⛫ The Coffee Wars
Dutch Bros, 7 Brew...Luckin'?
To Empire Builders,
Happy Sunday and welcome to this week’s newsletter. It’s the first warm day here in NYC in quite some time, I will be enjoying it as much as possible!
Due to the M&A news in the coffee sector this week, I’ve decided to take a look at the category at large.
Let’s dive in 🫡
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What’s on My Mind 🧠
The QSR Coffee Market
Luckin’ Coffee, the hyper-scaling, tech driven coffee chain out of China (30,000+ locations globally) acquired Blue Bottle Coffee this past week.
Bit of an odd acquisition to me - as the playbook and culture that have made each successful are entirely different.
But before getting to that, let’s first look at the state of QSR coffee in the United States…
Starbucks, Dunkin’, and the Rest
That chart above makes 1 thing very clear…Starbucks and Dunkin’ are miles ahead of the competition.
Not just in store footprint, but also in:
Customer recognition
Advertising dollars being spent
With all the buzz surrounding drive-thru coffee, mainly Dutch Bros and 7 Brew, they still have a longgggg way to go before they catch up to the big boys.
When I interviewed Raj Patel - who owns 100+ Dunkin’ locations - on Empires at the end of 2025, I asked for his thoughts on the drive-thru coffee competition.
He acknowledged the impressive growth of Dutch Bros & 7 Brew, but also was not concerned about Dunkin’s position in the market.
“It’s going to take someone a lot of years to have someone love you the way people love Dunkin’.”
“We still sell more iced coffee than anybody”
“There’s a reason we do what we do, and there’s a reason that, in my opinion, we’re the most loved legacy brand in America.”
Hard to argue with him (though I admit I am a bit biased as I love Dunkin’ iced coffee).
Even with the recent struggles of Starbucks, both the green empire and Dunkin’ are just so far ahead of the upstarts, that anyone getting into the coffee game needs to be very strategic about the brand AND location they’d go to market in.
Also worth noting: the chart doesn’t factor in the local mom & pops in every town, gas station & C-store coffee, McDonald’s selling a non-trivial amount of coffee via McCafes, etc. etc. etc.
The bottom line: everyone wants in on coffee.
So why are drive-thru coffee chains resonating?
Why Drive-Thru Chains are Growing
“The American consumer in coffee has gone to a drive-through-only model, and they’re accepting it. - Chris Hatch on Empires
Chris is a real estate developer of QSR brands, and has done a lot of work with Dutch Bros, and now builds 7 Brew locations.
But something Chris said resonated with me:
“Almost every one of these operators has the same Chick-fil-A style mentality of hospitality… it’s almost like they’re serving the hospitality first and the coffee is an afterthought.”
Hospitality is a big component of why this model is loved by customers.
But it’s also the convenience factor in tandem with it. Customers don’t have to get out of their car, and as has been the trend across all of QSR, convenience wins.
Chris also shared a story from earlier in his career.
When he was doing tenant representation in the early 2000s, he helped expand Starbucks in Utah. But here’s how that played out:
“They opened about 35 locations over three years, and the handful that didn’t have drive-thrus all closed within five to ten years, while the drive-thru stores stayed open.”
If coffee is your primary SKU, drive-thru’s are becoming a structural necessity today.
7-Brew and Dutch Bros are the new two horse race of this “next generation” of coffee brands.
In my recent interview of Darren Spicer, who sold Clutch Coffee to Dutch Bros for $20M, he mentioned part of his decision was recognizing that DB & 7B are effectively the “Coke & Pepsi” of the drive-thru sector.
Hard to carve out market share if you’re not Coke or Pepsi!
So who is Coke, and who is Pepsi?
Well…Dutch Bros goal is to hit 2,029 locations by 2,029, and they seem on track to do that.
But 7 Brew has the biggest franchise operators around the country building for them, and are growing at an insane pace.
They have the upper hand to grow faster since they’re franchising and Dutch Bros is not, so it feels like it’s only a matter of time until 7 Brew becomes #1 in this sub-sector in terms of unit count.
But they will need to match the Dutch Bros product quality and hospitality to win in the long run.
International Brands
Given the insane amount of competition in the U.S. already, I’m bearish on the international companies trying to establish a foothold.
The biggest names being two from China 🇨🇳
• Luckin’ - 30,000+ global locations, ~10 in the U.S.
• Cotti Coffee - 7,000+ locations, ~3 in the U.S.
Then there’s two from England 🏴
• Costa Coffee - 4,000+ locations, ~10 in the U.S.
• Black Sheep Coffee* - 120+ locations, ~5 in the U.S.
*Black Sheep signed a 20-store agreement in Dallas last month
As it relates to the Chinese competitors coming in, the coffee market here is much more established than in China, which historically is a tea-drinking society.
They are however clearly warming up to the product, otherwise Luckin’ & Cotti wouldn’t have grown to 30,000+ and 7,000+ locations so quickly.
They’ve done that with a cheap product offering, as low as $1.00 - $2.50/cup. That’s unsustainable in the U.S., but I expect they’ll undercut Starbucks at a minimum.
I’ve been to the Luckin’ location near Chelsea in NYC, and I check the app for prices every now and then - their iced coffee is usually on par with Dunkin’ pricing (the app does change prices throughout the day though to incentivize purchases!).
This is also why I find the Blue Bottle acquisition strange. Blue Bottle competes in the premium sector of the market. I’m not sure how that culture, and Luckin’s, can thrive under the same owner!
All in all though, the U.S. coffee market is already a ruthless battle ground of domestic brands. Regardless of the scale these international concepts may have elsewhere, they’re effectively starting from zero.
I just don’t see how any will build momentum the way a Dutch Bros or 7 Brew has. Following those two, you still have a more familiar Tim Hortons, Scooters, and a slew of other brands with a multi-hundred unit trajectory.
If you’re a franchisee considering these international concepts, I’d look at the domestic ones first!
QSR Corner 🍔
Largest Freddy’s Zee Gets Bigger
JRI Hospitality bought 43 Freddy’z locations, adding to their existing 88 Freddy’s restaurants & bringing its total to about 130 locations across 18 states, or just over a fifth of the fast casual brand’s 580 restaurants.
Cracker Barrel is Cooked
Despite focusing on menu quality and value, the chain reported a 10% traffic drop nearly six months after it attempted to remove its iconic Uncle Herschel from its branding.
Luckin’ Coffee Acquires Blue Bottle
The price tag is roughly $400M, which means Nestle has lost $$ on this one. Nestlé acquired a majority stake in Blue Bottle in 2017, valuing the company at $700 million at the time.
Fast Food CEO Wars
Chris K of McDonald’s fired the first shot thanks to his robotic video eating the Big Arch burger….but boy has that kicked off a frenzy.
Dual IHOP & Applebee’s are Coming
Airports and other 24/7 locations are ideal for the Applebee’s/IHOP co-branded restaurant because the concept offers items for both the morning and evening dayparts.
Domino’s is Partnering with YouTubers
Domino’s is putting the focus on social media creators in a social-first campaign, which comes just months after the pizza brand launched its first refresh in over a decade.
Best of the Rest 🧱
Xponential Agrees to $40M FTC Settlement
The company is paying nearly $40 million in settlements to the Federal Trade Commission and more than 500 current and former franchisees! The company has struggled and has gone from 11 brands, to just five today
7-Eleven Expanding in Vegas via Acquisition
7-Eleven bought 15 stores -- all locations had previously operated under the Short Line Express Market chain and featured Thrifty Ice Cream shops, which 7-Eleven appears to be keeping.
Pilot is overhauling their foodservice Program
Like many c-stores, Pilot is upping their food & bev game via a new combination of fresh-prepared and grab-and-go platform, which aims to set a consistent standard for the retailer’s menu
Sports Clips is Revamping Growth Strategy
After surpassing 1,900 locations in 2023, Sport Clips Haircuts unit count slid to 1,872 in 2024 and now sits at 1,799 shops.
That’s it for today’s newsletter, if you enjoyed it, please forward to anyone else in your network who would benefit or find it interesting!