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Starbucks Faces New Challenges Amid Drive-Thru Competitors

Key Takeaways

Starbucks is striving to enhance the in-store experience, while many smaller coffee chains are capitalizing on the drive-thru model. As a more established entity with an extensive network of stores, Starbucks aims to maximize its spacious locations. In contrast, competitors like Dutch Bros. are prioritizing efficient service for customers who prefer not to enter their establishments.

Starbucks reflects a longing for the traditional café atmosphere, where patrons are encouraged to linger and enjoy their beverages. However, as competitors grow rapidly by focusing on quick service, Starbucks is reminded that there remains significant demand for expediency in the coffee market.

To attract a diverse consumer base with varying preferences, Starbucks seeks to rejuvenate its expansive stores, aiming to revitalize what is often referred to as a “coffeehouse vibe,” according to restaurant industry consultants.

Meanwhile, chains such as Dutch Bros., which has recently celebrated the opening of its 1000th outlet, are directing their attention toward the drive-thru experience as their main service model.

At Dutch Bros., 90% of Transactions Are Drive-Through

In light of rising wait times and declining sales, Dutch Bros. CEO Brian Niccol recently introduced a turnaround strategy aimed at serving drinks to customers in under four minutes. This initiative not only caters to the on-the-go consumer but also intends to alleviate congestion in stores, thereby creating a more inviting atmosphere.

“Some feel like we have drifted from our core,” Niccol noted, expressing intentions to reinstate the sense of community associated with coffee-house culture. Notably, Starbucks also maintains a focus on its drive-thru operations, where they are equally striving for speedier service.

For many Starbucks competitors, the ambiance of a café is a lesser concern. Since the onset of the pandemic, drive-thru business has surged, benefiting companies like Scooter’s Coffee and 7 Brew, with Dutch Bros. reporting that around 90% of its transactions now occur via drive-thru.

Dutch Bros. has experienced rapid expansion, doubling its footprint in just over three years. The company reported a 35% year-over-year revenue increase for the last quarter, accompanied by a 6.9% rise in same-store sales. Its stock performance has reflected this success, appreciating by 80% over the past year.

Drive-thru efficiency remains critical even for more established brands. Tim Hortons has achieved an average drive-thru wait time of just 28 seconds, a metric emphasized by Joshua Kobza, CEO of Tim Hortons’ parent company, Restaurant Brands International. He estimates that optimizing drive-thru times equates to significant sales gains for each store.

‘There’s a Lot More Competition’ in Coffee Now

With over 17,000 locations, Starbucks operates at a scale unmatched by other U.S. coffee chains, generating sales approximately 2.5 times greater than its closest competitor, according to recent Technomic data. However, this extensive network also incurs significant operational costs.

As newer brands often enjoy lower overhead and can offer higher-margin products, they may adapt more seamlessly to investor demands. Investors have shown confidence in the strategic changes introduced by Niccol, who previously guided Chipotle through a crisis. Since his arrival at Starbucks, shares have risen about 25%, though they remain relatively stable compared to levels at the beginning of 2021.

For coffee lovers, the plethora of options has expanded, with many seeking out independent cafés that offer competitive pricing and freshly baked goods. Jason Kaplan, CEO of restaurant consulting firm JK Consulting, notes that the charm Starbucks once held as a pioneer in premium coffee has significantly eroded due to the increasing competition in the market.

Starbucks’ historical positioning as a leader in specialized brewing now faces the reality of a vastly changed landscape with numerous alternatives available to consumers.

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