If there is any one product category that Americans have a love affair with, it is coffee. While Europeans often make fun of coffee here in the States—arguing that we are just drinking murky water—it is hard to argue with an industry that accounted for $68 billion in sales last year, and this was just the foodservice side of the equation.
As we have discussed before, there is change afoot among the 77,500 businesses selling coffee. While Starbucks and Dunkin continue to hold steady in the #1 and #2 positions, upstarts like Dutch Bros, Scooters, Ziggi’s, and others continue to chisel away small pieces of the market.
That chiseling has caused Starbucks to blink, which is why they hired Brian Niccol last year as CEO to steady the ship. While he is not going at it with the fervor of an Elon Musk, he did just announce there would be layoffs of 1100 corporate workers.
Meanwhile, those upstarts are able to do what Starbucks hasn’t been able to do, and that is serve coffee fast. Drive-thru and walk-up-only locations speed up the process considerably. But with competition intense, it behooves everyone to figure out ways to attract and retain customers, not to mention get them to return more often and spend more money.
That’s no small task, but Dutch Bros is doing just that with its mobile ordering app. While this is not exactly rocket science in the digital age, the company is seeing significant results and in a short amount of time.
Dutch Bros started testing the app a year ago, expanding it in the Spring. It wasn’t until Q4, though, that mobile ordering was available nationwide; it can now be used at 96% of their 987 locations. The proof, of course, is in the pudding so to speak, and already mobile ordering accounts for 8% of sales. Overall, same-store sales were up 6.9% in Q4.
But there are some other big takeaways for the firm. Their rewards members placed 5.4 million orders via the app last year. Such programs provide abundant opportunities for studying consumer behavior, and Dutch Bros has been quick to discern that these people return more frequently, and spend more.
Coffee tends to be consumed primarily in the morning in the US, a stimulant to help jumpstart our day. In Europe, it is common to pause for afternoon coffee, but not so much here. The result is traffic jams at all coffee shops for a few hours, quickly transitioning to coffee ghost towns as the noon hour approaches. It is a challenge that coffee shops have tried to solve for years, but with little luck.
Since Dutch Bros does not have indoor seating, it is common to see cars wrapped around their tiny structures that are typically located on the periphery of a strip mall parking lot. Those using mobile ordering, though, were quick to figure out they could pick up their order a lot faster by simply parking and using the walk-up window. No one wants to sit in a vehicle queue while their coffee is sitting on a counter getting cold.
I am not surprised with the results Dutch Bros is seeing, but I am surprised it took them until last year to offer mobile ordering. But it is another new strategy they are testing that has my eyebrows raised: Food.
Dutch Bros contends they are missing out on some customers, those who want something to munch on along with their coffee. That makes sense, because if people are on their way to work or class, they probably don’t have time to go to two different places. But Starbucks and Dunkin, which both offer food, are in good position to attract those people.
The only problem I have with food at Dutch Bros is that their shops are already tiny. Their food offerings will have to be very limited. There’s not much space for inventory or preparation. Furthermore, spoilage could become a factor, and there is always added expense when expanding the menu.
I realize that Starbucks and Dunkin face these same challenges, but they also have more space. It will be tricky finding the right food items to carry that will increase sales and attract new customers. I wouldn’t be interested in a microwaved breakfast sandwich or a packaged bagel, but that’s just me.
While Dutch Bros may be a little late to the party with their app, they have discovered the fundamental truth that loyalty programs are usually a sure-fire way to increase sales. It doesn’t matter what the product or service category is, because they tend to work across the board, from restaurants to hotels, rental cars, and airlines. Good on them for joining everyone else with a cool app.
But I must end with a word of caution about the food. Don’t bite off more than you can chew. A misstep here could take a lot of the buzz out of those impressive sales increases.
Dr “Another Cup, Please” Gerlich
