Dutch Bros’ Journey from Coffee Carts to a $2.5B Valuation

Read time: 3 minutes

Good morning! It's Thursday, August 3rd - Today we are tracking how the Dutch Bros went from coffee carts in parking lots to $950M in annual revenue!

THE FEATURE

Dutch Bros' Journey from Coffee Carts to a $2.5B Valuation

The Dutch Bros got its start in 1992 when brothers Travis and Dane Boersma opened a coffee cart in a grocery store parking lot that made a couple hundred bucks a day.

Fast forward to today, Dutch Bros is now a publicly traded company with an enterprise value of $2.5B!

What’s Dutch Bros Coffee?

Travis and Dane Boersma grew up on a dairy farm but were forced to look for another job when environmental regulations put the family farm out of business. The brothers saw a cultural rise in specialty coffee drinks and decided to take an entrepreneurial risk.

With the little money they had, they purchased a coffee cart and espresso machines for $12K and paid $150 a month to operate out of a grocery store parking lot. The people of Grant Pass, Oregon were new to espressos and lattes, so the brothers featured a mocha drink that easily converted consumers to their specialty caffeinated beverages.

The Dutch Bros company culture was established early on as the brothers encouraged customers to chat, hang out on outdoor furniture, and listen to some classic rock music. It wasn’t long until a loyal customer asked the brothers if he could open a new Dutch Bros coffee cart in downtown Oregon, and thus began the company’s expansion.

Each coffee cart generated between $200-$300 a day, but the brothers had a bigger vision and wanted to execute it. So, they rented a lot, bought a trailer, and created their first makeshift drive-through.

Within four years, The Dutch Bros opened 40 more drive-through locations. Franchise owners were made up of family, friends, and loyal customers who paid a $30K franchise fee and purchased beans from the Dutch Bros warehouse.

Today, The Dutch Bros have 838 locations across the United States and are expected to generate between $950M and $1B in revenue this year.

How They Win: Grow from Within

By 2008, the company was stagnating. Every new franchise they opened seemed incapable of turning a profit. Travis weighed selling the business, but he had a shocking realization: the new franchises were failing because they were operated by owners with business acumen but no commitment to the brand and culture.

With this realization, Travis took a new approach to franchising: the Dutch Bros would only franchise with former workers with a minimum of three years of employment.

In doing so, Travis could be sure that new owners embodied the Dutch Bros culture of “love and humility” but necessitated significantly lowering the barrier to entry for franchise owners.

To understand Dutch Bros’ innovative franchising model, let’s break down a case study of a former barista, Von Tersch:

• Tersch worked at Dutch Bros since she was 19 and only put up $5,000 to open her five franchises (for comparison, it costs $250k to open a Dunkin’ Donuts franchise).

• Dutch Bros loaned her $250K at 12% interest to cover the $30K per-store franchise fee and equipment costs.

• Terch’s stores generate over $4M a year and after rent payments and a 7% royalty fee, she takes home $230K in profit.

Key Observations: Company Culture Matters

With the new franchising model, Dutch Bros grew exponentially.

By thoroughly vetting employees to find outgoing optimists committed to customer service, each new coffee shop diffuses a culture akin to what the Boersma brothers created around their first parking lot coffee cart. This is what fueled the company’s cult following and $2.5B valuation.

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