Key Takeaways
- Starbucks is focused on improving its in-store experience while many of its smaller competitors are looking to the drive-thru.
- As a more mature company, Starbucks already has tens of thousands of stores with ample seating—and wants to make the most of them.
- Meanwhile, chains like Dutch Bros. are focused largely on speedy service for customers who rarely step inside.
Starbucks longs for the days when cafes were for sitting and sipping. But the growth of some competitors is a reminder that there’s still money to be made in serving hot drinks quickly.
Coffee companies are trying several strategies to pull in consumers who have grown accustomed to having their sometimes-conflicting preferences met. Starbucks (SBUX), by far the largest US coffee chain, wants to revitalize its relatively spacious stores, restaurant consultants said, bringing back what its CEO has called a “coffeehouse vibe.”
Meanwhie, at companies like Dutch Bros (BROS)—which recently opened its 1000th location—the focus is overwhelming on the drive-through.
“Starbucks has a real challenge,” said Jason Daugherty, senior director and emerging markets practice lead at consulting firm Connors Group. “You have all of these niche providers that are coming in with premium brand coffees that are saying, ‘You know what? We just want to get you what you want, efficiently.”
At Dutch Bros., 90% of Transactions Are Drive-Through
With wait times rising and sales sliding, CEO Brian Niccol unveiled a turnaround plan in October that included a plan to have baristas get guests their drinks in under four minutes. Besides appealing to those on the go, Niccol said, that would shorten lines that can crowd cafes and calm the in-store atmosphere.
“Some feel like we have drifted from our core,” Niccol said while announcing plans to “get back to having that community, coffeehouse vibe.” (Starbucks has its own drive-thru business, where it’s also seeking to speed up order times.)
Vibes are less of a concern for some Starbucks competitors. Drive-thru traffic has soared since the pandemic, benefitting cafes like Scooter’s Coffee and 7 Brew, Daugherty said. Dutch Bros. CEO Christine Barone recently told CNBC that about 90% of transactions go through the drive-thru.
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Dutch Bros. has doubled its footprint over roughly three-and-a-half years, according the company. The Oregon-based company’s revenue grew 35% year-over-year last quarter, while same-store sales rose 6.9%. Its shares have shot up 80% in the past year.
Drive-thru service is still critical for comparatively mature brands. Tim Hortons has its average weekday morning drive-thru time down to 28 seconds, according to Joshua Kobza, CEO of Tim Hortons’ parent company, Restaurant Brands International (QSR), who estimates that every second of drive-through time saved works out to about $30,000 of incremental annual sales per store.
“Speed of service is enhancing guest satisfaction,” he told investors earlier this month.
‘There’s a Lot More Competition’ in Coffee Now
With more than 17,000 stores, Starbucks operates on a bigger scale than other U.S. coffee chains. Its sales were 2.5 times larger than its largest competitor in 2023, according to the most recent data available from Technomic, a food service insights group.
This portfolio means Starbucks has significant expenses, Daugherty said. Newer players may have an easier time meeting investors’ expectations: They have lower overhead and sell more higher-profit products, he said.
Investors have so far applauded the efforts of Niccol, who came to Starbucks after helping Chipotle (CMG) move past an E. coli outbreak. Starbucks’ shares have climbed some 25% since Niccol took the helm in September, though they’re essentially flat when compared to early 2021.
Customers have plenty of places to pick up coffee. And those looking for a place to work or converse may be drawn to independent cafes with lower prices and pastries baked on-site, said Jason Kaplan, CEO of restaurant advisory firm JK Consulting.
“When [Starbucks] first really became hugely popular it was this whole new idea,” Kaplan said of specializing in premium brews. “There’s a lot more competition now.”