By David Wainer

Coffee is one of the most profitable and habit-forming products in the restaurant business. Yet few have cracked the code to become ubiquitous.

Ever since Howard Schultz transformed a small Seattle coffee retailer into a global powerhouse -- now with just under 17,000 stores in the U.S. -- few have managed the leap from regional favorite to national brand. The numbers tell the story: Despite dozens of smaller chains and thousands of independents, Starbucks and Dunkin' Brands still control about 85% of the U.S. coffee market measured by sales, according to Morgan Stanley.

There are signs that might be changing. A wave of coffee chains with national ambitions -- not to mention fast-food chains including McDonald's and Taco Bell -- are undercutting Starbucks's dominance. This competition reflects both the category's growth and the realization across the restaurant industry that caffeinated beverages are simply too profitable to ignore. It is also being driven by evolving tastes, especially among members of Gen Z.

In the U.S., no brand captures that shift better than Dutch Bros, another Pacific Northwest chain. If you live on the East Coast you might not have heard of it, but chances are you soon will. Dutch Bros now has about 1,000 drive-through shops mostly in the West and South, with a long-term goal of more than quadrupling that as it expands around the country. Founded in the 1990s by two brothers who left dairy farming to sell espresso from a pushcart in Grants Pass, Ore., its formula is simple: brightly flavored, highly customizable drinks served by upbeat "broistas" who try to remember your name and are probably on too much caffeine.

Dutch Bros has tapped into Gen Z tastes. More than food, coffee preferences diverge sharply by generation, says Logan Reich, an analyst at RBC Capital Markets. "Everyone likes a chicken sandwich," he notes, but while older consumers still drink hot, black coffee, younger ones gravitate toward colorful energy drinks and iced concoctions that look perfect drizzled with caramel on TikTok.

Dutch Bros says it is positioned at the crossroads of those shifting habits. The company says about half its frequent customers are Gen Z (roughly ages 13 to 28) or millennials (roughly 29 to 44), with Gen Z especially drawn to iced and customizable drinks: 94% of their orders are cold and a third are energy-based -- the core of the Dutch Bros menu. Options range from iced coffee with protein powder to the Annihilator, with chocolate macadamia-nut syrup and half-and-half. For those courting cardiac adventure, there's the 911: six espresso shots with half-and-half and Irish-cream syrup.

Starbucks repackaged Italy's coffee ritual for American tastes, popularizing the iced coffee craze through its Frappuccinos. Dutch Bros takes that culture to an extreme. Its drinks are sweet, customized and served in oversize plastic cups meant to go. That suits the U.S. market well, where roughly 80% of beverage occasions are consumed on the go, according to Dutch Bros.

While Dutch Bros has grown rapidly, doubling its stores from about 500 in 2021 to more than 1,000, it still has plenty of room to run.

The company has only recently rolled out mobile ordering, is testing food options, and expects to double its footprint again to more than 2,000 stores by the end of the decade.

Revenue at Dutch Bros has risen from $498 million in 2021 to $1.3 billion last year, and analysts on FactSet expect it to reach nearly $3 billion by 2028. The stock trades at an enterprise value of just under 23 times forward earnings before interest, taxes, depreciation and amortization. That doesn't look so expensive compared with other high-growth dining peers such as Cava, at over 30, and Wingstop, at about 24, according to FactSet.

The recent challenges plaguing Starbucks, which last week reported flat U.S. comparable-store sales after seven straight quarters of declines, are a reminder that growth brings risk. Size can erode quality. Some customers already complain that Dutch Bros' hallmark friendliness -- "broistas" who remember names -- is fading as stores multiply. Drive-through lines sometimes snake around parking lots, testing its balance between service and speed.

And Dutch Bros is just one of many upstarts growing fast, especially in the drive-through area. Private-equity-backed 7 Brew, a Dutch Bros look-alike, is adding stores quickly while Black Rock Coffee, with roughly 150 stores, just went public and is aiming for 1,000 stores in the next 10 years.

Not everyone will meet investors' growth expectations. Many coffee companies have tried and failed to grow from midsize chains to national powerhouses. But the $50 billion away-from-home coffee market has room for more than one giant. Dutch Bros and others could keep rising even as Starbucks, under new leadership, tries to rediscover its footing.

Either way, Starbucks no longer owns the neighborhood. The next coffee era will be far more diffused -- and more competitive.

Write to David Wainer at david.wainer@wsj.com

(END) Dow Jones Newswires

November 03, 2025 05:30 ET (10:30 GMT)

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