By Heather Haddon
Dutch Bros, a coffee and beverage chain still unknown in many parts of the country, is becoming a thorn in Starbucks's side.
Founded in 1992 by two Oregon dairy farmers transitioning away from their family business, Dutch Bros is now the third-largest coffee chain by U.S. sales and locations, behind Starbucks and Dunkin', according to market-research firm Technomic. Starbucks still accounts for around 48% of sales in the U.S coffee-chain market, but Dutch Bros and other smaller competitors have started to erode its lead.
Gen Z has flocked to Dutch Bros for its eye-popping energy drinks and other cold beverages that people can customize, like an OG Gummy Bear Lemonade and the Shark Attack Rebel, with layers of green, red and yellow fruit flavors -- and 111 grams of sugar for an iced large. The 1,140-location chain also sells coffee, but little of it is hot, with roughly 90% of Dutch's drinks served cold. That's how young people like their beverages, chain executives say.
"The market is moving that way, and that is the core to what we do," says Dutch Bros' chief marketing officer, Tana Davila.
Her job is to help the Tempe, Ariz., company maintain its edge in an increasingly competitive time for beverages. Starbucks in January announced it would introduce its own customizable energy drinks, news that drove down Dutch Bros' stock. McDonald's is introducing new cold beverages in the U.S. this year after testing crafted sodas and energy drinks in some U.S. stores, with drinks featuring Red Bull especially doing well, executives say.
Now, customized energy drinks account for roughly 25% of Dutch Bros' $1.6 billion business.
Here is how Dutch Bros intends to manage rising competition, and what's next in the beverage wars.
Battling the big names
WSJ: The energy-drink business is getting increasingly competitive, with Starbucks, McDonald's and other bigger brands moving in. How are you trying to keep your edge?
TANA DAVILA: I see us as the creators of customizable, made-to-order energy. It evolved from guests coming and wanting to add flavors to energy drinks. Over time, we've built our own proprietary energy-drink brand, Rebel. We flavor it, we let you add whatever toppings you want. The energy market is growing at a faster rate than coffee, so we are very well positioned to continue to lead.
WSJ: More beverage brands are letting their customers tailor their drinks, but it is hard to pull off and still deliver fast service. How are your drink customizations unique and why are they important to Dutch Bros?
DAVILA: It's been central to the brand from the very beginning. With our coffee, energy, lemonade, tea and sodas, you can basically build whatever you want. It's 40-plus flavors and you can mix and match them and build your own custom creations.
We're now featuring a banana-bread mocha. You can have that as a latte, you can do it as a mocha or a blended coffee freeze. You can add syrup drizzles on top, you can add soft-top cold foam. If you want to add boba or other types of toppings, or make it a protein-based drink, you can. It is pretty endless.
WSJ: Where do you find inspiration for flavors or trends?
DAVILA: We're looking at what's happening in the grocery stores, what's happening in third-wave coffee bars, what's happening in the mixology space. A good example is putting boba on an energy drink. I saw it within [teas], but really the idea came from what I was seeing in cocktails. Another example is cookie butter that was trending, especially with the younger demographic.
Obstacles and innovations
WSJ: What are some of the brand's biggest challenges right now, and how are you addressing them?
DAVILA: The No. 1 is just convenience. There's not a location close to me. That's table stakes [a basic requirement]. Other brands have more locations and better convenience. On our side, we do extremely well in loyalty. Our opportunity is just taking away these more-logistical aspects to allow us to better compete in the market.
WSJ: Only about a third of your business is in the morning, while the rest is midday and later. Chains like Starbucks and Dunkin' are fighting for more of that afternoon business. But, as a coffee chain, don't you want more morning business?
DAVILA: We obviously have some strength in selling treats and indulgences and our energy offering, which tends to be more afternoon. One of our opportunities is to drive that habitual routine. We asked loyalty customers what else they wanted, and ordering ahead was the No. 1 thing they requested. They didn't know if they could get in and out on their morning commute, it wasn't predictable enough for them, and they didn't have time to wait in the long line.
WSJ: Starbucks has had mobile ordering for years. Can you catch up?
DAVILA: We honestly don't have a goal. We want to provide a different way for people to use the brand. You have to be a loyalty member to order ahead, so it serves in the broader loyalty strategy. Right now, it's about 14% of orders.
WSJ: You have a low percentage of food sales compared with Starbucks. Is that a problem you are trying to address?
DAVILA: Food is another good example where we're trying to remove a barrier to visitation and a reason why people aren't coming to us today, particularly in the morning. Historically, it was basically a couple of flavors of muffin tops. We're adding a bakery assortment. Then there's a hot-food component, like two breakfast sliders. I've done quite a bit of work on how the assortment has the maximum reach with the least number of items.
WSJ: Restaurant chains are battling to attract younger consumers. What do you know about Gen Z consumers, and how are you attracting their dollars?
DAVILA: They buy a higher share of iced beverages. They love to customize and love friendly service. Those are all areas where we really excel. We are very focused on social media and how our brand shows up there. We also have merch drops, where we'll give away something, like straw toppers and bumper stickers, with a drink purchase.
WSJ: Do people really care about bumper stickers?
DAVILA: People do, you would be surprised. It's something different and unexpected.
Spreading the reach
WSJ: You grew your store count by 16% last year, faster than many competitors. Can you grow at that clip and not struggle to attract sufficient sales?
DAVILA: We've done it through innovation and making sure we have relevant offerings and driving innovation, like protein coffee. The second piece is the Dutch Rewards program. We're really proud that [around] 73% of our transactions go through it. We find that our best guests want to be in our program, and they want to engage with the brand. They earn points and are incentivized to come to earn free drinks. It's our way of discounting.
The third piece is around advertising, and specifically in new markets. There are still a large group of people that are unfamiliar with our brand.
WSJ: How are you trying to change that?
DAVILA: I certainly aspire for us to be a household name. We started on the West Coast, have been moving east and then there's opportunity to continue to move into the Midwest and the Northeast. We also are not afraid to build density in markets versus having a one-off type of approach.
We have over 200 shops in Texas. Most of those are basically new over the last couple of years. What we've been able to do there is introduce the market to the brand, create scale. We have density in terms of the market and the penetration.
(END) Dow Jones Newswires
March 01, 2026 05:30 ET (10:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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