Is Dutch Bros Shifting Its Real Estate Strategy From New Construction to Adaptive Reuse?

If so both conventional and unconventional building repurpose options exist for the Company to add new shops

Dutch Bros operates ~1,000 shops in 17 states.

The coffee and beverage chain is adding more than 150 new shops per year and wants to grow to ~4,000.

Like other growing companies, though, Dutch Bros has been plagued by high construction costs, permitting delays and the significant company resources required to build new ground-up prototype shops on leased land.

CEO Christine Barone even noted on last week’s Q2 earnings call that 2024 “could be the high watermark for the ground leases, which is the most expensive way for us to spend money to get a shop out of the ground.”

So Dutch Bros may now pivot to other real estate options to add new shops.

Such as the adaptive reuse of existing buildings.

The Dutch Bros real estate prototype is a ~900 square foot modular building.

And while it has been successful and generates average unit volumes of ~$2 MM, one specific real estate attribute has been critical to its performance:

The drive thru.

~90% of Dutch Bros business is generated via the drive-thru — so it is a “must have” real estate feature in its new shops.

The good news is that there are plenty of drive-thru equipped buildings that can be adapted by Dutch Bros for reuse.

In fact the Company has even opened a handful of new shops in repurposed former banks, freestanding QSRs and casual dining restaurants.

Of course creative and unconventional adaptive reuse options also exist for Dutch Bros.

For instance, over 1,000 drugstores — most which have drive thru lanes — have been shuttered in just the past year.

So perhaps the Company could partner with another tenant to take the drive thru of a former drugstore building?

And the growth of express conveyor car wash units is rendering many older “in bay” drive thru car washes obsolete.

So Dutch Bros may want to explore the repurpose of a car wash-to-coffee shop conversion utilizing in-bay drive thru units as others have done.

The bottom line is that Dutch Bros will likely need to be more “creative” to source real estate for its next 1,000 shops.

And it will not be a surprise to see more unique — and maybe even unconventional — adaptive reuse Dutch Bros shops opening in the near future.