just given the strength of the business, given the strength of our overall P&L, we had the opportunity and the ability to absorb what we thought would be a temporary price or cost increase in coffee costs. Historically, if you look at the coffee market over a lot of years, you see spikes like this happen and it'll typically normalize back down to your more average range. So we're still at an elevated coffee cost today. We anticipate, I think, with many others that at some point it'll normalize here. But given that, we felt like we're in a really, really strong position not to have to take price to be able to cover those coffee costs and feel like we've been able to navigate that very well. We had margins of north of 28 percent in Q1, which we feel really proud of, despite having some pretty heavy coffee headwinds. As it relates to food, food certainly is a lower gross margin product. So as you think about cost of goods, specifically for food, that generally is a bit higher than that of a beverage. But the nice thing is it's adding attachment to our business. It's adding some incremental transactions. So we'd expect to see that lift help drive leverage in other lines. It'll help mitigate some of those pressures.

Sharon Zakthia, Analyst — William Blair

And, Christine, can you talk about, so, you know, having lived through other beverage brands, really the key with food is to make sure it's additive and not substitutive of the beverage, right? Right. So can you talk about what you've worked on operationally to make sure that food in no way slows that line so that you lose that incremental beverage at the end of the line?

Christine Barone, CEO

Yeah, incredibly important. So, you know, a couple of things as we started to think through rolling out food. One is we're talking to our customers a lot and asking them what they want. Food was one of the largest requests that customers were sharing with us. hey, I love your beverage, but I sometimes have to go somewhere else when I want a breakfast sandwich in the morning and would love for you to have that option for me. When we roll out any initiative, we look at a number of things. The first is our broistas who are making and serving and delivering all those great beverages. Do they love this? Are they excited about it? Because if our broistas are excited about what we're doing, it always ends up working. And so as we've rolled out food and especially as we were testing it really did a lot of surveying of our broistas and then we do have long lines at many of our shops and so it is one thing that we're incredibly focused on is making sure that the throughput really works especially as we add food or any other new initiative a new beverage to the venue is we're very focused on speed of service so as we've rolled out food and tested food we've been consistently testing that really understanding kind of how are our shops operating at a peak are they continuing to grow those peak times and as we did testing of food made sure that we were offering products that the cycle times fit within the beverage cycle time so very very thoughtful operationally to ensure that food fits in with

Sharon Zakthia, Analyst — William Blair

what we're doing overall josh the um you had a very strong first quarter with comps up eight percent of course everybody did the math and the implication is three to five for the rest of the year. So can you talk about that outlook? You know, why it goes from three to five. And as you think about that three to five, what are the biggest wildcards there that you think of either

Joshua Guenser, CFO

positively or negatively? Yeah, I mean, so certainly we had a fantastic Q1. And I think that it even exceeded our expectations. You know, the guidance we provided for Q1 was definitely below that. We really had a strong LTO offering in the back part of the quarter that exceeded our expectations and helped drive some of that outperformance in addition to some of the great merch offerings that we that we offered during the quarter all that really drove that out performance so as we think forward certainly we don't plan on it exceeding our expectations by definition we have a very thoughtful approach of how we plan for all the different offerings that we have for the balance of the year feel great about those initiatives but certainly expect those to perform along the lines of what we'd seen in the past so still fantastic performance i'd say but maybe not to the full elevated levels that we saw in q1 the other side of that is we are starting to lap some harder compares as we move throughout the year we the transaction compare actually steps up two and a half points heading into q2 and then steps up sequentially even from q3 to q4 so just on basic math even with a really strong underlying transaction trend you you see just the compares get a bit harder so feel really good about the momentum of the business that we saw in q1 and feel really good about the outlook even for the balance of the year you know considering all that we are rolling out food so as we shared we're also we'll complete the rollout in our company operated shops by the end of q3 so that'll add to some of the comp lift throughout the year as well um but there's a variety of factors certainly you know we have i think we do a really good job at estimating what what our overall comp performance will look like based on all the initiatives we have obviously in q1 we significantly exceeded it but there's um there's always variability in how how that can perform which is why we provide the range that we do

Sharon Zakthia, Analyst — William Blair

and what do you think i mean there's always a lot of moving parts what do you view as the long-term kind of a durable comp for the business?

Joshua Guenser, CFO

Yeah, so our long-term growth algorithm has included low single-digit comp growth, and that's really, you know, we're very focused on continuing to go after the large white space market share, you know, that we can capture here, really through unit growth, creating greater convenience for our customers and feel really good about the ability to continue driving transaction growth over the longer term and healthy comp growth as we build this business out for several years to come.

Sharon Zakthia, Analyst — William Blair

Christine, you have a new chief shops officer. Yeah. Who's been there several months now. Yeah. Almost six months. Yeah. Loose track of time. Every year in the market feels like seven years right now. I mean, what, when you are making that hire, what were the key priorities that you have for her as she kind of helps you

Christine Barone, CEO

get to this much more scaled business? Yeah. So as we look ahead, our biggest priority is growing shops. And so ensuring that we make that as easy as possible for our teams. And so that is really Jen's highest priority is thinking through what are the things we can put in place to really make it easy to continue to grow our shops? How do we support our travel team, which we call the mob that goes out and trains all those shops, helps open those shops? How do we make sure that they're incredibly supported as we move across the country. How do we put in initiatives that continue to help us drive throughput? So again, we always focus on speed, quality, and service. Sometimes with the demand we have, we need to continue to focus on speed and drive throughput so that more customers can come through our lines and experience Dutch Bros. So she's very focused on that she's very focused on labor deployment so ensuring that we always have the right number of broistas at the right time so we're getting better both on the demand side and understanding kind of exactly what is a day going to look like and how can we best staff to those demand patterns across across the system so really all of that blocking and tackling and ensuring that we can open our new shops in the best way possible. It did look like new unit productivity ticked up

Sharon Zakthia, Analyst — William Blair

last year, at least the math that all of us do on the outside. Can you talk about whether you're hitting your payback targets faster, you know, more recently, and kind of what you would attribute that to and how you're really seeding particularly new markets when you enter like Chicago? Yeah,

Joshua Guenser, CFO

yeah. So certainly it did elevate, as you pointed out, the really a lot of that was a function of the culling of the pipeline that we did a couple of years ago, really going through as we, for those who don't know the whole full history, we went quite deep and quite rapidly into some new markets, in particular in Texas, where we saw some high rate of sales transfer. And learnings from that was we still would open those shops and still would find them to be great sites, but we might sequence them a little bit differently. So as we went through those learnings, we culled our pipeline of sites that were in our longer term real estate pipeline, and left in that pipeline some of the highest-performing shops. On top of that, during that time, also rolled out mobile order capability. We've been rolling out enhanced marketing initiatives that have really driven our AUVs up that left us with really, really strong performance of those new shop openings. I think in hindsight, we may not have culled as many of those shops out of the pipeline given the overall performance, but feel really good about the return profile we've seen on those shops that we're opening. And as we continue to go into new markets, we see really strong performance. Certainly, the lines here at Melrose would evidence that we have a very, very excited customer as we come into some of these new markets. So we continue to see fantastic returns on the new shops. And, you know, we've outlined our longer term growth algorithm that includes our longer term TAM as we'd be targeting shops doing $1.8 million in year two. We see fantastic returns even at that level. So with elevated AUVs, certainly the returns are even higher. But our goal is over the long term to create that convenience to make sure that we're densifying a market so that we can become your every day. So our sole goal isn't just to drive elevated AUVs in those new shops. It's really to create that convenience and that longer term durability of the brand. So I'd expect that to normalize over the long term as well.

Sharon Zakthia, Analyst — William Blair

You have, from a day part perspective, you have the inverse opportunity of a lot of other brands where, you know, typically if I was sitting up here with another company, I might be talking about the afternoon as the opportunity for you. It's more the morning. So can you talk about the morning as a percent of your sales and how you're optimizing that with things like mobile order and pay and food and where eventually you think that could Because I think, you know, many investors are wondering how high is high. I mean, that's additive to the ultimate AUVs.

Christine Barone, CEO

So as we look at our business, about a third of it's the morning, a third midday, and then a third afternoon. The beverage market overall is a little bit more like 50% in that AM day part as you share. and we believe we actually have opportunities really still throughout the day but that morning day part is definitely an opportunity for us and as we look for our customers and ask them hey what what is what would drive you to come more often in the morning the number one thing is convenience because none of us want to wake up early to to drive an extra 10 minutes to a shop So the closer a shop is, the more likely a customer is to come. Food is also important as that attached to beverage in the morning. So having those protein options and really breakfast sandwich options are quite important. So rolling that out. And then mobile order is also more important in the morning than in other day parts, again, because we're a little bit more time sensitive in our mornings than we are throughout the rest of the day. So we've been very focused on things that really enhance and grow that morning day part. But we're also focused on the afternoon. We have a really large leadership position in the afternoon. And a lot of that is driven by our very strong energy business. So we continue to enhance that. We have a proprietary product called Rebel that you can customize. You can blend it. You can add toppings to it, all different types of things. And we've recently rolled out mist, which is a plant powered energy with antioxidants, electrolytes. It's truly refreshing and it is a different need state really than our rebel product. And so as we can, we always look for ways to enhance those things that we're already the category leader in.

Sharon Zakthia, Analyst — William Blair

Can you talk about scaling culture as you grow? Because it's obviously a very important part of the business. And we've seen so many companies stumble at some point. it, I guess, what systems do you also have in place to try to detect any kind of red flags

Christine Barone, CEO

early to course correct? Yeah. So I think the most important thing we have is just such a strong base and foundation of people ready to grow with us. So I shared, we have those 500 operators above shop. So they start in a market with one shop, but then they can grow to multiple shops. So that allows us to scale our culture because we're scaling with our people who have experience with our brand. We also have very strong training programs. So we invest a lot, especially as you come on as a new broista, in learning all of the recipes and all of the new drink builds and learning our culture, learning about the history of the company. So we really invest a lot in that as well, in growing our culture and growing our people. And then we do a lot of things just making sure we're listening really well. So we have a great field support system. and Josh and I have a weekly meeting with all of our area vice presidents who run all of our shops across where we have a really open dialogue about things that are working well and then things we can do better and our entire team is incredibly focused on serving our field exceptionally well that when something comes up from the field we always know that that is a high priority to to get right so I think that the culture is something that is incredibly intentional it's been built over time. And then I think one of the most important things we do is we invest the right amount in labor in our shops. So we ensure that we have enough time for that training. We have enough time to really successfully serve our customers. And we've always shared that as you see leverage in other parts of our business, the labor line is something that we will continue to invest in both from an hour's perspective and from a dollar's perspective as we continue to grow. and it's something incredibly important that our teams have an incredible environment to come to work and really choose to come and be with us. I think it was interesting on your last call,

Sharon Zakthia, Analyst — William Blair

I believe you put out some stats and some of us did the math and it's a fun fact. So if you leave William Blair with anything today, it's harder to become a broista at Dutch Bros than to get into Harvard. So just like take that with you. Yeah. I guess the last thing is just the throughput. So So to me, from the outside, it feels like there's a delicate balance for you with throughput because you can become a transactional brand versus a relationship brand. And I tend to think that's why you don't throw out throughput numbers that often with Wall Street because you are walking that fine line. But as you look at the overall base, are you seeing a moving to the right of the curve on throughput? And what are your best tools in the toolbox to move that?

Christine Barone, CEO

Yeah, so as we look overall, I think you're exactly right. Right. It's that delicate balance. And so our teams, we focus on speed, quality and service all at the same time. Right. You want your drink right. You want it in the time you want it and you want it delivered with a smile. And so how do we make sure that we balance all those? We do survey our customers quite often to make sure we are hitting that balance correctly in all of our shops. And, you know, throughput is something where we want to make sure that we're not rushing the part of the experience that our customers love. So that connection with the broista, making sure that we're not only looking you in the eye, but we're also looking your passenger in the eye. And then maybe you have a dog with you. We're delivering them an awesome pup cup and we're also looking them in the eye. So making sure that we never shortchange the service part of what we're doing. But there are opportunities where we can get faster. So what are those things in the shop that just take extra steps? Where can we put the boba closer to where it's being made? How do we think about the things that don't, you know, work exactly perfectly within the system? And how do we make sure we invest in those? How do we invest in making sure that we have great training on, you know, at what car should you take the order, depending on how many cars you have in line? Like, when do you want to be a line buster versus when do you come back into the building to help and assist making drinks? So all of those things around the edges are things that we can continue to invest in service, but we can also drive that throughput faster.

Sharon Zakthia, Analyst — William Blair

So we're out of time, but we're having a breakout, you know, over the river and through the woods in the mayor room. Thank you. Great. Thank you.