| DAILY ISSUE Hello, Reader. 220 million That’s the number of Americans who drink at least one cup of coffee each day. You’re probably among this bunch – I know I am. My afternoon triple espresso never sits in its cup for long. In fact, according to the National Coffee Association, our cup-of-joe consumption reached a 20-year high this year. Sixty-seven percent of American adults reported drinking coffee the previous day, compared to 49% in 2004. On top of that, coffee drinking tends to increase during the holiday season, due to colder weather, festive coffee flavors, and an uptick in social gatherings. All of this spells good news for coffee companies. So, in today’s Smart Money, I want to highlight one such company that I believe is particularly attractive to investors right now. If you live in the Pacific Northwest, you probably know this company and have frequented one of its drive-through coffee kiosks. If you live anywhere else in the U.S., you probably haven’t… but you will. Let’s take a look… Brewed for Success This Starbucks-like juggernaut from Grants Pass, Oregon got its start in 1992 when a couple of brothers opened an espresso-vending pushcart downtown by the railroad tracks. Since then, it has grown to nearly 900 stores across 17 states. But the company’s new CEO, Christine Baron, a former VP from Starbucks Corp. (SBUX), has plans to expand the company’s U.S. footprint to more than 4,000 stores over the next 10 years. If you read a Reddit message board about this company or talk to anyone who frequents one of its stores, you realize quickly that it is not merely a place to buy coffee to go. It is a destination. Its product offerings and overall vibe elicit the same sort of cultlike devotion that Chick-fil-A or In-N-Out do. This company – Dutch Bros Inc. (BROS) – is especially popular with the millennials and Gen-Zers who tend to buy (expensive) highly customized sweet coffee drinks and/or energy drinks. The company offers a wide array of both, including its own “signature” energy drink called “Rebel.” The company’s formula for success is definitely working. As the chart below shows, its same-store sales have been trending sharply higher, while Starbucks’ have been sliding lower.  In fact, many high-profile companies in the quick-service restaurant (QSR) space (you and I call it “fast food”) are suffering from declining or sluggish sales trends. Looking ahead, Dutch Bros will pull two main levers to generate rapid growth… - Expansion. This process is already well underway. The company has opened at least 30 new stores each quarter, for 11-straight quarters. In the most recent quarter, it ramped that tally to 45 new stores, including its first-ever openings in Florida.
- Mobile ordering. Incredibly, mobile ordering has not been part of the Dutch Bros growth story. Instead, it generates about 90% of sales from “old school” drive-through or walk-up ordering. But mobile ordering with the new app is scheduled to be operational companywide by the end of the year. This added capability should boost sales per unit.
Every decade, a “magical” restaurant-based firm seems to appear: McDonald’s… Starbucks… Subway… Panda Express… These brands seem to grow like wildfire. On the fundamental level, popular restaurants succeed simply because people like the product. People will drive for miles for the food. And don’t you dare criticize any of these popular restaurants in front of their fans. But there’s also a financial reason why these firms grow so quickly: cash flow. By bringing in more customers and generating higher profits per store, these stores often break even faster than competitors. Theoretically, that means a popular chain can double its footprint every couple of years by simply channeling its internal cash flow to build new stores, which generates more cash flow. Two stores turn into four… which turn into eight… 16… and so on. It’s why companies like Panda Express expanded so quickly without ever going public or taking on franchises. Chain restaurants are simply great businesses – if the economics are right. Dutch Bros takes that truth to the next level. On the fundamental side, we’ve already talked about how people simply love Dutch Bros. The drive-through coffee shop has a cultlike following, and its stores are a destination, not just a place for caffeine. Then there’s the financial story… A Multi-Bagger Opportunity Dutch Bros has a phenomenal business model because it is even more capital-light than rivals. As a drive-through coffeehouse, the firm’s locations have no hot kitchens, no public bathrooms, and no inside seating areas. According to third-party estimates, startup costs per location can be as low as $150,000 – less than half of the cheapest strip-mall Burger Kings. Meanwhile, each location is a profit-spinning machine. In the second quarter of 2024, the average Dutch Bros store (including newly constructed ones) added $149,000 in quarterly gross contribution. The company does not publish cash-on-cash returns, but even rough back-of-envelope calculations suggest that new locations are breaking even in under three years. Dutch Bros plans to increase its store footprint by 27% over the next year, and will do so with a combination of existing cash flows and cash-from a $150 million debt issuance in the first quarter. Similar internally driven growth rates could arise going forward, which means Dutch Bros will grow exponentially until it finally saturates its relevant markets, perhaps sometime in the 2030s. The result is a multi-bagger opportunity hiding in plain sight. That is why I recommended Dutch Bros to my Fry’s Investment Report subscribers back in August. In fact, since my initial recommendation, the company has achieved a nearly 50% gain. And over the past month, shares of this firm have surged 53% on better-than-expected third-quarter earnings results and the successful rollout of food options at several test locations. The company also reached its 52-week-high less than seven days ago. To continue to stay up to date about my most recent thoughts on Dutch Bros – and to get all my recommendations on the day I make them – join me at Fry’s Investment Report today. As a Fry’s Investment Report member, you will also receive all of my latest research and recommendations. In fact, my December Issue will be available this Friday. So, be sure to keep an eye out in your inbox – perhaps with a coffee in hand. Regards, | 
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