Dutch Bros. Coffee Expands in Collapsed Economy

Mesa, AZ – When Jim Thompson committed to open Dutch Bros. Coffee shops throughout the Valley in 2006, he did not foresee the economic crisis that was to follow.

“We didn’t know there was going to be a recession,” the franchisee for the greater Phoenix area said, “but we had spent so darn much money in the process…our decision was to go ahead with it.”

But fears of the lagging economy affecting this discretionary-income-driven business seem distant and Thompson looks forward to the future.

A drive-thru, a small patio and a royal blue roof make Dutch Bros. hard to miss on the Northwest corner of North Gilbert and East McKellips roads in Mesa.

Thompson opened this store on Aug. 28, making it the fifth Arizona Dutch Bros. to open in 10 months, and gave away 2,500 free drinks that day. It was “the biggest grand opening” out of all Valley locations, said Thompson.

The next day, the Mesa store recorded almost $2,000 in sales, which made it “the highest dollar sales” of all Arizona Dutch Bros. to date, according to Thompson. “It’s like a community (in Mesa),” he said. “The people were actually waiting for us to be there.”

Dutch Bros. customer and self-proclaimed former Starbucks fiend, Jodi Alexander, said “I taste the burnt espresso there (at Starbucks), so I love that there’s a Dutch Bros. close-by now. And it’s nice that I don’t have to take my son out his car seat; we can just drive right through.”

A drive-thru is key to competing with a nearby Starbucks, according to professional coffee house consultant, Alex Fisenko’s website, espressobusiness.com. “The best possible location to open a coffee drive-thru is next to a Starbucks without a drive-thru.”

With a non-drive-thru Starbucks less than a mile away, Thompson remains confident that because Starbucks has “overdeveloped and lost its culture,” time will produce many more “raving fans” of Dutch Bros.

“We are doing about 30 percent less business than we anticipated,” but Thompson attributes that to lack of brand awareness and the fact that Dutch Bros. has “played the promotion game.” Deals such as $2 16 oz. drinks that would normally start at $3.50 each were offered in order to “expose as many people as possible.”

To help spread the word, Dutch Bros. sends specials via e-mail and text message to their customers; about 7,000 people were notified this way about the Mesa location’s grand opening specials, according to Thompson.

And the dismal economy hasn’t been such a monster after all.

Subcontractors are fighting for business and land owners have vacant spaces. Bids come in about 30 percent less in 2009 than in 2007, which has provided “an opportunity for us to build a brand, establish a customer base and find desirable sites,” said Thompson.

Although Dutch Bros. has slowed their new store growth in the last 18 months, they never sought to attract mass franchisees, according to Dutch Bros. Vice President of Growth, Brian Maxwell.

“We have never had to ‘market’ ourselves to attract new franchisees like a traditional franchisor might do. For the most part, we have grown organically from within,” he said.

Dutch Bros. corporate sales are up 3 percent in 2009 from the same period in 2008, Thompson noted.

Thompson plans to eventually have between 20-25 stores in the greater Phoenix area.

Guest article contributed by Chelci Vaughan, Student
Walter Cronkite School of Journalism and Mass Communication

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