Starbucks' Bitter Brew | A Cup of Competition | 3

Summary

Business Wars: Starbucks' Bitter Brew | A Cup of Competition | Episode 3 Summary

Introduction and Tribute

In a heartfelt beginning, host David Brown pays tribute to the beloved producer Karen Lowe, who recently passed away. Karen was instrumental in shaping Business Wars from its inception, and today's episode is dedicated to her memory. Karen's influence is felt throughout the show's storytelling, emphasizing her pivotal role behind the scenes.
“Karen, I know I don't have to say it out loud, but this one's for you.” [04:21]

Starbucks vs. Dunkin': Market Position and Brand Identity

Starbucks is currently navigating an identity crisis, struggling to define itself as fast food, a cozy cafe, or a gourmet coffee roaster. Meanwhile, Dunkin’ Donuts (referred to as Duncan) maintains a strong presence with nearly 70% more stores in the U.S., leveraging loyal fans and high-profile Super Bowl ads featuring celebs like Matt Damon and Tom Brady. Despite Starbucks’ broader footprint, Dunkin’ remains a staple in American coffee culture.
“Dunkin’ really embraces that humble, working person’s coffee image, contrasting with Starbucks’ more sophisticated vibe.” [06:39]

The Rise of Drive Thru-Only Chains

A significant threat to Starbucks and Dunkin’ comes from drive thru-only coffee chains like Dutch Bros. and Seven Brew. These establishments offer elaborate, creative, and sweet coffee concoctions that particularly appeal to Gen Z. Sam Okas, Editor-in-Chief at Nation’s Restaurant News, highlights the rapid expansion and innovative offerings of these drive thru giants.
“Seven Brew has grown to over half a billion dollars in sales at 320 locations since its inception in 2017.” [26:41]

Customer Demographics and Preferences

Younger consumers, especially Gen Z, exhibit a strong preference for sweeter and visually appealing beverages, often influenced by social media trends. Drive thru chains capitalize on this by offering a plethora of flavor combinations and colorful drinks that perform well on platforms like TikTok and Instagram. Josh Gondelman shares his personal experiences, noting that while he favors simpler orders like iced coffee, the drive thru chains cater to a broader range of tastes.
“These chains have thousands of flavor options that make their drinks pop on social media.” [34:37]

Marketing and Engagement Strategies

Drive thru-only coffee brands excel in customer engagement by creating interactive and enjoyable experiences. For instance, Seven Brew engages customers with fun questions during the ordering process, enhancing the overall experience and fostering customer loyalty. This approach contrasts with Starbucks’ more traditional and less whimsical marketing strategies.
“They have a secret menu built around guests mixing and matching flavors, which is very fun and adventurous.” [36:34]

Starbucks’ Strategic Shift Back to the Third Place

Recognizing the loss of market share to drive thru chains, Starbucks is pivoting back to its original concept of the “third place” – a welcoming space between home and work where customers can relax and socialize. Under CEO Brian Neill, Starbucks is investing in more comfortable seating and enhancing its physical storefronts to reclaim its position as a community hub.
“Starbucks is investing more in comfortable seating and ceramic cupware to go back to their roots.” [38:24]

Impact on Independent Coffee Shops

The rise of drive thru-only chains presents a complex scenario for independent coffee shops. While Starbucks focuses on enhancing in-store experiences, local roasters continue to thrive in areas with high foot traffic such as college towns and downtown districts. However, Starbucks’ renewed focus on the third place could pose a threat to these independent establishments by targeting their core customer base.
“Starbucks as it comes back to try to beat back these drive thru chains is going to end up harming the independent coffee shop.” [40:37]

Future Competition and Market Outlook

The coffee market remains highly competitive, with Starbucks and Dunkin’ holding a combined 88% market share. While drive thru chains like Dutch Bros. and Seven Brew are growing rapidly, they currently hold about 4% of the market. The future landscape suggests a continued coexistence of large chains and niche players, each catering to different consumer needs and preferences.
“Even though Dutch Bros. is doing well, Starbucks is not going to lose the mantle as the biggest coffee brand anytime soon.” [29:26]

Conclusion

Business Wars Episode 3 delves deep into the evolving dynamics of the coffee industry, highlighting Starbucks’ struggle to redefine its brand amidst fierce competition from Dunkin’ and innovative drive thru-only chains. The episode underscores the importance of understanding consumer preferences, demographic shifts, and strategic marketing in maintaining a leading position in a saturated market.

Notable Quotes:

• “Dunkin’ really embraces that humble, working person’s coffee image, contrasting with Starbucks’ more sophisticated vibe.” – Josh Gondelman [06:39]
• “Seven Brew has grown to over half a billion dollars in sales at 320 locations since its inception in 2017.” – Josh Gondelman [26:41]
• “These chains have thousands of flavor options that make their drinks pop on social media.” – Josh Gondelman [34:37]
• “Starbucks is investing more in comfortable seating and ceramic cupware to go back to their roots.” – Josh Gondelman [38:24]
• “Starbucks as it comes back to try to beat back these drive thru chains is going to end up harming the independent coffee shop.” – Josh Gondelman [40:37]
• “Even though Dutch Bros. is doing well, Starbucks is not going to lose the mantle as the biggest coffee brand anytime soon.” – Josh Gondelman [29:26]

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Business Wars continues to explore the intense competition within the business world, providing listeners with in-depth analyses and engaging narratives that reveal the real stories behind major corporate rivalries.

Transcript

[David Brown]

Wondery plus subscribers can binge all episodes of Business War's Starbucks Bitter Brew early and ad free right now. Join Wondery plus in the Wondery app or on Apple Podcasts.

[Karen Lowe]

Hey 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.

[David Brown]

I hope you'll stick around.

[Josh Gondelman]

Wonder.

[David Brown]

I'm David Brown and this is Business Wars. Starbucks 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 Duncan's loyal fans and star studded super bowl ads have helped make it an ongoing part of the zeitgeist.

[Sam Okas]

That's for sure, as Matt Damon and Tom Brady don't have the height of a champion. We got a new squad Dunking sequel.

[Josh Gondelman]

Afflecks and Belichick Dunkings.

[David Brown]

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 seven 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 Okas is the editor in Chief at Nation's Restaurant News, where he also hosts the podcast Takeaway. He'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. 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, Duncan, or Dunkees as he calls it. Josh grew up in Duncan country, also known as Massachusetts, and he's sharing his thoughts on the company as they continue making inroads on Starbucks. So Grab a mug because all that's.

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[David Brown]

Lines via virtual prepaid card.

[Josh Gondelman]

Allow 15 days qualifying unlock device credit.

[David Brown]

Service port in 90 plus days with device and eligible carrier and timely redemption.

[Josh Gondelman]

Required card has no cash access and.

[David Brown]

Expires in six months. Josh. Josh by gosh. Josh Gondelman, welcome back to Business Wars.

[Josh Gondelman]

Thank you so much for having me, David. Always happy to be here.

[David Brown]

Always great to have you back on the show. How you been? You been getting back to Boston at all much or what?

[Josh Gondelman]

I have been. I was just there last week and saw some family and some friends and I. I'm always happy to get home.

[David Brown]

That's a nice hat you've got on.

[Karen Lowe]

What?

[David Brown]

What that. But it looks a little different from the usual Boston Red Sox cat.

[Josh Gondelman]

Yes, that's right. This is a, a hat where the logo on the front is the Red Sox B. The Red Sox Boston B made up of two Duncan D's, the Dunkin Donuts, pink and orange D one on top, one on bottom and so and that they've used that to make the Boston be. So I feel ultimately like I am the mayor of Boston.

[David Brown]

Yeah, of course. Well, you dress for the occasion here. I'm very impressed. Duncan must have a lot of a. A warmth place of in your memory, I would suppose. I mean living in Boston and everything, right?

[Josh Gondelman]

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 Dunkin. It was everywhere I went. You know, when I started like really drinking coffee as a younger adult, there was a Dunkin by my House a Duncan by my school, where I was a preschool teacher. And so that was the spot there. There wasn't really. It didn't feel like there were culturally other acceptable options.

[David Brown]

Yeah, no, I. I totally hear that. What is it about the Duncan Boston or Duncan Massachusetts link? Really? It's bigger than Boston?

[Josh Gondelman]

Yeah, I. I think it is. I think it's kind of through New England. It has a real hold.

[David Brown]

Gotta start there, I guess.

[Josh Gondelman]

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. You'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. It 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, 6am 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.

[David Brown]

Nailed it. I think you've absolutely nailed it. I can remember going into the Duncan that was on Massachusetts Avenue every morning, right?

[Josh Gondelman]

Yep.

[David Brown]

No, nonsense. Yeah. You're not ordering like venti lattes, at least back in the day. You sure would. You wouldn't say venti in a place like Duncan, you know?

[Josh Gondelman]

No, certainly not. It has kind of its own rhythm and lingo. Where the a, a Duncan 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. So 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.

[David Brown]

Yeah, I made that mistake more than once, I'm afraid. Yeah, I. I hear you have always lived within a One block radius of Duncan. Is that a stretch or is that for real?

[Josh Gondelman]

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. And it hasn't been intentional. But I will say it does make me feel at home.

[David Brown]

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 Duncan sneakers, is that right?

[Josh Gondelman]

I've got. I actually have one official pair that a friend. They did a collab with an unofficial pair too. There are a few unofficial pairs, kind of some off label Duncan sneakers. But I have a pair of Saucony that a friend who was working at Saucony at the time hooked me up with that was like a Duncan Boston Marathon Saucony. I have those. They're super comfy.

[David Brown]

What do they look like?

[Josh Gondelman]

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, which is with little hits of the pink and orange 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.

[David Brown]

Help me with this. Was it the donuts really that you're going for or was it the coffee?

[Josh Gondelman]

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. 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.

[David Brown]

So that's kind of. I get it. I totally get 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.

[Josh Gondelman]

Jeremy Strong, certainly.

[David Brown]

Uhhuh.

[Sam Okas]

Hey man, is that coffee are you doing in there?

[David Brown]

I'm just trying to find the character.

[Sam Okas]

We got to battle the barista buzz.

[David Brown]

I'm all in for Duncan. And as I understand it, Duncan paid something like 7 million plus for. For the privilege.

[Josh Gondelman]

They were very elaborate. My favorite one is still, I think, Ben Affleck working the drive thru.

[David Brown]

What are you doing here?

[Josh Gondelman]

Is this what you do when you.

[David Brown]

Say you want to work all day? I got to go, guys.

[Josh Gondelman]

Grab me a glaze.

I thought that was really funny and, and charming. And Jennifer Lopez coming through when, you know, rest in peace, Benifer. They're both individually alive, of course. Just the relationship.

[Karen Lowe]

Of course.

[David Brown]

I understand.

[Josh Gondelman]

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. And 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.

[David Brown]

How does Starbucks even compete with that?

[Josh Gondelman]

I 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.

[David Brown]

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.

[Karen Lowe]

The right words, right?

[Josh Gondelman]

Yeah. And it's. It's interesting, right, because I. 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, 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.

[David Brown]

I 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 are the. What does Starbucks say? A third place.

[Josh Gondelman]

Right.

[David Brown]

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?

[Josh Gondelman]

I, I think the spaces themselves are used for so much utility. I answered some emails on a laptop in a Duncan right by South Station in Boston. I felt out of place, felt judged. I felt like I was like, people were like, is, is this guy like a government agent spying on someone across the street? Because it definitely isn't the normal custom. And again, it, 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, my white collar job.

[David Brown]

Yeah, right, right, right.

[Josh Gondelman]

Or pursue my creative aspirations at this Duncan.

[David Brown]

Yeah, exactly, exactly. Now, let's talk menu, because you said it so well in, in that same article that I was quoting from earlier though, that the options at Duncan are designed to be devoured, not savored.

[American Express]

Right?

[Josh Gondelman]

Yeah. I think people come in because they want a regular old fashioned or a glazed donut or a chocolate glazed or, you know, my, 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.

[David Brown]

Well, what about that spider donut? Did you hear about that? It went viral around Halloween last year.

[Josh Gondelman]

Oh yes, yes, yes. I think it had kind of a suggestive tagline, right? Like 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 made out of frosting, like kind of piped frosting.

[David Brown]

Uh huh. You know, I wonder if they're looking for a new clientele because there have been some other celebrity collaborations at Duncan. There was a Sabrina Carpenter, had a What a brown sugar shaken espresso. And clearly that spider meme donut. And that was a meme donut. I mean that that's reaching for a younger crowd, don't you think?

[Josh Gondelman]

Certainly. Yeah, I think so too. And I believe I tried the Charli d' Amelio Dunkin order because she was the TikTok star who would always have a cup of Dunkin coffee in her videos. And 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.

[David Brown]

Yeah, I get that. Okay, well, having said all of that though, what's your go to Dunkin order?

[Josh Gondelman]

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 and 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, 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.

[David Brown]

Yeah, you gotta own it, man. No shame there at all. I always just get one large coffee to go. Black perfect. Three, maybe three sweet and lows. Speaking of to go, I hear you gotta go, Josh. Where can folks find you online?

[Josh Gondelman]

Oh my gosh. I write a weekly free newsletter called that's marvelous@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.

[David Brown]

Josh Gondelman is a comedian and writer and he joins us frequently here on business where it's great to catch up with you.

[Josh Gondelman]

Always great to chat with you, David. Thanks for having me.

[David Brown]

Coming up, we're driving through one of the hottest trends in coffee Right now with Sam Okas of Nation's Restaurant News, we're going to find out whether it's big enough to send Starbucks and Dunkin into a slump.

[Josh Gondelman]

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[David Brown]

Hey, 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 host of 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. They are a relatively small section of the market, but they're growing and he joins us now to tell us all about it. Sam, welcome to Business Wars.

[Josh Gondelman]

Thanks for having me, David.

[David Brown]

Okay, you gotta 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?

[Josh Gondelman]

Yeah, 7 Brew Drive thru coffee.

[David Brown]

Okay, and what some through the speaker, you get a, you get a poll question or something. What's going on?

[Josh Gondelman]

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 through lanes that wrap around the building. You 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, do you prefer Cartoon Network, Disney or Nickelodeon? And I didn't know why that's there. I'm like, what's going on with that? And he says, oh, we're just having customers vote. And it was totally, you know, totally unrelated to the experience of the coffee chain. But that was a way to engage me while I'm waiting.

[David Brown]

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. You know, I'm not sure how I would take this. How did you take it and what did you vote for, by the way?

[Josh Gondelman]

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.

[David Brown]

Right.

[Josh Gondelman]

But he keeps asking me questions and he 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. I 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.

[David Brown]

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 onto 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. How well do you think this is working?

[Josh Gondelman]

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 thru 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. It might be happening at 3pm in the middle of the afternoon when they're not a zombie and they are more engaging. But also in general, I think, you know, hospitality has become a differentiator for restaurants of all stripes. Because if you know 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?

[David Brown]

This is really interesting. I have to ask you a question. Where do you live? Where is this coffee house that you go to?

[Josh Gondelman]

I live in Columbus, Ohio. So you know, 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. Dutch Bros. Is another one that I'm sure we're going to 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.

[David Brown]

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?

[Josh Gondelman]

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. It'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.

[David Brown]

I'm wondering if that's not working against him 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?

[Josh Gondelman]

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 thru 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. And 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, 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 that's, 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.

[David Brown]

What 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 lift off what about 30 years ago and now you got 7 brew that kicked off what about 7 or 8 years ago? Something like that. Where's this coming from? Where's the impetus? What's driving this?

[Josh Gondelman]

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 through coffee shops that started as mom and pop and they just became really popular and they grew around those states. In that region and 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 thru technology with customers looking for more adventurous beverages add a value I might add, you know those drive thru only shops became very much in demand. And so you know, I think that those companies to their credit, Dutch Bros. 7 brew, Bigby out of Michigan, Scooters out of Omaha, they saw that potential and they started racing across the country because 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.

[David Brown]

Any other major players we should know about? We've been talking about a few already.

[Josh Gondelman]

Yeah. The biggest three are Dutch Bros. Scooters and seven Brew in that order. So just for some perspective, Dutch Bros. Did at $1.8 billion in sales in 2024 according to Technomic. Scooters did over 700 million and SevenBrew did over half a billion. So 500 and some million and change. 7 Brew, just for perspective, again did not exist eight years ago and now they're doing half a billion dollars in sales at 320 locations.

[David Brown]

That's crazy.

[Josh Gondelman]

It's crazy. Now on the tail end of those concepts you have a few others I mentioned, Big Beep. They do about 320 million in sales at 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.

[David Brown]

I'm sorry, I gotta go. I gotta start up a coffee house somewhere. This, this, this seems like incredible territory here. Is this in a way because of what Starbucks and Dunkin have? Sort of. They've laid the groundwork. They'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?

[Josh Gondelman]

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 co, yeah, naturally you're going to get competitors. And when you find that very natural unique advantage such as the drive thru only and really focusing on that sort of coffee is convenience. Get people in and out as fast as they possibly can. Then you, and you find success in that. Then you really, really lean into that. And 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 Brews 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, they're serving energy drinks. They're serving teas and lemonade, 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, these brands are leaning into.

[David Brown]

Okay, does the biggest of this of the big three Dutch Bros. Do they have the strength or even the desire to take on Dunkin or Starbucks for number one? Should they be worried about the rise of Dutch Bros.

[Josh Gondelman]

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. Starbucks is 62% of the market. The coffee market is about $50 billion annually, according to Techonomic. Yeah, billion dollars. 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.

[David Brown]

That put things in perspective.

[Josh Gondelman]

It puts things into perspective. Exactly. So like even though Dutch Bros. You know, at 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.

[David Brown]

We have to take a coffee break. Our guest is Sam Okas. 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 the these chains are serving up and who they're serving them to as business wars continues.

[Mr. Ballin]

You know those creepy stories that give you goosebumps, the ones that make you really question what's real? Well, what if I told you that some of the strangest, darkest and most mysterious stories are not found in haunted houses or abandoned forests, but instead in hospital rooms and doctor's offices. Hi, I'm Mr. Ballin, the host of Mr. Bolland's Medical Mysteries. And each week on my podcast you can expect to hear stories about bizarre illnesses no one can explain, miraculous recoveries that shouldn't have happened, and cases so baffling they stumped even the best doctors. So if you crave totally true and thoroughly twisted horror stories and mysteries, Mr. Ballin's medical mysteries should be your new go to weekly show. Listen to Mr. Ballin's Medical Mysteries on the Wondering app or wherever you get your podcasts. You can listen early and ad free right now by joining Wondery plus in the Wondery app or on Spotify or Apple Podcasts.

[Jesse Weber]

In the early hours of December 4, 2024, CEO Brian Thompson stepped out onto the streets of Midtown Manhattan.

[Josh Gondelman]

This assailant pulls out a weapon and.

[David Brown]

Starts firing at him.

[Jesse Weber]

We're talking about the CEO of the biggest private health insurance corporation in the world. And the suspect he has been identified.

[Josh Gondelman]

As Luigi Nicholas Mangione became one of.

[Jesse Weber]

The most divisive figures in modern criminal history.

[American Express]

I was targeted, premeditated and meant to sow terror.

[Jesse Weber]

I'm Jesse Weber, host of Luigi, produced by Law and Crime and Twist. This is more than a true crime investigation. We explore a uniquely American moment that could change the country forever.

[Cassie DePechel]

He's awoken the people to a true issue.

[Josh Gondelman]

Finally, maybe this would lead rich and powerful people to acknowledge the barbaric nature.

[American Express]

Of our healthcare system.

[Jesse Weber]

Listen to Law and Crime's Luigi exclusively on Wondery Plus. You can join Wondery plus on the Wondery app, Spotify or Apple Podcasts.

[David Brown]

Hey, welcome back to Business Wars. Our guest is Sam Okas. He is editor in chief at Nation's 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? You mentioned that Dutch Bros and seven Brews seem to be leaning into the sugar just a bit. 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?

[Josh Gondelman]

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. I 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.

[David Brown]

But you know, something about college makes you ready for black coffee.

[Josh Gondelman]

I don't know what it is, what 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. Soda's 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.

[David Brown]

Speaking 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.

[Josh Gondelman]

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.

[David Brown]

So you're not really a black coffee guy after all, are you?

[Josh Gondelman]

I will say I was taking one for the team and trying those. 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 like I cannot drink this either. So it sat in our fridge for a couple days before I poured it out. That's no knock on 7 brew. That's just to say, not my cup of tea so to speak. But I mean all of them were really fun, exciting flavors. And I should point out from that, that video as well. Seven Brew has outside order takers. They 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 seven Brew. They have a secret menu and 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.

[David Brown]

I've noticed this among my teenagers as well, that whenever there's like some kind of special shamrock, whatever or 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.

[Josh Gondelman]

Is 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 of 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.

[David Brown]

What does it say about the demographic of the drive up customers? Is it in fact mostly younger folks or does it skew that way?

[Josh Gondelman]

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 go back, goes back to our conversation around the hospitality they provide. They have loud music, Dutch bros, calls their baristas broistas. Right. Like it's, it's a vibe that they're trying to create and that resonates.

[David Brown]

Yeah, I'm not sure I'm, I'm not sure I'm ready for it yet. I'm, I'm still the grumpy guy driving up at 6am but this is something that I find really fascinating because you would think and I, you know, I, 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. And maybe this was pre laptop, to be totally honest with you. But, but I remember feeling like it was a kind of that third place.

[Josh Gondelman]

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.

[David Brown]

Trying to get back to the old days, I think is what they did.

[Josh Gondelman]

Exactly. Because Starbucks, one of their first promises as a brand back in the 80s was we are the third place. You 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, you know, the coffee is culture that they used to be. And Brian Nicholl, 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. And 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.

[David Brown]

So 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?

[Josh Gondelman]

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 thru coffee places offer that convenience and that experience while you're on the go and 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. So it really matters where you are in that moment.

[David Brown]

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.

[Josh Gondelman]

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?

[David Brown]

Exactly.

[Josh Gondelman]

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 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 versus 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 big, 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 does 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. Is that going to ultimately be a good thing for the independent coffee shops that compete really directly with Star 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.

[David Brown]

But given what you've said about Starbucks's 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.

[Josh Gondelman]

I am inclined to say that if in either of them wins out, it's coffee as a convenience. Our 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. And 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 Nicholas as the CEO and really refining their hospitality, then they stand to capitalize on that. But 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.

[David Brown]

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?

[Josh Gondelman]

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.

[David Brown]

You want any sweet and low of that or are you good?

[Josh Gondelman]

No, thank you. No, thank you.

[David Brown]

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. You can catch his [e-mail] Sam, thanks again for joining us.

[Josh Gondelman]

Thanks, David.

[Karen Lowe]

We 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 shape 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. She 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. She 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. I 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 him 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. And 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 Low 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.

[David Brown]

From Wondery. This is episode three of Starbucks Bitter Brew for Business Wars. I'm your host, David Brown. Kelly Kyle produced this episode. Peter A.R. cooney is our senior interview producer. Our producers are Tristan Donovan and Kate Young. Our audio engineer is Sergio Enriquez. Our managing producer is Desi Blaylock. 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 Louie. For wondering.

[American Express]

As a contractor for the nsa, Edward Snowden had access to a range of top secret government programs. But as he learned more about these clandestine operations, he came to understand a devastating secret. The government was conducting mass surveillance on its own citizens. Hi, I'm Lindsey Graham, the host of Wondery show American Scandal. We bring to life some of the biggest controversies in US history. Presidential lies, environmental disasters, corporate fraud. In our latest series, Whistleblower Edward Snowden changes the national conversation about privacy on the Internet as he risks his own freedom and his family's well being. Follow American Scandal on the Wondery app or wherever you get your podcasts. Listen to all episodes ad free and be the first to binge the newest season only on Wondery. You can join Wondery in the Wondery app, Apple Podcasts or Spotify. Start your free trial today.