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  • Writer's pictureChris Hatch

Drive your Target Market and Pick Up the Phone!

Dutch Bros Drive-thru in operation

The story of our first ground-up deal with Dutch Bros Coffee is the perfect example of the power of driving a market and effectively cold-calling any potential leads that are found. In Feb 2014, Our team drove the Boise market looking for any potential deals in the metro that were seeing great growth. Driving to look for sites we have found is the most cost-effective way to work in the mountain states. Salt Lake City is a Delta hub so there are always available flights to each mountain town but the costs rack up if you are looking at a lot of smaller markets across the region. Much easier to rent a van, fill it with snacks, pack in the team, and drive the markets you are looking to make a move in.

As @TeamHerrold preaches, you have to drive the market. It gives you a much better understanding of potential sites and the area surrounding it as a whole. We put our eyes on the Taco John’s in Mtn. Home, ID (little Air Force town south of Boise), and put it on the list to check ownership and cold call to see if they had any interest in selling the site.

Our original site we had identified wasn't an option but, it led us to making a connection with an individual who brought us a site that was just as good if not better!

In April 2014, Our team went under contract on the Taco John's located in Nampa, ID. Located at 624 S 12th Avenue. If you look at the aerial of the site you can see that 12th is a choke point for south Nampa and creates a natural concentration of traffic that the rooftops have no choice but to travel on. That equation typically relates to high volume for fast food locations.

In May 2014, We hired a local leasing expert in Boise, ID. It takes him 4 weeks to source @DutchBros as a potential tenant for the site. Dutch Bros has under 100 stores which are all franchised. Our franchisee has the other 3 locations in Canyon County and Dutch Bros Corporate is regularly visiting his locations because they are consistently in the top 10 performers for the whole company.

In Sep 2014, We signed the lease with the Dutch Bros franchisee for stand #4. They are amped about the site and feel it will be one of their most successful yet due to its great location in the growing Nampa market. We came up with the plan to scrape the existing building and build a new prototype 500 SF coffee stand with and double drive-thru

In Jan 2015, We closed on this beautiful structure for $325,000. Candidly to this day, I still feel like we overpaid by at least $100K. The current structure was hideous-looking. If you are hunting for a drive-thru site and see a building listed below $1M start looking for the problems. If it is sub $750K you better take a hard look because there is certainly something big.

Taco Johns Interior
Taco Johns Exterior

From Jan 15 to May 29, 2015, Our construction team worked on the demolition of the old structure and constructed the new 500 square foot drive-thru only stand. It always blows my mind how quickly drive-thru buildings go up, Every week of lost sales hurts so it is a race to get it built as quickly as possible so the location can start cranking out coffee as quickly as possible. During this time it was also an ideal construction market and nowhere near the supply chain issues that we have been facing recently.

Construction period

Dutch Bros opened to the public at the end of May of 2015. It was such a successful opening for them that the Nampa police department had to show up to direct traffic for 2 months after the store opened! The location is still incredibly successful to this day and currently, the store is pacing to do $2M which is a big store for Dutch Bros. Needless to say the operator was extremely pleased with the success of the location.

Line Outside on Opening Day

After the opening, our team listed the property for sale at a 6.75% cap which comes out to $1,066,000. We are apprehensive about the sales price because the last couple of Dutch Bros in the Boise metro had sold at 7.0% caps. The building turned out to be 575 SF total so the price PSF is $1,855.07. We ended up closing on the location on September 4, 2015, with our Return on Cost = 31.34%, Return on Initial Equity = 127.28%, and Deal level IRR = 215.28%!

This project ended up being wildly successful for all groups involved. Our team was able to create a great location that has been extremely successful for Dutch Bros and the franchisee. All of this came about because of our belief that driving the market and directly contacting owners of potential sites is an extremely effective way to look for new sites! Driving through the Boise market gave us a look into the specifics of the site that showed just how successful that site could be for a drive-thru due to its location and traffic patterns. Next time you are looking for a new deal remember to drive your target market and pick up the phone!

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