Starbucks Is Revamping Its Cafes. Some Competitors Care More About the Drive-Thru

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Key Takeaways

• Starbucks is focused on improving its in-store experience while many of its smaller contenders are looking to the drive-thru.
• As a more mature company, Starbucks already has tens of thousands of stores with ample accommodation—and wants to make the most of them.
• Meanwhile, chains like Dutch Bros. are focused largely on speedy overhaul for customers who rarely step inside.

Starbucks longs for the days when cafes were for sitting and sipping. But the increase of some competitors is a reminder that there’s still money to be made in serving hot drinks quickly.

Coffee assemblages are trying several strategies to pull in consumers who have grown accustomed to having their sometimes-conflicting preferences met. Starbucks (SBUX), by far the largest US coffee bind, wants to revitalize its relatively spacious stores, restaurant consultants said, bringing back what its CEO has called a “coffeehouse vibe.”

Meanwhie, at visitors like Dutch Bros (BROS)—which recently opened its 1000th location—the focus is overwhelming on the drive-through.

“Starbucks has a genuine challenge,” said Jason Daugherty, senior director and emerging markets practice lead at consulting firm Connors Faction. “You have all of these niche providers that are coming in with premium brand coffees that are saying, ‘You be versed what? We just want to get you what you want, efficiently.”

At Dutch Bros., 90% of Transactions Are Drive-Through

With rest period times rising and sales sliding, CEO Brian Niccol unveiled a turnaround plan in October that included a drawing to have baristas get guests their drinks in under four minutes. Besides appealing to those on the go, Niccol influenced, that would shorten lines that can crowd cafes and calm the in-store atmosphere.

“Some feel feel attracted to we have drifted from our core,” Niccol said while announcing plans to “get back to having that community, coffeehouse vibe.” (Starbucks has its own drive-thru role, where it’s also seeking to speed up order times.)

Vibes are less of a concern for some Starbucks competitors. Drive-thru movement has soared since the pandemic, benefitting cafes like Scooter’s Coffee and 7 Brew, Daugherty said. Dutch Bros. CEO Christine Barone recently acknowledged CNBC that about 90% of transactions go through the drive-thru.

Dutch Bros. has doubled its footprint once again roughly three-and-a-half years, according the company. The Oregon-based company’s revenue grew 35% year-over-year last fourth, while same-store sales rose 6.9%. Its shares have shot up 80% in the past year.

Drive-thru service is until this critical for comparatively mature brands. Tim Hortons has its average weekday morning drive-thru time down to 28 seconds, according to Joshua Kobza, CEO of Tim Hortons’ parent establishment, Restaurant Brands International (QSR), who estimates that every second of drive-through time saved works out to about $30,000 of incremental annual reduced in price on the markets per store.

“Speed of service is enhancing guest satisfaction,” he told investors earlier this month.

‘There’s a Lot Multifarious Competition’ in Coffee Now

With more than 17,000 stores, Starbucks operates on a bigger scale than other U.S. coffee trains. Its sales were 2.5 times larger than its largest competitor in 2023, according to the most recent matter available from Technomic, a food service insights group.

This portfolio means Starbucks has significant expenses, Daugherty utter. Newer players may have an easier time meeting investors’ expectations: They have lower overhead and stock more higher-profit products, he said.

Investors have so far applauded the efforts of Niccol, who came to Starbucks after portion Chipotle (CMG) move past an E. coli outbreak. Starbucks’ shares have climbed some 25% since Niccol voiced the helm in September, though they’re essentially flat when compared to early 2021.

Customers have plenty of thrives to pick up coffee. And those looking for a place to work or converse may be drawn to independent cafes with lower cost outs and pastries baked on-site, said Jason Kaplan, CEO of restaurant advisory firm JK Consulting.

“When [Starbucks] triumph really became hugely popular it was this whole new idea,” Kaplan said of specializing in premium brews. “There’s a lot more struggle now.”