Dutch Brothers CEO and President Jos Rich joins Yahoo Finance Live to discuss AI, corporate earnings, expansion plans, profit growth, promotions, consumer demand and Dutch Brothers outlook.
video transcript
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– Dutch Brothers’ stock took a hit this morning as sales fell well short of expectations, despite a 30% year-over-year increase. The fast-growing coffee chain also opened a record 45 new stores, despite falling short of existing store sales expectations. Joth Ricci, his CEO and President of Dutch Pro, has joined us alongside Brooke DiPalma of Yahoo Finance. It’s an honor to be with you this morning.
Let’s look at some numbers. So you still have a very aggressive growth plan here and Wall Street is reacting and driving the stock down. What do you think Wall Street is missing in terms of its growth plans, and what needs to be repeated about its path?
Joss Rich: Well, first of all, thank you for joining The Dutch Brothers. And I think we are in the early stages of long-term planning. Therefore, the road to 4,000 stores will be somewhat difficult. There will be some challenges. And we’re working quarterly like that.
So while we opened 45 stores in the first quarter, I think from the first quarter of 2022 onwards we were doing a difficult lap. The increase in sales was because he was still out of Omicron and benefited from being 100% open. at the time. And looking back at the year, we knew the first quarter of the year was going to be a difficult lap.
However, in the long term, we plan to open 45 stores and 150 stores this year. We opened 150 stores last year. Last year and this year combined, we have 280 locations with a store base of over 700. And we’re still really happy with the long-term outlook.
Brooke DiPalma: You are also growing aggressively, especially in Texas. At the earnings call yesterday afternoon, some analysts may have wondered how the company is building brand awareness and increasing sales volume. So, can we add some color to how we open these new stores and get customers there, and perhaps if there’s a gap there?
Joss Rich: No, I’m actually very happy with the response in Texas. From El Paso to Houston to Dallas and everywhere in between, we’ve taken a very proactive approach. We have decided to implement this strong strategy, urban/suburban development and branding.
We understand that building this brand is a long-term commitment. Our shop is not immediately reaching its full potential. And we’ve seen it happen in Las Vegas in the past. We’ve seen it happen in Denver in the past. We’ve seen it happen in Tucson in the past, for example.
And you’ll find that a more aggressive approach to Texas is actually unfolding as it has done in many other markets in the development of this brand over the last 30 years. So we are very happy with Texas. We are very happy with the response. We are pleased with the word of mouth, growth, service and staffing in that market and really excited about what it brings us in the future.
I am so excited for Texas. And we decided to take a quick approach, piggybacking on the real estate there. And we continue on that path.
Brooke DiPalma: And your promotion has resulted in one of the biggest sales in the company’s history. I think it was for the sake promotion in March. How does Dutch Brothers view promotions as a key element, perhaps an integral part of this growth plan, and ultimately leverage it to drive sales?
Joss Rich: Well, that’s when promotion is important. And it’s important to do it the right way. In many cases, I think we still showcase brands in some categories that serve many new customers across the country. So we have to find test drive promotions to get people into the store, buy them extra drinks, and show them some of the things they didn’t know they could eat in one day. .
Drinking is also a daily habit. It’s a daily pattern. So you have to introduce your brand. I also have to tell you what makes our product so great and what a great part of our service and day. Our staff will serve you with a smile when you come to Holland. They look after you and provide a service you probably won’t get anywhere else.
So we want to introduce you to the combination of service and great drinks along the way. And it’s a selective process. That’s why promotions are being pushed to showcase more of the Dutch Bros menu experience.
– Smiles as a Service — This is another kind of SaaS that I haven’t heard of, Joss. That’s why I like it. But thinking about the small luxuries of habitual daily shopping, have you seen a pushback in prices from consumers right now? Or in the context of today’s CPI report that we were looking at trying to figure out where prices are going down. And companies are realizing that they need to take that relationship further.
Joss Rich: I think that’s exactly what it is. I think everyone is watching how consumers react to the price spikes we’ve experienced in the last year or so and the price environment he’s in 2022. The general feeling last year was that these price increases were well received. And we’ve also seen commodity cost inflation at record levels.
The gears are starting to level off this year. And I think everyone is evaluating and possibly even reinvesting in pricing strategies. I believe they changed the Dutch rewards program in late March. And basically, the reason we did that is so we can reinvest in more promotions and customer-facing offerings to drive traffic and build long-term acceptance of the brand.
So I think everyone is watching. Regarding pricing and promotions, I think it will depend on how the commodity cost market develops in the second half of this year, but we need to see how it all goes.
However, I didn’t see much backlash. In fact, our loyal customers at the top end of our traffic continue to stay with us. These numbers are fairly even across the board. If anything, an assessment of what has happened so far in 2013 has probably seen some backlash on the part of less frequent shoppers.
Brooke DiPalma: And Joss, you and I discussed how the drive-thru will continue to be an important part of the Dutch Brothers model. And yesterday I got word from Wendy’s that they have partnered with Google Cloud. AI has been introduced for voice orders at drive-thru. Would you consider AI as part of your future Dutch Brothers model?
Joss Rich: I think AI will, in some way, become part of our world. For us, I think it’s a balance between how we maintain a great experience with our employees in a service-driven model, but how we leverage AI and other technologies to improve the consumer experience. Do you? And I think there are some great backend solutions for AI and other technologies that can make that happen. It can speed up our column. This helps us pay more attention to the service side. AI modeling can help with how consumers buy or other predictive behaviors about purchasing patterns.
Let’s see. I am very excited about AI. I am excited about the possibilities. But in the meantime, we are focused on building rewards apps. We use several payment processing systems for speed. We are also working on other backend technologies. And I think we need to invest in technology and technology systems now to prepare for what’s to come.
– What AI doesn’t have is we know it doesn’t have the minds of the founders, CEOs and executives of the Dutch Brothers. We know it shows at events like the Drink One Four Dane event in memory of our co-founders. So I wanted to shout out about this event taking place on May 19th. Joss–
Joss Rich: thank you.
– –Thank you very much for taking the time to speak with us today. Thank you. Dutch Brothers CEO and President Jonathan Rich and Yahoo Finance’s Brooke DiPalma.
