Booming drive-thru coffee chain is expanding its walk-up-only options

Dutch Bros Coffee, the chain built around drive-thru service, is testing whether customers will ditch their cars for a walk-up window.

The Oregon-based company opened its first walk-up-only shop near the University of Southern California in Los Angeles in November. There’s no drive-thru lane, so customers order and pick up their drinks at outdoor windows, including a separate window for mobile orders.

So far, the experiment appears to be paying off. The LA location had the highest sales volume of any Dutch Bros shop until May, when a newly opened location in the Chicago area surpassed it, Chief Financial Officer Josh Guenser told The Wall Street Journal. The chain has also built a loyal following with its customizable menu, which includes coffee, energy drinks, teas, lemonades and sodas.

That early performance has Dutch Bros considering more walk-up locations in densely populated areas, where a traditional drive-thru may not make as much sense. Dutch Bros already has walk-up windows at some of its traditional drive-thru locations. What’s new is the company’s experiment with shops that have no drive-thru at all.

“We will be looking for other walk-up tests to see if that’s a new way to go after different real estate,” Guenser said.

The strategy could give Dutch Bros more flexibility as it continues to expand. The company, which has 1,285 U.S. locations, has set a goal of reaching 2,029 locations by 2029.

That would be a major shift for a company whose business has long revolved around cars. About 85 percent of Dutch Bros' business comes through drive-thrus, according to its latest annual report, and most of its locations don't have indoor seating. Customers typically order from their cars, grab their drinks at the window and head on their way.

The company has been looking for other ways to speed up its expansion, too. In August, Dutch Bros agreed to buy 20 locations from Carolina-based coffee chain Clutch Coffee for about $20 million. Guenser said the deal gives the company another way to gain access to real estate and move into new markets faster.

"This is another way for us to get a hold of real estate, and in some cases accelerate our opening into a market, or opening of shops in an existing market," Guenser said.

The expansion comes as Dutch Bros continues to post strong financial results. The company reported $550.9 million in revenue for the quarter ended June 30, up 32 percent from the same period a year earlier. Its profit rose 46 percent to $37.4 million, according to the WSJ.

"It's still an affordable luxury," Sarang Vora, an analyst with Telsey Advisory Group, told the outlet.

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