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Business Wars: Starbucks' Bitter Brew | A Cup of Competition | Episode 3 Summary
Episode Overview In this episode of *Business Wars*, host David Brown delves into the competitive landscape of the coffee industry, focusing on Starbucks, Dunkin', and emerging drive-thru coffee brands like Dutch Bros and 7 Brew. The episode features discussions with comedian Josh Gondelman, a lifelong Dunkin' fan, and Sam Okus, editor-in-chief at Nation's Restaurant News, who provides insights into the evolving coffee market.
Key Themes
- Competition Between Coffee Giants: The episode explores how Starbucks and Dunkin' compete for market share, with Starbucks holding a significant lead but Dunkin' gaining traction with its no-frills approach.
- Emergence of Drive-Thru Brands: Brands like Dutch Bros and 7 Brew are discussed as rising competitors that appeal to younger consumers through their unique offerings and quick service.
- Cultural Significance of Coffee: The conversation highlights how coffee culture varies by region, demographics, and consumer preferences, with Dunkin' being a staple in the Northeast and drive-thru chains capturing the attention of younger audiences.
Key Discussions
Starbucks' Identity Crisis
- Brand Positioning: Starbucks struggles with defining its identity—whether it is a fast food outlet, a cozy café, or a gourmet coffee roaster.
- Market Share: Starbucks leads the market but faces challenges from Dunkin', which has positioned itself as the quick and affordable option.
Dunkin' vs. Starbucks
- Cultural Connection: Dunkin' is portrayed as a working-class brand with a no-nonsense approach to coffee, resonating particularly with consumers in Massachusetts and beyond.
- Celebrity Endorsements: Dunkin' leverages celebrity endorsements and advertising campaigns (e.g., Super Bowl ads featuring Ben Affleck and Matt Damon) to enhance brand visibility and appeal.
Rise of Drive-Thru Chains
- Consumer Preferences: Drive-thru chains like Dutch Bros and 7 Brew cater to the on-the-go lifestyle of younger consumers, offering quick service and a variety of sweet coffee drinks.
- Engagement Strategies: Sam Okus discusses unique engagement tactics employed by these chains, such as interactive polling questions to enhance customer experience.
The Future of Coffee Brands
- Market Trends: The episode highlights significant growth in the drive-thru coffee segment, with brands like Dutch Bros and 7 Brew reporting impressive sales and expansion.
- Starbucks' Strategy: Starbucks is expected to invest in improving its physical spaces to reclaim the “third place” experience, countering the rise of convenience-focused chains.
Personal Anecdotes and Humor
- Comedian's Perspective: Josh Gondelman shares his personal connection to Dunkin', reflecting on his upbringing in Dunkin' country and his brand loyalty.
- Light-hearted Banter: The episode features humorous exchanges about coffee culture, drink preferences, and the quirky aspects of Dunkin's menu.
Audience Takeaways
- Brand Loyalty: The episode emphasizes the power of brand loyalty in the coffee industry, especially among regional favorites like Dunkin'.
- Evolving Consumer Needs: The rise of drive-thru coffee brands signals changing consumer preferences, particularly among younger generations seeking convenience and variety.
- Cultural Significance: Coffee remains an integral part of daily life, with different brands cultivating unique identities that resonate with various consumer segments.
Conclusion This episode of *Business Wars* sheds light on the intense competition in the coffee industry, illustrating how traditional giants like Starbucks and Dunkin' are adapting to the growing influence of newer drive-thru chains. Through engaging discussions and personal anecdotes, the episode captures the essence of coffee culture and the evolving landscape of consumer preferences.
Remembrance The episode concludes with a heartfelt tribute to Karen Lowe, a beloved producer of *Business Wars*, reflecting on her contributions to the show and the impact she had on the team.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:00Hey, everyone. I wanted to let you know that at the end of today's episode, I'm going to share a remembrance of our beloved producer Karen Lowe, who recently passed away. Karen was with Business Wars from the beginning, and we're dedicating today's episode to her. I hope you'll stick around.
0:22I'm David Brown, and this is Business Wars.
0:44Starbucks is grappling with an identity crisis. Are they fast food? A cozy cafe? A gourmet coffee roaster? Sometimes it's hard to tell. And while they figure it out, consumers are filling their cups elsewhere. The Massachusetts-based fast food chain, Dunkin' has positioned itself as a cheaper, no-frills option for those wanting a quick caffeine fix and perhaps a sweet treat, too. Its market share is still smaller than Starbucks, which has nearly 70 % more stores in the U.S. But Dunkin's loyal fans and star-studded Super Bowl ads have helped make it an ongoing part of the zeitgeist, that's for sure.
1:22As Matt Damon and Tom Brady don't have the heart of a champion, we got a new squad, Dunkin' sequel. Affleck's and Belichick. Dunkin'. But there's another section of the coffee market that's been quietly growing over the past few decades, talking about drive-thru-only chains, which have become some of the hottest spots in town. Companies like Dutch Bros and 7 Brew have been expanding rapidly. They're serving elaborate, creative, and quite sweet coffee concoctions, and Gen Z can't seem to get enough. Sam Okus is the editor-in-chief at Nation's Restaurant News, where he also hosts the podcast Takeaway.
1:57He's been keeping a close eye on the drive-thru trend and even tried some of the most popular drinks on their menus and felt the sugar rush that followed, too, I'll bet. But Sam joins us to talk about what he sees as Starbucks' biggest threat in the long run and what the near future for convenient coffee might look like. But first, we're checking in with comedian Josh Gondelman. You've heard him on the show before to talk about a whole bunch of topics, but today he joins us to talk about one of his lifelong passions, Dunkin' or Dunkies, as he calls it. Josh grew up in Dunkin' country, also known as Massachusetts, and he's sharing his thoughts on the company as they continue making inroads on Starbucks.
2:35So, grab a mug, because all that's coming up.
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4:24Josh, Josh by gosh, Josh Gondelman. Welcome back to Business Wars. Thank you so much for having me, David. Always happy to be here. Always great to have you back on the show. How you been? You've been getting back to Boston at all much or what? I have been. I was just there last week and saw some family and some friends and I'm always happy to get home. That's a nice hat you've got on. But it looks a little different from the usual Boston Red Sox cap. Yes, that's right. This is a hat where the logo on the front is the Red Sox B, the Red Sox Boston B made up of two Dunkin' D's, the Dunkin' Donuts, pink and orange D, one on top, one on bottom.
5:03And they've used that to make the Boston B. So I feel ultimately like I am the mayor of Boston. Yeah, of course. Well, you dress for the occasion here. I'm very impressed. That's right. Duncan must have a lot of a warm place of in your memory, I would suppose. I mean, living in Boston and everything, right? Yeah. I mean, I grew up in the suburbs and it was the kind of out of the house coffee place. If my dad was getting coffee that he wasn't making in the house, it was from Duncan. It was everywhere I went. You know, when I started like really drinking coffee as a younger adult. There was a Duncan by my house, a Duncan by my school where I was a preschool teacher.
5:41And so that was the spot. There wasn't really, it didn't feel like there were culturally other acceptable options. Yeah, no, I totally hear that. What is it about the Duncan Boston or Duncan Massachusetts link? Really, it's bigger than Boston. Yeah, I think it is. I think it's kind of through New England. It has a real hold. Got to start there, I guess. Right. It just south shore, I think of, of Massachusetts. And I really think it's kind of the speed and the unpretentiousness, and this isn't universal, but there is permeating the Boston area, a real sense of like, you think you're better than me, kid?
6:18You're like, kid, guy, you think you're better than me? And I think that Duncan really embraces that where it is like, it's positioned culturally as like a humble working person's coffee. Like you're in, you're out, it's quick. Fewer frills historically. And it is like a real on the go place as opposed to like a Starbucks that is more rooted in like the coffee shop culture of you sit with a laptop, you socialize. Like Duncan, if you're socializing there, you're an old man and you got there at 6 a.m. when they opened and you're sitting with three other old men talking about how like your disappointment with the Red Sox or just like other gripes with modern living.
7:01I think you've nailed it. I think you've absolutely nailed it. I can remember going into the Dunkin' that was on Massachusetts Avenue every morning, right? No nonsense. You're not ordering like venti lattes, at least back in the day, you sure wouldn't. You wouldn't say venti in a place like Dunkin'. No, certainly not. It has kind of its own rhythm and lingo where a Dunkin' thing is, they will say, if you're unfamiliar, you can have a large coffee. And they'll say regular, which people who haven't been before will think means like a black coffee, like plain. But regular does not mean plain. It is a basically one-to-one ratio of cream and sugar.
7:40So if you think you're ordering a black coffee, like if you get a medium and they go regular and you go, yeah, what you're getting is not black coffee. You're getting, I think it's like two cream, two sugar. So like basically the opposite of what you thought. Exactly. Yeah, I made that mistake more than once, I'm afraid. Yeah. I hear you have always lived within a one block radius of Duncan. Is that a stretch or is that for real? No, that is not an exaggeration. Since I've been in New York, at least, I've lived in New York about 14 years and it spanned three apartments and truly none of them have been more than one block from a Duncan.
8:14And it hasn't been intentional, but I will say it does make me feel at home. Josh, I think it looks like this whole Duncan attachment goes way beyond just the cap. I understand that you've invested in a pair of Dunkin' sneakers. Is that right? I've got, I actually have one official pair that a friend, they did a collab with Saucony. Oh, they have an unofficial pair too? There are a few unofficial pairs, kind of some off-label Dunkin' sneakers. But I have a pair of Saucony's that a friend who was working at Saucony at the time hooked me up with that was like a Dunkin' Boston Marathon Saucony. I have those.
8:49They're super comfy. What do they look like? they are running shoes with like a white base and like the duncan logo as kind of an all over print so it is really a commitment to wear yeah pink and orange real pops i also have two other pairs one pair of nike air max 90s with little hits of the pink and orange um and then a new balance that is it's like a skate shoe and i do not skateboard but i just couldn't resist it's like an unofficial, it's like a coffee color, but the New Balance N is, is kind of embossed with the pink and orange and it's a little more subtle. Help me with this. Was it the donuts really that you're going for?
9:28It was no coffee. It's the iced coffee for me. I am a big iced coffee fan. I like that you can get a giant vat of iced coffee from Duncan. That's not too strong because I don't need like distilled, boiled down cold brew that is going to send me on a rocket ship to the moon. I need like essentially an IV that I drink instead of inject. So that's kind of steady drip. How'd you feel about those Super Bowl ads? I mean, you know, you got Ben and Casey Affleck, Matt Damon, Tom Brady, all, you know, part of it. Jeremy Strong, certainly. Hey man, is that coffee? What are you doing in there? I'm just trying to find the character.
10:08We got a battle of barista bites. I'm all in for Duncan. And as I understand it, Duncan paid something like$7 million plus for the privilege. They were very elaborate. My favorite one is still, I think, Ben Affleck working the drive-thru. What are you doing here? Pass me. Is this what you do when you say you want to work all day? I got to go, guys. Grab me a glaze. I thought that was really funny and charming and Jennifer Lopez coming through. uh when you know rest in peace bennifer um they're both individually alive of course just the relationship of course i understand um but one thing i like about it and i find so endearing about ben affleck is his like willingness to be silly and earnest around duncan like he and he gave an interview in gq recently about like kind of feeling you know whatever about paparazzi taking pictures of him with his big coffee order.
11:08And it just feels like he's a guy that is such a movie star, you know? And so it's, it's really interesting to see him being silly in these commercials because he is such an auteur. And like, at times he has this look of like a real actor and Hollywood celebrity. And so to see him in these pictures, like dropping a big, you know, a dozen donuts and a coffee spilling out of his hand and the anguish in his face, I find to be so humanizing and so relatable and charming that it like, even if it's a setup, I do feel like I've been, I've been had, you know, like he got me. How does Starbucks even compete with that?
11:47I know their brand feels so different, right? The way they position themselves. There's like no sense of humor to a Starbucks and they try to be a little, I think a little more inviting with their interior. but there's much less sense of like whimsy or self-deprecation, certainly. Self-deprecation. That's it. That's kind of a secret, isn't it? I mean, you know, when you go into a Starbucks, it's like, I feel like if I order a large or a medium that I'm kind of getting looked down on, I'm supposed to use the right words. Right. Yeah. And it's, it's interesting, right? Because I think that used to feel more, there used to feel like more of an edge to it you know like when coffee house culture of that nature and like it was exploding you know and starbucks was kind of mass producing that and you'd go like what the hell is a venti what's a grande and now everybody kind of knows yeah and it feels less snooty but it still does have this air of like oh we want to feel european and to give it a multilingual sophistication that Duncan does not aspire to.
12:57I want to read something back to you that you wrote in an article for The Ringer, and you were musing on what it would mean if Duncan were to try to become a bit more of that, what does Starbucks say? A third place, right? You said, and I quote, picture a novelist encamped at a square Duncan table, nursing a single cup of coffee for hours while tolling over a manuscript. It can't be imagined without also envisioning an adult bully subsequently knocking their laptop off the table with a cardboard cutout of Rob Gronkowski or Eli Manning. Why do you think that is? I think the spaces themselves are used for so much utility.
13:35I answered some emails on a laptop in a Duncan right by South Station in Boston. I felt out of place. I felt judged. I felt like people were like, is this guy like a government agent spying on someone across the street? Because it definitely isn't the normal custom. And again, it is a place where people will sit and chat, but it is not a place usually where you see people doing like work. It doesn't have that thing of like, oh, I'm here to work on my white collar job. Yeah, right, right, right. Or pursue my creative aspirations at Suss Duncan. Exactly, exactly. Now, let's talk a little bit about the menu because you said it so well in that same article that I was quoting from earlier, though.
14:18that the options at Dunkin' are designed to be devoured, not savored, right? Yeah. I think people come in because they want a regular old-fashioned or a glazed donut or a chocolate glazed or, you know, the Boston cream on the adventurous side. But to me, the sleeper hit of the donuts, which I think have gone downhill a little bit since they've stopped making them in a house, but the sleeper hit is still the blueberry glazed. Well, what about that spider donut? Did you hear about that? It went viral around Halloween last year? Oh, yes, yes, yes. I think it had kind of a suggestive tagline, right?
14:50Like maybe accidentally or on purpose suggestive tagline that made it go viral. But it was like a donut with a munchkin in the hole. And then with Spider, a Spider-Man out of frosting, like kind of piped frosting. Uh-huh. You know, I wonder if they're looking for a new clientele because there have been some other celebrity collaborations at Dunkin'. There was a Sabrina Carpenter had a brown sugar shaken espresso. and clearly that spider meme donut. And that was a meme donut. I mean, that's reaching for a younger crowd, don't you think? Certainly. Yeah, I think so too. And I believe I tried the Charlie D 'Amelio Dunkin' order because she was the TikTok star who would always have a cup of Dunkin' coffee in her videos.
15:33And so they collaborated with her and it was a little sweet for my taste. I didn't end up trying the Sabrina Carpenter drink yet. And that stuff is kind of, to me, more of a novelty of like, sure, why not give it a shot than something that you need regularly, right? Like goes into your regular rotation. And I think that is some of it. They're trying to like appeal to people who aren't just like, I stand in line, I get my coffee, I take it in my car on the way to work. Yeah, I get that. Okay. Well, having said all of that though, what's your go-to Dunkin order. I usually, this is what I've been doing lately is I get a large iced coffee, milk, one, maybe two pumps of the liquid sugar sweetener.
16:19And that's my go-to. And that's like, you know, what I want from a coffee place. There are other places where I'll go if I want a snack or if I want to sit with a friend and catch up over coffee, but like a day-to-day coffee to like get me going, especially if I'm trying to leave the house, it's Dunkin' all the way. Which again, embarrassing to have such a brand loyalty, but I am what I am. Yeah, you got to own it, man. No shame there at all. I always just get one large coffee to go, black, maybe three sweet and lows. Speaking of to go, I hear you got to go, Josh. Where can folks find you online?
16:57Oh my gosh. I write a weekly free newsletter called That's Marvelous at joshgondelman.substack.com. And my website's joshgondelman.com if you just want to go there and check out tour dates and see some stand-up clips. And the newsletter is the best way, though, to get all your Josh Gondelman-related news, plus pep talks and jokes week to week for free. Josh Gondelman is a comedian and writer, and he joins us frequently here on Business Wars. Great to catch up with you. Always great to chat with you, David. Thanks for having me. Coming up, we're driving through one of the hottest trends in coffee right now with Sam Ocus of Nation's Restaurant News.
17:29We're going to find out whether it's big enough to send Starbucks and Dunkin' into a slump.
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20:20Hey, welcome back to Business Wars. While Dunkin' and Starbucks are duking it out on the world stage, there's another sector of coffee that's giving the market a jolt, the drive-thru only chains. At these places, customers can get their caffeine fix without ever leaving their cars, while a cool, cheerful teenager takes your order and asks for your hot take on whether Cartoon Network, Disney, or Nickelodeon has the best TV shows. I know that sounds ridiculous, but you're going to understand in just a couple of minutes. In fact, this is an experience that Sam Okus has had. He's editor-in-chief at Nation's Restaurant News, and he's also hosted the Takeaway podcast, where he's tried a lot of sugary coffee concoctions at his local drive-up spot, trying to get the scoop on these trendy new chains.
21:03They are a relatively small section of the market, but they're growing. He joins us now to tell us all about it. Sam, welcome to Business Wars. Thanks for having me, David. Okay. You got to explain more about this question that you got when you pulled up at this, what was it called again? What was the name of the chain? Yeah, Seven Brew Drive-Thru Coffee. Okay. And what? Through the speaker, you get a poll question or something? What's going on? Well, not through a speaker at all, actually, directly to the employees. So Seven Brew is one of these drive-thru only chains. It's got two drive-thru lanes that wrap around the building.
21:36You go under this awning. and in the middle of that, of the building is the prep station and there's employees kind of bustling in and out. And there's one person who's standing right there to facilitate getting the beverages from that kitchen to your car. And while I'm waiting for my beverages, he's standing there engaging with me. He's asking me questions. How's my day going? And on the glass of that prep station, they have a question written out, which was, what do you prefer a cartoon network, Disney or Nickelodeon. And I didn't know what he's, why that's there. I'm like, what's going on with that?
22:09And he says, oh, we're just having customers vote. It's, and it's totally, you know, totally unrelated to the experience of the coffee chain, but that was a way to engage me while I'm waiting. Very interesting. You know, this reminds me of a little shtick that they have at an ice cream shop here in Austin. A lot of Austinites know it. I'll just say it. It's Amy's. And quite often you'll go up to the cash register and you'll see like a question of the day kind of thing. But this whole idea of engagement, I think coffee is a different thing from ice cream. I'm not sure I would be in the best of moods.
22:38You know, I'm not sure how I would take this. How did you take it? And what did you vote for, by the way? Well, I will say I was all for Disney Channel. I have three kids and I watch a lot of Disney Channel. But, you know, when I was a kid, it was definitely Nickelodeon. Yeah. And at first I thought, I don't really want to play this game. I thought, that's kind of silly. I'm just waiting on my beverage. But he keeps asking me questions. And, well, why did you vote Disney Channel? What were your favorite shows? And, you know, clearly he's trained to keep that conversation going because here we are talking about it.
23:06I remembered it and it was it was a highlight of my day and I thought about it. And that's exactly what restaurants of all types want to do. They want to create an experience through their hospitality that leaves you feeling happy so that when you come back, you come back for that happy experience. But I haven't heard of this in the coffee space. And that sounds like the kind of innovation that you seem to have latched on to here, because honestly, I don't really want to talk to someone preparing my coffee. It's a little too early maybe for me. I don't know. I just sort of want to get my coffee and go.
23:38How well do you think this is working? Well, I totally understand. I think coffee tends to be, especially as a morning experience, you're a zombie. You don't want to have too much hospitality, too much human engagement. But one thing that I think is important to point out with these drive-through only concepts is that they're not just morning-oriented brands. They are really capitalizing on late morning, on early afternoon. They're really capitalizing on the guest who wants an indulgence, a middle-of-the-day pick-me-up. So that's one important point to make, which is that a lot of this isn't happening in the morning.
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24:09It might be happening at 3 p.m. in the middle of the afternoon when they're not a zombie and they are more engaging. But also, in general, I think hospitality has become a differentiator for restaurants of all stripes. because if the playing field is level on menu, playing field is level on technology now, on service, your leg up is how friendly a face can you offer through your employees. This is really interesting. I have to ask you a question. Where do you live? Where is this coffee house that you go to? I live in Columbus, Ohio. So this is the perfect market for a brand like this. Seven Brew is starting to invade Columbus as well as a lot of the rest of the middle America.
24:48Dutch Bros is another one that I'm sure we're gonna talk about a lot. They're the biggest of these drive-thru only brands. They haven't gotten to Columbus yet. They just got to Cincinnati. I expect they'll be here in Columbus within a couple of years. Yeah, we're seeing them down here in Texas. I've seen them opening a lot of them within the past maybe year, year and a half. So does this mean that some of these regional brands now are starting to go national or what? For sure. Every one of these drive-thru brands that has popped up around the country over the last 30 years, I think it's important to point out Dutch Bros, for example, has been around since the early to mid-90s.
25:19It's a 30-plus-year-old brand. Seven Brew is a lot newer. It's only been around since 2017. But you've had a lot of these concepts pop up in different parts of the country, got very popular in that region, was kind of, you know, cult favorite and sort of under the radar from a national perspective. And in the last six, seven, eight years, it's become obvious that coffee is a direction customers want to go or beverage in general. People want fun, exciting, indulging beverages. and as Dutch Bros started to grow, all of these other chains really started to pick up that momentum as well and they're flooding the inside of the country and now starting to go toward the East Coast.
25:56I'm wondering if that's not working against them though or has the potential to because isn't part of the appeal having a shop or a coffee place that doesn't have Starbucks or Dunkin' on the outside? I think there's so much demand for coffee in this country that it almost doesn't matter because one of the best parts about the drive-through only coffee space is that real estate is easier than pretty much any other restaurant has it because you're talking about a 500 square foot box that you can basically put into any parking lot in front of a retailer in any community in America. So real estate's not as hard.
26:31And the other thing is because there's so much demand for coffee and other beverage, you really can put these on either side of a street and catch the traffic going that one direction. And you're not even in competition with the guys across the street because they're catching the traffic going the other direction. Specifically when beverage and coffee are so routine oriented and I'm on my way to work, this shop is on this side of the road. So that's where I go because I'm on my way to work. I'll go to the other one on the way home because it's on the side of where I'm coming for, you know, going home.
27:02What we're talking about here is the rise of regional brands, it sounds like. And I'm curious how and why this happened. You say that Dutch Bros got its sort of liftoff, what, about 30 years ago. And now you got seven brew that kicked off, what, about seven or eight years ago, something like that. Where's this coming from? Where's the impetus? What's driving this? Well, if you want to look at Dutch Bros, let's start with the fact that the Pacific Northwest is where this trend started, which is really no surprise because, of course, that's where Starbucks started in Seattle. But all around Washington State and Oregon, you have a lot of these drive-thru coffee shops that started as mom and pop, and they just became really popular, and they grew around those states in that region.
27:41And I think they just kind of stayed there for a while. But again, Starbucks has become such a behemoth. Dunkin' has become so popular on the East Coast that eventually people were looking for something else. They were tired of Starbucks. They were tired of Dunkin'. And with the advent of better drive-through technology, with customers looking for more adventurous beverages at a value, I might add, you know, those drive-through-only shops became very much in demand. And so, you know, I think that those companies, to their credit, Dutch Bros, Seven Brew, Big B out of Michigan, Scooters out of Omaha, they saw that potential and they started racing across the country.
28:20Because, again, this is almost like infinite white space. Every community loves coffee. Every community has parking lot space to pop one of these in. And I don't even think they see Starbucks and Dunkin' as competitors because what they're doing is really providing coffee as that convenience. Any other major players we should know about? We've been talking about a few already. Yeah, the biggest three are Dutch Bros, Scooters, and 7Brew in that order. So just for some perspective, Dutch Bros did$1.8 billion in sales in 2024, according to Technomic. Scooters did over$700 million, and 7Brew did over half a billion.
28:56So$500 and some million and change. seven brew just for perspective again did not exist eight years ago and now they're doing half a billion dollars in sales at 320 that's crazy it's crazy now on the tail end of those concepts you have a few others i mentioned big b they do about 320 million in sales at 400 over 400 locations and a few others that are mostly regional at this point in time those are the four i would say that are the most significant from a national perspective. I'm sorry, I got to go. I got to start up a coffee house somewhere. This seems like incredible territory here. Is this in a way because of what Starbucks and Dunkin' have sort of laid the groundwork?
29:42They've already given everybody an appetite for high-end coffee, and now it's up to others to kind of come in and be that alternative? I think so. This happens, again, in every corner of the restaurant industry, which is healthy competition. If you see two brands dominate a category as Starbucks and Dunkin' Dominate Coffee, naturally you're going to get competitors. And when you find that very natural, unique advantage, such as the drive-through only, and really focusing on that sort of coffee as convenience, get people in and out as fast as they possibly can, and you find success in that, then you really, really lean into that.
30:17And David, I'll throw out some numbers to you just really quick, because I think this, again, is better perspective. Dutch Bros growth was 25%. Scooter's growth was 28%. Seven Brew's growth in 2024 is 163%. It's really going back to your comments about like, hey, I want to open a coffee shop. It is the safest bet in the restaurant industry today to open something beverage because A, the growth is clearly there in those numbers I read to you. But B, your potential demographic is everybody because everybody likes beverages of some kind. And these brands, by the way, we should point out, they're not just serving coffee.
30:56They're serving energy drinks. They're serving teas and lemonades. They're serving refreshers. The point is, is that there's a lot of innovation with beverage beyond just that cup of Joe that people go for in the morning. And I think that's also what these brands are leaning into. Okay, does the biggest of this, of the big three, Dutch Bros, do they have the strength through even the desire to take on Dunkin' or Starbucks for number one? Should they be worried about the rise of Dutch Bros? I don't know if they're necessarily worried. I mean, let's say this. Starbucks is not going to lose the mantle as the biggest coffee brand anytime soon.
31:34Starbucks is 62 % of the market. The coffee market is about$50 billion annually, according to Technomic. Yeah,$50 billion. And Starbucks last year did$31.5 billion of it. And then Dunkin' did$12.5. So together, they are 88 % of the market share. That puts things into perspective. It puts things into perspective. Exactly. So even though Dutch Bros, call it$2 billion, that's 4 % market share. That's still good. It's not 62 % market share. So I don't think necessarily that they're coming for number one, but Starbucks was last year 64 % of market share, not 62%. So they're losing market share to these guys, no doubt.
32:19We have to take a coffee break. Our guest is Sam Okus. He is editor-in-chief at Nations Restaurant News. When we come back, we're going to talk about the kinds of drinks some of these chains are serving up and who they're serving them to as Business Wars continues.
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35:22hey welcome back to business wars our guest is sam okus he is editor-in-chief at nations restaurant news and host of the takeaway podcast where he covers all the latest industry trends let's talk a little bit more about these drinks shall we uh you mentioned that dutch bros and seven brews seem to be leaning into the sugar just a bit uh i got a sense that i always thought that most people wanted it black, but I guess that that's a generational thing somewhat, huh? Yeah, it could be. I do think younger customers skew towards sweeter beverages. I mean, you think about like, David, I don't know about you, but when I first got into coffee, I needed it in the sweet form.
35:59I needed it in lattes and mochas and things like that because my palate wasn't refined. Now, by the time I got out of college, I was ready for the black coffee, but you know, Something about college makes you ready for black coffee. I don't know what it is. Gets you there. Four years preparing you for black coffee. That's for sure. So, you know, I think now as Gen Z gets disposable income, they're graduating from school, they're getting jobs, you know, they are still, you know, maybe baby palates, right? Their palates aren't quite mature, so they want the sweeter. And all around the restaurant industry, you see sweet beverages taking off, whether that's soda.
36:35Soda is having a renaissance with drive-through beverages like swig. You see that in energy drinks beyond the coffee space. Other restaurant chains are developing their own energy drinks. All of this leans sweet and caffeinated. And I really think that's powered by Gen Z. Also, by the way, I should point out, these are all very colorful drinks. They pop on social media. So the drive-thru guys have really gone hard at that. So even though coffee is their core beverage and they serve it primarily in espresso-based beverages, they're really expanding the menu to include a lot more sweet, energizing kind of drinks.
37:10Speaking of social media, I know you tested some of these drinks from Seven Brew. In fact, I think we've got a clip from your own TikTok. So many flavor options, like literally thousands of flavor options. Well, that's good. Very refreshing. Wish that I had some rum and that I was sitting on the beach. That's just what I needed. so you're not really a black coffee guy after all are you i will say i was taking one for the team and trying those uh that blue one that intensely blue one was the energy drink i took it home to my wife and i'm like i can't drink this can you and she's i cannot drink this either so it's that in our fridge for a couple days before i poured it out that's no knock on seven brew that's just to say not my cup of tea so to speak um but i mean all of them were really fun exciting flavors and And I should point out from that video as well, Seven Brew has outside order takers.
38:08They come to your window while you're sitting in your car. You roll down your window. They have an iPad that they're taking orders on. And I literally was overwhelmed by the flavor choices because they have thousands of potential flavor combinations. And so she just turned the tablet to me and I pointed at what I wanted. And I'm somebody who doesn't like a lot of choice. I like it to be simple, but I'm not the norm. I'm an exception to that rule because especially young consumers are interested in this. They want lots of flavor options. They want to mix and match. And 7 Brew, they have a secret menu.
38:40And it was built around guests who were mixing and matching flavors and developing new things. All of that is very fun. It's very adventurous. Yes, it's sweet. But I do, again, think that younger customers especially are really into it. I've noticed this among my teenagers as well, that whenever there's like some kind of special Shamrock or whatever, or a blizzard fill in the blank. And they're always multicolored or they're some kind of weird ultra neon pink or green or something that they want it. They want to try it. It's like some, like an adventure, I guess. And it sounds like from what I can tell yours was blue.
39:15Is that what you said? That was the energy drink. Yeah, for sure. And, but TikTok and Instagram, I think are driving that trend, which is again, these colors pop on social media. They catch your eye. If you have a black coffee in a cup and you're trying to show that off on social media, it's boring. Nobody cares about that, right? Now, if you have a swirl of cream, if you have an intensely blue hue, these are things that catch people's eye. And so I think that's part of the marketing strategy for these chains, which is to have visually appealing beverages. What does it say about the demographic of the drive up customers?
39:50Is it in fact mostly younger folks or does it skew that way? They probably skew more like late 20s up to like late 40s, but it's a wide range because you're going to have plenty of older folks who are interested in these beverages too. I just think the vibe that these chains bring, which goes back to our conversation around the hospitality they provide, they have loud music. Dutch Bros calls their baristas broistas, right? Like it's a vibe that they're trying to create and that resonates. Yeah, I'm not sure I'm ready for it yet. I'm still the grumpy guy driving up at 6 a.m. But this is something that I find really fascinating because you would think, and I remember the first time I went into a Starbucks and I was kind of floored with this idea that you could kind of go in like a bar in a way, sit around, talk with people, maybe open your laptop, you know, do something.
40:40And maybe this was pre-laptop, to be totally honest with you. But I remember feeling like it was a kind of that third place. I think it's a great point. And it's especially timely now because Starbucks on their most recent investor shareholder day, they announced that they are going to invest more in their physical footprint. They're going to invest more in comfortable seating. They're going to invest more into the ceramic cupware that they serve beverages in. Trying to get back to the old days, I think, is what they're going for. Exactly. Because Starbucks, one of their first promises as a brand back in the 80s was, we are the third place.
41:14You have work, you have home, now you have Starbucks too. And that really took off. And now you see coffee shops all over the country that tried to emulate the third place. And then over time, Starbucks went more toward, we are a drive-through. We are coffee is convenience. We are not the coffee is culture that they used to be. And Brian Nickel, their new CEO who came from Chipotle, I think to his credit, he's recognized they're losing share to the drive-thru guys. And instead of going hard at the drive-thru guys and doubling down on that, he's saying, let's lean into our strengths. Let's go back to our roots.
41:49And so now they're going to invest in that physical footprint and go back to the third place. But if Starbucks wants to stand out, I do think this investment...
42:00So I'm wondering why young people would be drawn to, say, seven Brewer Dutch Bros and not so much the third places. Or am I wrong about this? I think it's if they're on the go, right? And increasingly, people are on the go. You know, you could look at the pandemic and say, oh, we were all cooped up inside our houses for so long that we burst out of our houses at the end of that and wanted to be everywhere all the time, all at once. and increasingly consumers are driving all over the place. They're going here and there and they're looking for experiences. I think that the drive-through coffee places offer that convenience and that experience while you're on the go.
42:39And while it's nice to have a Starbucks, for example, when I travel to my office in New York and if my flight's early and I need to go find a place to work until I can get into my office, a Starbucks is the perfect opportunity. I always know I can sit in a Starbucks, get some work done, enjoy myself, have a nice cup of coffee. But because especially suburban customers don't usually have that kind of experience, that they're usually going from point A to point B and not stopping anywhere along the way. It's that coffee shop that is between point A and point B that they can get in and out of that becomes more important to that lifestyle.
43:16So it really matters where you are in that moment. So where do local coffee shops as we've known them before fit into this narrative? I mean, I'm talking about your neighborhood roasters, that kind of thing. And I always have a place in my heart for those guys because that's where you get true personality, right? Is that local coffee shop? Exactly. I had one I went to all the time when I was in college. Shout out to Donkey Coffee in Athens, Ohio. That place has my heart. But I think that those will always have a role, but that's always going to be, again, more based on location. If If you're in a college town and you primarily have walking traffic, or if you're in a downtown and you have walking traffic, your local mom and pop roaster is going to capitalize on that kind of customer.
44:01Versus Seven Brew is in the suburbs. They're not looking to go downtown. They're probably not looking to get into a college town. They don't want to be that. They want to be the on-the-go working professional or young person in the suburbs. And so Starbucks is actually going to be a bigger competitive threat to those independent coffee shops, if anything, because Starbucks also wants that walking traffic or a college town, downtown kind of customer. So that'll be the interesting thing is to see is like the Starbucks, as it's kind of on its heels right now, its sales were down last year. It's sort of, you know, taking a beat, losing market share.
44:36Is that going to ultimately be a good thing for the independent coffee shops that compete really directly with Starbucks? or will Starbucks, as it comes back to try to beat back these drive-thru chains, going to end up harming the independent coffee shop? That'll be interesting to watch. But given what you've said about Starbucks' approach and how they want to reclaim this third space, this really brings up a fascinating dimension in this whole conversation about the idea of coffee as a convenience versus coffee as a culture. You think one's going to win out over the other? I am inclined to say that if either of them wins out, it's coffee as a convenience.
45:15Our society is increasingly convenience-oriented. If you look at the restaurant industry as a whole, restaurants are thriving on off-premises service. Third-party delivery, which was the savior of the pandemic, has given so many restaurants this new access point to customers, which is out the door into their homes via the third-party delivery driver. We are never going back from that. We all want convenience. We all have everything available to us at the push of a button on our phone, and that convenience culture never goes away. Now, I have covered this industry for 16 years, and I know that the pendulum swings.
45:56And I do believe that right now the pendulum is starting to swing back to more human experience, more hospitality. We overdosed on convenience in some ways in the pandemic. And I think that differentiator of going into a place, having an experience on site is something more customers do want. and my assumption is I would put money on Starbucks over the next couple of years coming back with a vengeance. I think customers are going to want to get into these dining rooms and have that experience and if Starbucks does this right with Brian Nichol as the CEO and really refining their hospitality, then they stand to capitalize on that.
46:37But that's not to say the convenience part's going to go away because there's really a need for all of it. It just depends on your lifestyle and in some ways, It just depends on where you are and when you are. Sam, you've been so good to spend so much time with us. One more thing. Pretend I'm your barista. What can I get you? Just not something sweet. Let's go. You know what? I'm going to be boring. I'm going to go with a vanilla latte with oat milk because I'm an old person now, and that's what I do. You want any sweet and low of that, or are you good? No, thank you. No, thank you. Sam Okas is the editor-in-chief of the Trade Publication Nation's Restaurant News, host of the podcast Takeaway, where he covers the latest in food industry news and trends.
47:17You can catch his reporting at nrn.com. Sam, thanks again for joining us. Thanks, David.
47:28We want to close today's podcast with a name you've been hearing at the end of each episode. Recently, sharp-eared listeners may have noticed that Karen Lowe had been named producer emeritus. Like all producers, they're the real voice of the show. They're the people who develop the structure and shaped the story, reviewing scripts, managing all the details of production. And Karen certainly did all that and a whole lot more. She was the first producer hired for Business Wars, and her vision has been part of this podcast from the very first episode forward. But she was a lot more than a producer to me.
48:02She was a little like a big sister I never had. I remember meeting her years ago when I was starting out at Marketplace, a public radio show that I produced and later hosted a couple of decades back. I remember meeting her in the crowded little office space 25 years ago because I had a question about a story we just brought in from Japan. And Karen, with all her experience abroad working for the major wire services, well, she was an expert on international business, so I was a little intimidated by her resume. And I'll never forget the look on her face when I came in with long hair and ripped jeans.
48:36She had such an expressive face that she didn't need to say anything out loud. I knew exactly what she was thinking, and she probably knew what I was thinking, too. In fact, she anticipated my question about that story. That ability to speak back and forth without words, well, it's often a trait of a great producer, but we definitely bonded over it. Sometimes we'd look at each other and just explode in laughter over an unspoken joke or the sheer joy of knowing what the other was thinking. We'd often call each other when there was some issue, something at work, maybe even in our personal lives.
49:10I really trusted her take on things and valued her discretion. In the years after Marketplace, well, we'd lost touch a little bit, but then came a phone call in December of 2017. She was working with a little podcast startup called Wondery, and they had an idea for a show. She told them she knew someone who might be able to host it, and that's when I got that telephone call that changed my life. I knew if Karen was working on it, Business Wars would be a winner. And to this day, you can hear Karen in each and every episode. The way the stories unfold, the pacing, the little vignettes, that's Karen.
49:46And everyone working on the show as it's evolved over the past several years has been touched by that vision. It was devastating for all of us on the Business Wars team to get the news of Karen's passing. She'd been sick for a long time. but then as now i refuse to think of her as anyone less than that joy-filled whip-smart producer and proud mom the last conversation we had on the phone she was telling me about traveling to europe with her husband steve i could see her smile down the telephone line as if she were sitting right here and i guess to be honest i feel that presence still I hope you feel it too because this is the house that Karen Lowe built and Karen, I know I don't have to say it out loud but this one's for you come to think of it, maybe they all are
50:44From Wondery, this is episode 3 of Starbucks Bitter Brew for Business Wars I'm your host David Brown Kelly Kyle produced this episode Peter Arcuni is our senior interview producer. Our producers are Tristan Donovan and Kate Young. Our audio engineer is Sergio Enriquez. Our managing producer is Desi Blalock. Our senior managing producer is Callum Plews. Our senior producers are Emily Frost and Dave Schilling. Our executive producers are Jenny Lauer-Beckman and Marshall Louis for Wondery.
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From the publisher
Starbucks might be number one in market share, but the competition over coffee is hot. In one corner, you’ve got the New England-based fan favorite Dunkin, with their no-frills vibe and celebrity boosters. In the other, you’ve got the up-and-comers: drive-through only chains like Dutch Bros and Seven Brew that have become popular among younger consumers and on-the-go customers. Comedian (and lifelong Dunkin fan) Josh Gondelman joins David to talk about the reign of Dunkin in Massachusetts and beyond. Later, Sam Oches of Nation’s Restaurant News joins David to shed some light on the newer drive-through brands and whether they can outshine Starbucks and Dunkin.
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