The insight: In the battle between coffee chains, giants Starbucks and Dunkin’ are losing ground to fast-growing upstarts like Dutch Bros and 7 Brew.

• Visits to Starbucks and Dunkin’ fell by 0.9% YoY and 1.7% YoY, respectively, in Q1, according to Placer.ai.
• In the same period, Dutch Bros saw a 13.4% spike in store traffic, while drive-thru specialist 7 Brew’s rapid expansion underpinned an 87.3% surge in visits.

By the numbers: The diverging trajectories of Starbucks and Dutch Bros is evident in their latest earnings, as the former struggles to right its ship while the latter charges full speed ahead.

• Starbucks’ US same-store sales fell 2% YoY for the quarter ended March 30, led by a 4% decline in transactions.
• By contrast, Dutch Bros’ same-store sales grew by 4.7% in Q1, while transactions rose 1.3%.

Dutch Bros also ranks higher than Starbucks and Dunkin’ on crucial points like customer service, value, in-store experience, and its drinks, according to an analysis of customer reviews by Chatmeter. That’s a real problem for Starbucks in particular, given how much its turnaround strategy relies on improving the customer experience to lure consumers back.

Our take: In many ways, Dutch Bros is executing on the playbook that Starbucks originated. The company has become known for its customer service—as exemplified by its “broistas”—as well as a wide array of sugary, colorful, caffeine-laden drinks that appeal to younger consumers’ sweet tooth and desire for novelty.

Starbucks’ desire to simplify its menu and return to its roots as a community coffeehouse could bolster its appeal among more affluent—and older—customers. But that strategy puts it at odds with the current trends in the coffee space, which are rewarding brands willing to go big and bold on flavor. With the company’s biggest China rival, Luckin Coffee, looking to make its US debut, Starbucks will be under even more pressure to produce a menu and customer experience that can persuade cost-conscious consumers to venture through its doors.

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