Consumers tend to have a favorite when it comes to their choice of coffee shop, but loyalty is not absolute.

“More than 50% of Starbucks’ customers often purchase at its competitors, including Dunkin and McDonald’s, who are also known as ‘roamers’. Dunkin and McDonald’s were also found to maintain a relatively high percentage of roamers of 53% and 38% respectively,” according to a report in the International Journal of Hospitality Management.

That means that new players have an opportunity to make headway in the space, something we’ve seen with the growth of emerging players, including 7 Brew and Dutch Bros. Loyalty programs, like Starbucks Rewards; however, these programs do tie consumers to one brand over others, and some customers just like the coffee at one chain over another.

This makes a change in branding more than just new signage and a change in loyalty apps.

That’s a risk Dutch Bros. has been willing to take in buying the 20-location Clutch Coffee Bar, closing all its stores, and reopening under the Dutch Bros. name.

Dutch Bros. closing Clutch Coffee

Dutch Bros is accelerating its expansion by converting the 20-location Clutch Coffee Bar into Dutch Bros stores.

“We now expect to open at least 181 new system shops, which include the recently completed acquisition of 20 Clutch Coffee Bar locations across North and South Carolina. This conversion opportunity accelerates our presence in the Carolinas and allows us to introduce Dutch love to these communities beginning later this year,” Dutch Bros. CEO Christine Barone shared during the chain’s fourth-quarter earnings call.

There’s a risk in changing the chain’s branding, but the two companies share a lot of the same DNA. Clutch Coffee founder Darren Spicer worked at Dutch Bros. and based his chain on its drive-through model.

“The general premise for Spicer was straightforward: replicate the drive-thru coffee density he witnessed on the West Coast on the other side. It took five years to open seven locations, and Spicer grinded in the years to come, creating a brand that mirrored many of the culture-first principles Dutch Bros is known for,” according to QSR Magazine.

A quick look at Clutch Coffee Bar

  • 2018: Clutch Coffee Bar founded in Mooresville, North Carolina by CEO Darren Spicer, a former Dutch Bros manager, according to QSR Magazine.
  • The company focused on a drive-thru coffee model emphasizing speed, energy drinks, and strong community engagement, added QSR.
  • Clutch expanded rapidly across the Carolinas, reaching about 20 locations in North Carolina and South Carolina, according to Nation’s Restaurant News.
  • After the acquisition, Clutch locations are being remodeled and reopened as Dutch Bros coffee shops, reported The New Irmo News.

Dutch Bros. Senior Vice President Hyun Jin Cho sees the acquisition as a way to grow faster.

“In terms of Clutch, you know, the way we are looking at this, we certainly, to your point on the economics of this, view this as a very productive way of using our capital, deploying capital in acquiring those sites and then converting them, being that they are existing coffee stands. Relatively, you know, lower investment to be able to convert these to Dutch Bros Inc.,” they said.

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Barone shared that her company has been quietly converting smaller operators into Dutch Bros. locations.

“So last year, a number of the shops we opened were conversions of other different types of concepts. So this is something that has been in our portfolio for a while, being able to take attractive real estate and turn it into a Dutch Bros Inc. So we will just continue to look for the best real estate opportunities,” she added.

Dutch Bros. uses a drive-through model.

Shutterstock

Brand changes come with risk

Changing the branding on the Clutch Coffee Bar stores to Dutch Bros. does create some risk, as it could be seen by customers as an invitation to try other chains. It’s also an opportunity to build a stronger connection with customers.

“If you can flip that switch in a customer’s head and become the brand that they define their choice of coffee around, their loyalty can be incredibly powerful,” Dale Harris, 2017 World Barista Champion with 13 years of experience with Hasbean and Ozone Coffee, told Coffee Intelligence.

In the coffee space, loyalty matters.

“Due to the intense competition among international coffee players, brand loyalty has become a strategically critical factor in order for each and every coffee organization to sustainably thrive in today’s marketplace,” according to a study from the International Journal of Hospitality Management.

Key findings included:

  • A 5% increase in customer retention subsequently results in 25-75% profit enhancement.
  • Keeping a customer loyal costs a company five times less than attracting new potential ones.

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