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Dutch Bros. CEO: AI ‘is going to be part of our world’

Dutch Bros. CEO & President Joth Ricci joins Yahoo Finance Live to discuss AI, company earnings, expansion plans, profit growth, promotions, consumer demand, and the outlook for Dutch Bros.

Video Transcript

[AUDIO LOGO]

- Shares of Dutch Bros taking a hit this morning after revenue came in well below estimates despite a 30% jump in revenue year-over-year. The fast-growing coffee chain also missed on same-store sales estimates but did open a record 45 new stores. Joth Ricci, who is the Dutch Pro CEO and president, joins us now, alongside Yahoo Finance's own Brooke DiPalma. Great to have you here with us this morning.

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Take us into some of the numbers. I mean, you still have a very aggressive growth plan here and Wall Street reacting, sending the shares lower here. What do you think that Wall Street might be missing about that growth plan? And what needs to be reiterated about that pathway?

JOTH RICCI: Well, I think, first of all, thank you for having Dutch Bros. And I think what-- we're in the early innings of a long-term plan. And so our path to 4,000 stores is going to have some highs. It's going to have some challenges. And we're working through those quarter after quarter.

So I think that the opening 45 shops in the first quarter, we were lapping a difficult lap from first quarter of '22, of which our sales were up because we were still coming out of Omicron and had been the benefit of being open 100% of the time. And we knew the first quarter of this year was going to be a challenging lap as we looked at the year.

But long term, 45 shops, we'll open 150 locations this year. We opened 150 last year. So if you take last year and this year, that's 280 locations on a 700 plus shop base. And we feel really good still about the long-term prospects.

BROOKE DIPALMA: And also, too, you've been aggressively growing in Texas in particular. And I think on the earnings call yesterday afternoon, some analysts were questioning how exactly you're increasing brand awareness and bringing in volume. So can you add some color to that, about how you open up these new stores and drive customers into them, and if you're seeing, perhaps, a misalignment there?

JOTH RICCI: No, actually, we're very pleased with the response in Texas. From El Paso to Houston to Dallas and really everywhere in between, we've taken a very aggressive approach there. We decided to go in and execute this fortressing strategy that we have and go in and do urban/suburban development and introduce the brand.

We know that building this brand is a long-term play. Our shops don't open to maximum potential right away. And we've seen that happen in Las Vegas in the past. We've seen it happen in Denver in the past. We've seen it happen in Tucson in the past, for example.

And we just see a more aggressive approach to Texas is really playing out the way many other markets have in the development of this brand over the last 30 years. So we're very pleased with Texas. We're very pleased with the response we've had. We're pleased with the word of mouth and the growth and the service and the staffing that we have in that market and really excited about what that gives us for the future.

So super excited about Texas. And we've been opportunistic on some real estate there and decided to take a fast approach. And we'll continue down that path.

BROOKE DIPALMA: And you did see one of your largest sales in company's record history with a promotion that you guys did. I believe it was for medium drink promotion back in March. How does Dutch Bros view promotions as a key, perhaps an essential part of this growth plan and, ultimately, use it to drive sales?

JOTH RICCI: Well, when you're-- promotions are important. And it's important to do it the right way. I think in many cases, we're still introducing the brand in the several categories that we serve to many new customers around the country. And so we've got to find trial-driving promotions that get people into shops, buy those extra drinks, and showcase some of the things that maybe you didn't know you could have in a day.

And beverage is also, it's a daily habit. It's a daily pattern. And so we have to go in and introduce the brand. We've got to introduce why our products are better and why-- also why the service and the great part of your day-- when you come to Dutch, our people are serving you with a smile. They're taking care of you and giving you a service that maybe you can't get anywhere else.

So that combination of service and a great drink we're trying to introduce to everybody along the way. And it's a curated process. So promotions are driving in a way to introduce you to things, where you can experience more of the Dutch Bros menu.

- Smiles as a service-- that's a different kind of SaaS, Joth, that I hadn't heard before. So I like that. As we're thinking about the little luxuries that that habitual, daily purchase is, though, have you seen any pushback on price from consumers right now? And I'm thinking about that in the context of even today's CPI report that we were looking through, trying to get a sense of where consumers are seeing prices abate a little bit or where they're pushing back. And companies are being cognizant about how that relationship still needs to further.

JOTH RICCI: I think that's spot on. I think that the price environment that we've been through in the last year or so with the elevated price increases and the things that happened in 2022, I think everybody's watching consumer response. I think the general feeling last year is that those price increases were accepted. And we saw cost of goods inflation at record levels.

This year you're starting to see cogs level off. And I think that everyone is evaluating their pricing strategies and even maybe reinvesting. I think that we changed our Dutch rewards program in late March. And, basically, why we did that is we could reinvest into more promos and types of offerings for the customer to drive traffic and build that long-term acceptance of the brand.

So I think everybody's looking at it. I think price, I think promotion, I think that, depending on how the cost of goods market shakes out over the back half of the year, we'll just have to see how all those things go.

But we haven't seen much pushback. In fact, our loyal customers at the top end of our traffic, they've stayed with us. Those numbers have really been pretty even across the board. If anything, we've seen some pullback in maybe some of the less frequent shopper as we've kind of evaluated what's happened so far in '23.

BROOKE DIPALMA: And, Joth, you and I have discussed how drive-through remains a key part of the Dutch Bros model. And yesterday we heard from Wendy's that they teamed up with Google Cloud. They're introducing an AI for voice ordering at their drive-through. Would you consider AI as part of a future Dutch Bros, perhaps, model?

JOTH RICCI: Well, I think AI is going to be part of our world in one way, shape, or form. I think that for us, it's the balance of how do we maintain that great experience with our people in a service-driven model, but how do we utilize AI and other technologies to enhance the consumer experience? And I think there's some great back-end solutions to AI and other technologies that can do that. It can speed our lines up. It can help us be more attentive to the service side, where maybe the AI modeling can help us with some other predictive behavior in how the consumer's going to buy or purchase patterns.

So we'll see. I'm very excited about AI. I'm excited about the potential of it. But in the meantime, we're focused on building out the rewards app. We've got some payment processing systems that we're using to speed up. And we've got some other back-end technology that we're working on. And I think you have to be investing in tech and tech systems now in order to prepare yourself for what's coming.

- Well, we know that one thing AI does not have, it does not have a heart like some of the founders and CEOs and executives like those at Dutch Bros do. We know that that shows up through events as well, like the Drink One for Dane event in memory of your cofounder as well. So I wanted to give that a shout-out, taking place on May 19. Joth--

JOTH RICCI: Thank you.

- --thanks so much for taking the time here on the day. We appreciate it. Dutch Bros CEO and President Jonathan Ricci, alongside Yahoo Finance's Brooke DiPalma.