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Dutch Bros. Coffee Shows It Can Take on Starbucks, Dunkin'

The chain may be small, but it's growing quickly and building a huge fanbase.

Just when many thought Americans' appetite for coffee could not sustain any more competition, a new front-runner comes along and takes the market by storm. 

In its first year after going public, wildly popular Dutch Bros  (BROS)  has opened 98 stores, saw revenue jump 56% to $140 million and tapped three new markets in Texas, Kansas and Oklahoma.

The coffee chain also has a massive and very dedicated fanbase — entire Reddit boards rank different drinks, along with coffee, the chain sells everything from energy drinks to lemonade and hot chocolate.

It also has multiple Facebook groups feverishly track latest openings. Dutch Bros also recently launched a podcast about all the latest happenings at the company.

How Is Dutch Bros Expanding So Fast?

The Oregon-based coffee chain has been around since 1992 — two brothers of Dutch descent started it as a drive-through in Grants Pass. 

After two decades of slow growth, the company went public with an IPO in September 2021. 

Stock is currently up 35.47% to $49.69 and, as the company announced in a March 1 earnings call, the company opened 538 stores in 12 states in 2021 and plans to open another 125 locations in 2022.

Dutch Bros foresees expanding compound growth rate of 15% to 20% over the next 10 to 15 years, opening a total of 4,000 stores across the country. Markets slated for immediate expansion include Nashville, Tennessee, and Southern California.

While adjusted losses of $0.02 per share fell just a bit below analyst expectations, the coffee chain is on a rapid-fire expansion mission that includes hiring sprees, market testing and a new roasting facility.

Dutch Bros Inc Lead

"Through our pre-opening programs, we continue to invest in the success of each new shop especially as we enter new markets," Dutch Bros CEO Joth Richi told investors during the earnings call. 

"We send a dedicated opening team to instill our distinctive culture of speed, quality, and service, and in the long run, this investment pays for itself in spades."

Should You Invest In Dutch Bros?

This type of success is, understandably, attracting investor attention.

Can what was once a small local drive-through chain can become a viable competitor to global mega-players like Starbucks  (SBUX) and Dunkin'  (DNKN) ?

Dutch Bros shares are now over 110% higher than they were at the time of the IPO at $23 while market cap is at $10 billion, 20 more than its 2021 sales.

"The easy call for investors to foresee is that Dutch Bros will have a significant business expansion in years to come," Brad Gensin wrote for TheStreet's RealMoney earlier this month. 

"The current 500-store base can eventually grow to 4,000, according to the CEO. The tricky part is figuring out a reasonable price to pay for the expected growth, particularly when the company has scant earnings."

That sounds good -- and it would be impressive growth -- but it's basically how many locations Starbucks has in a couple of states. The dominant coffee chain has over 32,000 locations around the world with over 10,000 in the U.S. The chain even had over 7,000 cafes as far back as 2003, so Dutch Bros., while ascending, has a ways to go.