Okay. All right, perfect. Good morning, everyone. It's John Ivankoe with JP Morgan. Very happy to kick off, this early morning with Joth Ricci, the Chief Executive Officer of Dutch Bros. Dutch Bros is a very exciting, drive-through carryout, small format coffee and beverage shop, which does have locations in Las Vegas, if anyone, has a chance. Company was founded, in 1992, in Grants Pass, Oregon, and is quite a success story that people didn't hear of until they heard of it and were, very impressed by the operations and future national growth opportunity with the company. Thank you so much, Joth, for joining us. Thank you, John. it's interesting looking at, we've actually seen quite a lot of change in the company in the past two years. Mo ving, for example, from punch card loyalty to digital, to digital loyalty, having the ability, to prepay, on the app. One of the biggest changes is how your site profile has changed. This business has added 89 stores in the state of Texas in the last year and a half. Mm-hmm. Which is a lot coming from nearly basically a base of zero. It was. let's talk about, Pacific Northwest, West Coast, and, it's going to become an increasingly important part of the story. That's 89 out of approximately 671, at the end of, 2022. It's like how this new market success is doing and what Texas is teaching you at this point. First to hit on the change alone. what a, what a change we've all been through. I mean, I remember three years ago, being in Vegas when the world decided to shut down. Yeah Lots of behavior changes, literally in 36 months. To step back even further than that, when we set out on this journey actually about five years ago, to really evaluate and do a lot of work behind the scenes on what was the opportunity for Dutch Bros. when I came in, it was about really looking at white space opportunity. It was about bringing new tools to be able to evaluate markets and trade zones and, what the demand for a drive-through beverage concept could be, and where we could take this. At the time, we were really only in a handful of states on the West Coast. The company, in 30 years, had grown from, 0 to about 329 locations at the end of 2018. The founder, wanted to kind of test the growth opportunity for this business. We built out a plan to be at 800 locations by the end of 2023. Through all of the challenges of the last three years, we will actually be at 825 by achieving the 150 shop goal for this year, which is right on track for what we set out to do 5 years ago. Part of that plan was looking at white space throughout the United States, t hat our smiley face, look at geography is pretty well documented at this time. Part of that was going into Texas. On January 8th, exactly, of 2021, we launched our first location in College Station. Honestly, I felt like we were going to know in the first two hours of that launch how Texas was going to do. Fortunately, that shop did very well. We now have multiple locations in the College Station, trade zone and have really looked at Texas as a big growth opportunity. We actually think we're in the early stages of development in Texas, just given the modeling that we've done. Between growth in California, growth in Texas, but even, places like Oklahoma City and Albuquerque and Nashville and Salt Lake and some of the other markets that we've gone into in the last few years, have performed very well. This is a concept that, in Oregon, our shops do, $1.3 million on average, but we have 150 or so of those in Oregon. We see markets like California that are doing north of $2 million. We're kind of watching how each market responds and how we kind of fit into the model basically to where we're headed. We're very happy that. Honestly, the removal of the stamp card, for those of you that don't know, we were like a buy 10, get 1 free program, similar to a pizza place or your local coffee shop. The economics of that were could be pretty challenging related to the high discount percentage. When we launched the app on Q1 of 2021, we basically reset the next phase of the company to go more digitally enhanced and digital rewards and digital programming. With that, I think that over the last two years, we launched it, we've been evaluating it, we've been testing a lot of different programs. We tested a lot of point systems. We tested how our discount rate was working. When you take, essentially double-digit price, and you're a dollar-based points program, then you should adjust your programming along the way, or else you get, your% numbers get out of whack again. This year we've really settled in. We just launched the change to our app program, and took about, 40% of the value away with very little pushback from the customer whatsoever, and feel good. I mean, the team feels great about the type of promotions we're running, how we're utilizing it, how we'll do regional marketing, how we'll go into new markets. We use the app quite a bit as it relates to how we, how we talk to new customers, and drive behaviors with new customers. It's an amazing tool that we're really in the early innings of developing. over five million users, 64% of our tender is done on the app, and which gives us a lot of data to be able to work with and build opportunities in just about every market. Could you talk about, new unit volumes? where they were in 2021, where they were in 2022. You evreyone have a better calculation, than I do. Mine's much less exact, obviously. What you think it's going to be, going forward. I mean, where do you think, just we saw some very strong new unit volumes, growth in average unit volumes, new markets versus existing markets. the original legacy stores in Oregon were about half the size of what you're building today. You have a bunch of different, moving pieces. Where do you think that new unit volume year-over-year, so the class of 2023 versus 2022 versus 2021, where is that evolving at this point? What we've kind of been pointing to is that, and we've said this from the beginning, is that we would like to run a whole bunch of locations that average at about $1.8 million per unit. we're not all that excited about running $2 million, $3 million, $4 million dollar locations because they get too busy, it puts too much stress on the system. It's too much stress in getting customers through that line, being that big. We're very optimal at about a $1.8 number. some of those locations in California, like in, in. We've talked about San Diego County, and we've just had another new one open up to big numbers. California shops open big. They open to, to $2+ million AUVs. They are, the brand's very well established in that market, and people are excited about it. Other places, it takes a little bit longer to build, to build that volume. Also, like a market like San Antonio. Yeah. we're very opportunistic. We opened 14 locations in the last year in San Antonio alone. That's going to drag market volume down. We're going to spread it out, and then we're playing a long-term market share game on how we build that. We have more shops to build in San Antonio. We're actually, in the early stages of getting that done. In some cases, we've been opportunistic with real estate. In other cases, we opened big in San Diego County. I'd like to open 12 locations in San Diego County tomorrow. Yeah. The procedure for getting that open in municipality in San Diego is very different than it is in San Antonio. We'll just have to kinda balance those things out. We've got Alabama and Kentucky coming online this year, which we're also equally excited as we kind of build out, continue to build towards the east. You've opened Tennessee and Oklahoma. Tennessee. Those are also, markets where people haven't necessarily ever heard of Dutch Bros before. They're doing great. Yeah. We're very happy. I'm very happy across the board with the reception of Dutch Bros and what our teams have done and kinda how our teams have taken the culture, the concept, the model, and launched it in places like Kansas City and Oklahoma City and into Missouri now and Nashville. We just opened up in Knoxville as well. The way that we have been welcomed in markets has been amazing. T he new unit volumes that we're discussing, the $1.8 million, will be lower. The Average Unit Volume for the system was actually pretty close to 2, maybe 1.95 or so. Uh-huh. In 22. That number is a little bit lower. Perhaps the new unit volume's 23 lower than 22. We do have negative same store traffic, excluding splits or sales transfer. Everyone has a different word for the same thing. Yeah. it feels like a joke. I get it. Yeah. get it. Yeah. Excluding sales transfer, and obviously sales transfer is something that actually has been very meaningful in 2022 and expected to be very meaningful in 2023. The question, like I said, it's very easy for me to say this to the seat. If I were to put those factors together and even mention the balance sheet, saying, "Hey, you guys are draw, drawing off the revolver, in relatively short-term paper to, to fund longer term assets," I'll say, "Are you growing the right number of units? Is 150 the right number?" Because there's a number of different things that kinda stack up and say, "Hey, maybe it makes sense to have less sales transfer and protect same store sales. Protect the same store traffic and, grow new unit volumes and be a little bit more sensitive to the balance sheet. I know it looks like, listen, you and I, you're taking this the right way, I hope. From the I feel like I need a whiteboard, to draw out the formulas. From the outside, it would suggest that growing slower Uh-huh. Would be the, kind of the sum of all those pieces, not necessarily growing faster. I just, would just kind of like to get. are we in a race? just talk about, okay, listen, 150 is right for the following reasons, given some factors, again, from just from a straight numbers perspective, which suggests slower, not faster. Okay. Is that all right, Patty? Yeah. Okay, good. Yesterday was Pi Day, so you're like, 3.14 and all. Let's talk about the equation that equals up all of that. It really goes back to the one factor that you didn't mention, is the people equation. Reminding everybody that when we open shops, we're actually opening them on a readiness factor of leaders in our system. We are not opening up real estate to just open real estate up and do, big land grabs and go. If that was the case, I'd say that we could open 200, 300, 400 of these without much of a problem because you could go faster from that respect. We're pacing our shop openings based on our availability of people. We now have over 275 people in our leadership pipeline that are qualified as ready to operate. What we mean by that is that they're ready to go into a new trade zone and go run a location. At Dutch Bros, you must build and establish the culture for this business to be successful long term. It is the 1 ingredient to make this successful. As we build out for people, we're plugging a people pipeline and readiness pipeline in and growing to that. As we've grown, we've also staged our growth, right? Year one of this project, up to 800 was 43 locations. Year 2 was 72 locations. Year 2 was in 2020. Year 3 was 96 locations. Year 4 was 133 locations. Year 5 is 150. As we're building the organization, we're building the organization's capacity to continue to open new locations and build them out across the country. We'll continue to do that until we find a good plateau where we feel like our people equation and our growth model has a good balancing where we don't damage the culture of the organization, and we don't push too hard or too fast in a way that we feel like we're damaging the brand, and we have a strong equation. We're constantly looking at that. Our pipeline is full through 2024 and really into 2025 right now. We're, we're committed to this growth equation for a while, and we like the way it's ramping. All of that said, some shops are going to open stronger than we think, and some shops are going to open, lighter than we would like. The sum of the whole in building to the long-term strategy is really what this is all about. We've talked about the 4,000 locations, we've talked about the geography we want to put them in. I will tell you that from the moment we launched this plan, now a lot of things in the world have changed in this time, but from the moment we launched this plan, we are absolutely executing at a very high level, into all these new places. Like I said, going to Huntsville, later this year and opening up in Lexington, are going to be testaments to how the brand can travel. The other thing to remind everybody is that this business is beverage, so we're not anchored by food. Food concepts and the regionality of food make it a tougher business to build long term. Beverage and the way that convenience stores run and the way that grab-and-go business run in a lot of our grocery stores and food concepts, beverage is pretty constant across the country in similarity. Beverage travels very well to just about every market. There's a Speedway, convenience store in most small towns, in the Midwest and Southeast, right? As we think about what's already established there, we're just going in and basically offering up customization to people, and then building, bringing a great culture, great employment, we're giving back to communities through our regional give back programs, and really participating in something where we're trying to, basically, make communities an even better place. 2022, you had unique patterns for your business relative to the rest of the industry, where same store traffic was extremely strong in the first quarter, by far your strongest quarter of the year, and pretty significant mid to high single digit negative same store traffic in the second, third, and fourth. Just give us, I mean, as we're beginning to have some important laps. Yeah. Here in the middle of March, versus last year, just kind of give us the sense of, I guess, what happened, if you will, in 2022, I mean, what you thought would happen, what did happen, and then as we evolve in, 2023, I mean, how real and important is this concept of easy comparisons as, the same store sales flipped so significantly between the first and second quarter of 2022? Really, that story actually goes back to the Q4 of 2021. that really call it October through February, more importantly, December through February, really December through about the first couple of weeks of March last year. Because of the Omicron bounce is basically what we're tagging it to. I mean, we were open. When we went back through that period everybody, most concepts were closed, their hours were compromised or consumers were still at home, we were the one place that was open. So, we realized the benefit of that, where most other concepts were realizing the negative aspect to that. As we kind of flipped into March of last year, was when we saw the change happen, and we saw, primarily you had, the massive gas spike that hit, on the heels of the war. We saw a big hit in California. I mean. Mm-hmm. If I remember right, as we talked about our business last year, California, took up the bulk of the negative aspect. Most of our other markets still did comparably pretty well related to what the California market did. California still last year was making up such a large percentage of our business that it had the ability to drag the rest of our business down. So we're seeing. I mean, I, I think that I mean, gosh, I mean, if you play all that out, things should start to, sort themselves out here in about mid-March. By sometime mid to late this spring, we should see some level of predictable comps of consumer pattern, related to what's been going on over the last two or three years. you throw the stimulus money in there, you throw in, some layoff factors, you throw in some other things. Mm-hmm. I think we're all sitting here, I've talked to several people that are at this conference, that we're all a little unsure what exactly is going to happen to the consumer this year. we'll watch. We're going to stay super focused on our game, super disciplined to what we do, serve every day. right now, I think for us, you can't sit back and wait, so you have to play offense related to traffic. You have to play offense related to building market share, you have to play offense in the way that you're running app, and, I think our people are doing that every day, and we've got some good programs in place to hopefully even capitalize on that as we look at growth for this year. This is relatively dreary for Vegas. Terrible. California, Oregon, Washington. California especially has had a kind of like a once in a 100 year type of winter. it's like, hey, people want to get out and consume beverages. It's not good for business. Okay. That Californians like their sunshine, and you throw a cloud on top of them, and they don't go anywhere, so. You get two inches of rain. Yeah, right. They really don't go anywhere. 10 feet of snow in Tahoe, and they love going to Tahoe, but when they can't get out, that's a problem. Yeah, the weather on the West Coast has been absolutely like. I've been on the West Coast for the most of my life, and I've this is a 1 in 25 year winter, for sure. That El Niño pattern comes through, and it absolutely, takes the West Coast down. I think you'll see that across businesses everywhere. I mean, it's I'm close to some other categories, and I think it's impacted, other categories as well. Do you have a sense, gas prices last year, obviously were going to be down year-over-year in a lot of cases. Yeah. Energy costs. Was that a fact? Was that a direct factor, or was that a series of contributing factors, particularly in California? I think the latter is probably more accurate. I think it's a series of contributing factors. I think the way gas spiked as quickly as it did, we were pretty, pretty vocal about the Sacramento Valley and kind of the impact that it had in that area. I think there were. It was one of several factors that contributed to some challenges in that market. We did not see it. Like I said, I don't think it was as much of a factor in other places. Gas at $5.50 on a regular unleaded is, that's going to impact, every household, I don't care who you are. It impacts everybody. let's talk about, like, this is for the industry overall. The industry taking accelerating pricing on negative same store traffic, and in some cases decelerating same store traffic. We're like, "Hey, you know what? Our consumer's really good. They're coming in. We can take pricing because they're giving us permission by visiting the store." This industry has taken pricing that I've never seen. Mm-hmm. Maybe, we're not far from age. No. Like, I don't think you've ever seen, and yet, it's like, hey, listen, this is like, the, you saw the profit hole through pricing, even if same store traffic is negative. You talk about, the sensitivity of your customer, which is, I mean, at least a cliché, younger, like lower to middle income, not, not necessarily, living in cities what Have you, spending a lot of time in the car driving. talk about either the impact of pricing of your brand. Do you think your traffic would have been different with less pricing? I don't have the crystal ball to say exactly what would've happened, obviously. I will tell you in our decades of doing pricing... Mm-hmm John, in several categories, over the years, we haven't seen, pricing impact our customer. We did two big things last year. We made a decision to take three smaller price increases versus 1 big one. Mm-hmm. As we wanted to take care of the consumer. The other thing we did is we placed our pricing. We didn't do a pricing across the board. We placed our pricing across our menu in different areas. We didn't take everything up. We protected what we felt to be a lower household income customer. And we took price on more premium items, add-ons, things of that nature, to be able to protect the customer. We also took our price zones from 25 down to around eight, and we carefully watched how we priced in different zones based on the marketplace. Pricing became a very complex program for us. I do not think that our traffic hits were related to pricing. Okay. Especially if your competitors are taking pricing exactly on top. Yeah. I mean. Yeah, I know. There's really no difference. What we need to do is we need to stay value positioned across the bulk of our menu and make sure that we don't ever want to put our barista in a position where they're compromising their ability to provide great service because we've jumped a price point for them that they have to explain that takes away from the service to the customer. We'll protect that as much as we can. Let's talk about the balance sheet. the amount of debt that you currently have, the amount that you have, kind of in the overall, facility. your philosophy as a CEO, I mean, you are financing long-term assets with. Yeah Short, relatively shorter term paper that- Yeah The facility ends in February of, 2027. just, from your perspective, to the extent you have comfort, to the extent that you think that there is a change that, might be prudent, comment on, what has obviously been an extremely topical, issue. I don't lose sleep over it, and Charlie says I don't have to. Okay. So, See you then. A $500 million credit facility with a $150 million accordion. we're 2x levered, which we could raise even more. We projected the cash flow positive sometime in 2026. Again, we're playing a long-term game here. Build costs have definitely gone up, but we've been able to cover it. The economics on our units are strong, and we have a lot of room in that to be able to work within. it might look that way on the surface, but I'm not concerned about it. Okay. All right. Fair, fair enough. Margins, really are a function of averaging of volumes, same store sales. you do have a business 65%, 64, I think, of customers use Dutch Rewards. Of that 25%, so approximately 15% of overall transactions are preloaded. Mm-hmm. They've given you the float and, it makes it kind of a better transaction. Let's talk about, a digitally enabled Bros business, both in terms of customized promotions and also, normally people think about mobile order and pay, people think about, delivery. I ordered a coffee at 5:00 A.M. this morning. Bros isn't an option here, nor is it anywhere else. I mean, talk about what digital means? We should have done some store tours this morning. Could have caffeinated you. I think I'm okay on the caffeine, Vlad. Okay. All right. Okay. All right. Okay. If you think I need a little bit more, you can. Okay. All right. Dutch Pass. I think everybody's like. Our rewards program is broken, really into a few areas. One is rewards and pass. The Dutch Pass program is the loading. that's where we're really focused on right now, and I think our big learning over the last couple of years is the strength of the Dutch Pass user as it relates to their value. We know that they're about, 20% or so more valuable- Yeah. than any other customer. Mm-hmm. We also know that if you use a Dutch Pass to pay, it is four seconds faster to use Dutch Pass than it is to use a credit card. When I'm running cars through at 50, 50 seconds or so per car, every second I can shave off of that time helps grow the business. My number 1 way to grow business at Dutch Bros is to speed up the line. I can run all the promotions I want to, but if I can find seconds in line, I can speed the line up. It gives us more opportunities to put more cars through. More people will come into line. We know that's the number 1 reason why people don't come, is the line's too long. Mm-hmm. The opportunity to digitize, everything that we do operationally in line is about getting the speed through. Mm-hmm. We're not going to do order ahead. We're not set up for that. That's not a program that we run. Order ahead in the way that people think about it today is order ahead, put a drink out on the counter, and then the customer comes in, picks it up, don't talk to anybody, you leave. Yeah. F or us, there are opportunities on technology for us within our Dutch Rewards program, where we can do our version of order ahead to take even more seconds off of the speed of the car going through the line. Maybe you order ahead on your app, you come through, and then that order could hit the barista's iPad. You hit Send. All of a sudden I've shaved another, maybe four seconds more off. I've taken eight seconds off of a 50-second per car program, and I've started to increase speed even more. Lots of opportunities in there. I think that, again, we're two years into our rewards program, and really just now kind of executing against the plan that was about... That has exceeded all of our expectations related to what we've done with that. I want to push this along. Your Dutch Rewards per store is $7,750. Mm-hmm. Which is like. That number, when I looked at it and I said, Your average store probably has under 700 transactions per day. That's a lot of people that have signed up. Mm-hmm. So what does that mean? Are Dutch Rewards customers not very frequent? Because, like, the math would, kind of say that you just have, like, super users and people that sign up and don't come back. I mean, what, where? What's the opportunity of converting that number of members per store to visit the store more often? Well, I think it's big. I still think the top tier of our user comes, somewhere, we'll call it between 13 and 16 times a month. It's kind of what that range of where people come into. I think that you still have in classic in any program like this, you still have the top, 20% of the people doing the majority of the volume, right? Yeah. Okay. The game in any type of rewards program, any type of promotional opportunity is, like, how do you convert more people to get into your program? I think that's a, again, big opportunity for our team this year, is really kind of settling in, how do we settle into Dutch Pass? How do we settle into the rewards program? How do we get more adoption in new markets? That's another opportunity for us, is we have high adoption rate in long-term markets like Oregon and California. Newer markets, the adoption rate into the Dutch Rewards program is lower. We have opportunities just in new markets to get that done. You'll have 825 stores by the end of the year. talk about, just the current system in terms of uses of cans, for example. I know you're putting in some taps, beginning in the middle of the year. Talk about the end of year percentage of stores that will have a new, more efficient system, and then what percentage of the system, at least from what you know now, will be by the end of 2024? Will it be 100? Very excited about taps. Tap systems is a big unlock for Dutch Bros, because if you order a Rebel energy drink, for example, and it comes delivered to you through the window in a cup with ice, that product was poured via a can. Now, if you take the supply chain of manufacturing cans and you take it all the way upstream, and you take it all the way downstream past the interaction with the customer, that can requires a touch point in every single thing that we do. A box of concentrate equals eight case equivalents of a can. The visual of that is really all you need to know, and you run that through the entire system of operating, and you can see the efficiency that comes out of concentrate versus finished good product. I've been saying I'd like to be in the business of stop shipping water around the country, and I'd like to start shipping more concentrate around the country to be able to do that. We've launched that now in 1 location in Oregon. We've launched it in 4 locations in San Antonio. We have 1 in Dallas that we just launched as well. With those tests have gone very well, and we've had hardly any issues. We'll start to launch about 10 shops a month of existing locations. The team says it will start sometime here in the next few weeks. April really kicks off, if you were doing math, to say starting in April will be 10 shops a month of existing locations. Starting in July, every new location, so think it's shop number 750 or so, forward, all new locations will have a tap system built in the schematic of that shop. By the end of the year, we should have somewhere between 150-175 locations with a tap system in place. There's probably 200-300 locations in the system that can't do a tap system. Okay, because they're legacy and they're small, and they may not be able to have the footprint to support that. But as we go forward, if you play it If you're in the 4,000 shop game and you can start at shop 750, the economic opportunity for this is amazing. As I've said, I think sometime next quarter we'll be in a position to really, evaluate out the economics of the model and say, did that fit what the spreadsheet said it would? Right. What is the true impact to the business? It's. You play that out across Rebel. We do the same thing for our sparkling water business called Kool. We do also that for cold brew, as we're testing that as well. Lemonade, we think we have some opportunities in tea. imagine if McDonald's or 7-Eleven, only sold their business in, out of a can and they poured it into a cup. I mean, that's basically what we're doing. $7,000 per customer. Well, I'm sorry, what's the $7,000 per customer? The number that you quoted earlier about the value, of how much, how big these shops are and how much the customer means. It's We're doing a lot of volume and a lot of transactions through these locations. We simplify that across the operating system. Everything from taking inventory in to waste, and we can save a lot. We are over time. Yes, we are. Thank you so much. Thank you. Excellent. Thanks for having us. Appreciate it. Thanks. It's been very interesting. Thanks, everybody.