With the recent stock-market crash and remaining uncertainty in the market due to tariffs, a number of growth stocks can now be bought at much lower prices than just a couple of months ago. One attractive name that is down about 35% off its highs as of this writing is Dutch Bros (NYSE: BROS).
As a purveyor of coffee-based drinks, the company is not immune from tariffs. Since only a small amount of green coffee is grown in Hawaii, Puerto Rico, and to a tiny extent California, the U.S. must import nearly all its coffee. Meanwhile, supplies like cups and paper products generally come from countries like China. That means the price of coffee drinks will likely increase across the board, from little mom-and-pop shops to a giant chain like Starbucks. With companies likely needing to raise prices, this could eventually lead to consumers cutting back on their drinks.
However, Dutch Bros is not necessarily in a bad spot. Its drinks are already cheaper than those at Starbucks, making it a good alternative. It’s also bigger than local coffee shops, meaning it can absorb more of the rising costs induced by the recent tariffs.
Historically, coffee has tended to be exempt from tariffs, especially since there’s no real feasible way to bring mass farming of coffee beans to the U.S. There’s still a possibility that an exemption could eventually be carved out if the tariffs continue. Meanwhile, if there isn’t a big decline in traffic, restaurant and coffee-shop operators tend to perform well in inflationary environments.
Sales figures rise with higher prices, and if chains can set prices so they don’t lose a lot of gross margin, they can benefit. For example, a $6 drink with an 18% gross margin ($1.08 gross profit) is 8% more profitable than a $5 drink with a 20% gross margin ($1 gross profit).
Despite the near- to medium-term uncertainty with tariffs, the long-term story with Dutch Bros remains intact. The company could see a same-store boost with rising prices. More importantly, the introduction of more food options and mobile ordering should also drive growth in comparable-store sales.
Unlike rival Starbucks, Dutch Bros doesn’t have a large assortment of food options. The company has admitted that this likely affects its traffic, particularly around breakfast time when consumers don’t want to make two stops — one for coffee and another for something to eat. Dutch Bros is testing out offering more food items at select stores, which when rolled out to more of its locations could be a big opportunity. It currently only gets 2% of its sales from food, while food accounted for 19% of Starbucks’ sales last year.
DJ Kamal Mustafa
I’m DJ Kamal Mustafa, the founder and Editor-in-Chief of EMEA Tribune, a digital news platform that focuses on critical stories from Europe, the Middle East, Africa, and Pakistan. With a deep passion for investigative journalism, I’ve built a reputation for delivering exclusive, thought-provoking reports that highlight the region’s most pressing issues.
I’ve been a journalist for over 10 years, and I’m currently associated with EMEA Tribune, ARY News, Daily Times, Samaa TV, Minute Mirror, and many other media outlets. Throughout my career, I’ve remained committed to uncovering the truth and providing valuable insights that inform and engage the public.
