3 Reasons Dutch Bros Is the Stock to Watch in 2025

Dutch Bros (NYSE: BROS) has quickly become one of the most exciting names in the food and beverage industry. While more prominent players like Starbucks dominate the market, Dutch Bros has carved out its niche with a unique drive-thru model and an intensely loyal customer base.

But what makes Dutch Bros a stock to watch for the long run? Here are three key reasons this fast-growing coffee chain is worth investors' attention.

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1. A well-proven operating model

Dutch Bros isn't just another coffee company -- it has revolutionized the drive-thru coffee experience. Unlike traditional sit-down cafes, Dutch Bros focuses on speed, efficiency, and customer experience, allowing it to serve more customers per hour. Such an approach delights customers and also generates a good return on investment for the company.

Besides, the coffee chain is well known for its customizable drinks, particularly its cold and ice-blended beverages. Personalized beverages align with younger consumers' preferences and differentiate them from competitors. In 2024, cold beverages accounted for 94% of all drinks sold to Generation Z. The company has also moved beyond its early roots of serving coffee-based beverages to other products such as energy drinks and refreshments.

Beyond serving great beverages fast, the food company also focuses on building a loyal customer base. It relies on strategies like excellent customer service, community building via social media, and a loyalty system to reward customers. As a result, 71% of its transactions in the fourth quarter of 2024 went through the loyalty program, up from 44% in the first quarter of 2021.

Its highly efficient operating structure, differentiated product offerings, and loyal customer base explain its solid track record of growth. In the last five years, store count grew by 42% on a compound annual growth rate (CAGR), and revenue expanded by 50%.

2. Great store economics

While many restaurant chains struggle with high overhead costs and long capital payback periods, Dutch Bros stores deliver strong financial performance with an efficient cost structure and fast profitability.

Let's look at some quick numbers. The company expects to spend $1.25 million on capex for each new store in the future, with an expected annual sale of $1.8 million per new store in the second year of operation. With a targeted shop contribution of 30%, the return on investment is around 43%, giving it a payback of just slightly above two years. Note: Shop contribution is defined as gross profit plus depreciation.

Dutch Bros' solid return on investment is not without reason. One thing is that, unlike traditional coffee shops, Dutch Bros stores are smaller and require fewer employees, which keeps operating expenses lower. A low capex and relatively low overhead allow the company to generate strong store-level margins early on.

Besides, the beverage company has a proven track record of delivering same-store sales growth (SSSG) over time. For perspective, stores opened in 2020 and prior delivered 4.6% SSSG in 2024, and newer stores did even better, reaching 13.7% for those stores opened in 2023. SSSG will further enhance the return on investment in older stores.

These factors should sustain Dutch Bros' excellent store economics for the foreseeable future.

3. A great growth story

Dutch Bros has already proven its business model and store economics. The focus is on scaling up and expanding the business into new markets and products.

The company currently has just under 1,000 stores across 18 states. Over time, it expects to add another 3,500 stores in existing states and also expand into other new regions, particularly on the East Coast. In 2025 alone, it plans to add at least 160 stores in existing and new areas. If successful, this latest expansion will quadruple the store count in the coming years.

However, that's just one part of the story. It is actively adding new SKUs to its menu to grow SSSG, particularly focusing on food products. For perspective, Dutch Bros' food sales in 2024 are less than 2% of revenue, much lower than its industry peer, where food accounts for around a quarter of the sales. Expanding its food menu presents a major opportunity for increasing same-store sales.

Another area that could see good growth is the energy drinks segment, which is expected to grow faster than the coffee industry. With around 25 % of its sales from customized energy drinks, Dutch Bros is well positioned to benefit from this trend.

Overall, the food company expects to grow its top line by 20% in the coming years, with new stores growing at a mid-teens growth rate and SSSG in the low digits.

A growth stock to keep on the radar

It is not difficult to see why Dutch Bros could be a great growth stock. It has a proven operating model, solid store economics, and a long growth runway.

Unsurprisingly, the stock doesn't come cheap -- as of writing, it has a price-to-earnings (PE) ratio of 179.

It will be best to keep the stock on the radar and wait for a more reasonable entry price.

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Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.