Dutch Bros Coffee in Rio rancho, NM with Aaron Harris
Guest: Aaron Harris
Topics: Dutch Bros Coffee, construction
Chris Ressa 0:01
This is retail retold the story of how that story ended up in your neighborhood. I’m your host, Chris Ressa. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.
Welcome to retail retold everyone. Today we have Aaron Harris with us. Aaron is the vice president of real estate and construction for Dutch Bros coffee. He’s been in the industry for over 20 years and one of the most unique guests because he started off in his career path as a professional wrestler in the early 90s. Welcome to the show, Aaron. Hey, how are you today? I’m doing great. Aaron.
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why don’t you tell us a little bit more about you who you are and who Dutch Bros is? Sure.
Aaron Harris 1:29
Obviously, my name is Aaron Harris and I am the Vice President of real estate and construction for Dutch Bros coffee. Dutch Bros. Coffee is a very unique organization 400 units all operated by operating partners, folks who have worked in the stands for a number of years and now have a piece of ownership and a piece of skin in the game so to speak. Much like our model, you see a Chick fil A 415. Open and operating locations as of today. just opened a brand new store in Albuquerque, New Mexico, in addition to that company has been around since 1992. We’re operating in seven western United States. We’re currently making deals to go into three other states, and it is the fastest growing brand
in America. Wow, that’s amazing. And
you’re in the real estate department and you guys are growing at a rapid pace and you have 14 or 15 units. Give us some context. How big is the real estate department at Dutch Bros?
Sure our team is we have 26 folks who handle construction legal facilities, site selection and then of course myself who has to be the ringmaster for it all. And we work with many developers. We work with many site selection folks. We have unique brokers in each of our
markets. Got it? And are most
of the Dutch Bros and I’ve seen your posts on LinkedIn. These the these posts are going viral peep definitely seems like a cult favorite here are a lot of these freestanding.
Absolutely so the majority of our stores are freestanding drive thru location drive thru only locations. We have seven locations throughout our system which do not have a drive thru those are coffeehouse locations usually located somewhere on a college campus. Out of the 400 Plus stores we have, we have never closed a store. I want to wanted to get people excited about that. Rarely closed because I’m going to relocate it. But we’ve never had we’ve never had a closed one with one of our freestanding drive thru stores, which is pretty awesome makes my job very easy. Asking about the types of venues we do some multi tenant, we’ve taken some handicap space as long as we can get the drive thru unique story for us as we need to get at least 15 cars in our drive thru. And so a lot of our end cap space, it gets really tough for us to be able to do so.
So you know, we did all the stacking requirements.
Exactly. So we well, it’s not only for the city, it’s just for us too. Because we don’t have a lobby or a dining room. It’s really for us it’s all about the party in the parking lot, right? So that music played out there. We have the kids who work the lines because we don’t have a static quarter point. You know, we don’t have like your typical anymore, we pull up to Squawk Box. We have the folks working the lines come out your car with an iPad take take your order. So because it’s no longer static or order point, I need a safe environment for those guys to be able to walk. And so our our guest experience is not in a dining room our guest experiences in that drive thru queue. And yeah, we have this really
interesting and so why the person on the iPad outside versus the Squawk Box.
Absolutely. It’s all about making a personal connection. As much as we want to, you know, take your order and get you out of there fast. We want to be that little highlight of your day, one of the things about a cup of coffee or one of our energy drinks, or one of our smoothies that we sell is really simple. We want you to come through and we want to sell you some love. We want you to feel really good about what you bought your day, you may not be able to afford to go to Ruth’s Chris and get a steak dinner for you and your family that night. But you might be able to come up with the $4.50 to get a unique drink for us. And that’s your daily escape. We want to make sure we treat you whether you’re spending $100 with us or $4. With us, we want to treat you just as well.
Wow. And how,
how much of a landmass do you need?
Yeah, so it’s ever changing. Because we have some stores that we’ve built on 6000 Square feet with a 250 foot. I almost hate to call it a garden shed, but it’s a little bit of kiosk. But the reality is, is right now the prototype is 856 square feet, a 20 by 40, building on at least 30,000 feet. And we’re building these stores to do some pretty significant volumes. And any typical fast food QSR pad you see whether it be a Popeyes and Arby’s or, you know, Wendy’s, you look at the size of that, that building and the size of that lot. If that’s the type of land I need to compete with. I mean, I’d be building a building just as big. But with the site work, the infrastructure that I have to put in and the drive thru to it’s pretty similar.
Under are these
now like all these other freestanding buildings? Are they starting to get sold on the triple net lease market and the 1031? Market?
Absolutely. What? Well, we are very fortunate. We’ve been building the majority of our stores have been developed in the West. So in the western US, and so we are seeing cap rates where we have gone sub five on cap rates, at least seven times sub sub five and a half at least 20 times. Wow. Yeah. So that. I mean, that makes my job very easy. developers don’t stop calling me we do this podcast. Soon. As soon as you drop this podcast, I’ll guarantee 30 different developers are trying to call me because they want our product and they they think it’s
a unique one. Awesome. And And where’s Dutch
Brothers or Dutch Bros going from here? I’m from markets. Sure.
So headquartered in Grants Pass, Oregon, opened in 1992. We have been growing slowly. We’ve been in Northern California. I’ve been in Colorado for about six years. And I’ve been here going on three years with Dutch Bros. and in the three years I’ve been here, one of the first things I said is we need to be in Salt Lake City, Utah, we need to be in Albuquerque, New Mexico. While this is being recorded, guys. There’s a store opening in Albuquerque, New Mexico this morning in Salt Lake City, Utah. I have three store I have four stores currently under construction, one store opened in St. George Utah. And I think the I think the question is, where are we going next? I speak to you right now from Texas. I’m in. I’m in. I’m in Dallas, Texas. And we’re looking at real estate here in Texas, along with some opportunities in Oklahoma and moving slightly east from here. I don’t see us going to Florida. I know everybody’s going to ask me that. If I go to Florida, people want to know if I’m gonna go up into the Northeast. I don’t see that happening for a number of years. But I do think that we will continue to build on our footprint throughout the west and into the Midwest.
Wow, what a really cool story.
I want to I want to pivot a second and you’ve been traveling through the pandemic, you’ve been opening stores. You know, what’s your take on a state of the market what’s going on in coffee, food and beverage what’s going on in the world consumer behavior
tell me it all air? I I was
based in Los Angeles, California when the lockdown started. I’m gonna ramble for a minute. So I’m based in California, the lockdown started and I said, I can’t just sit at home, I can’t travel, my team can’t travel. You know, we we’ve got to figure out a way to do this. I don’t want to slow down on growth. And I decided just to social distance or isolate in a vehicle loaded up a pickup truck and I’m moved, drove drove across the country to come to Texas and start looking for real estate to for our deals. And I think the one thing that became very clear as after about week number two, driving through these major metros, people figured it out. People figured out their routines people figured out what they needed to be doing. When I say their routines. Our stores, for example, we weren’t very busy early in the morning once the pandemic started, you know, we’re an early morning, you know, people come get their energy drinks or their coffee, but nobody’s driving to work at 530 in the morning. Guess what? Nobody, you know, their routine is completely changed. It took us a while to figure out our business. You know, kind of staying in a hotel right near a mall. and looking at this mall which the malls closed, then all of a sudden they start to open the stores now it’s drive up only pull up to Best Buy and pick up your you know, whatever you need from Best Buy’s drive thru. But all of a sudden, you see they’re busy and they figured it out, then you’re out on the road. And you say, there’s as much traffic here as there ever has been. So I think you talked about state, your state of the world I, unfortunately, fortunately, a lot of people lost their jobs and a lot of people not working. But I think people started to figure out routines. And then you look at myself here and fortunately with Dutch Bros. Were were what they I think they called us an essential business, but we weren’t forced to shut down. Drive Thru only. So we didn’t have gatherings, right didn’t have gatherings in our lobbies and our dining rooms because we didn’t really have those. So just customers in the drive thru and we followed all the proper safety procedures, set daily escape. customers wanted to leave the house, even if they were forced to work from home, they would leave their house come to our stores. And it’s been it’s been great. It’s been absolutely great for us, I think. Because we said we’re going to lean into this, we’re going to either this pandemic is gonna get so bad that we’re not going to be able to grow, and business is going to fall apart. So we’re either leaning into this and doing it right, or we’re all going to shut down anyway. We’ve done we’ve done really well we made a decision as a company to continue to focus on growth and I I’ll share with you we set we’ve signed in the last four months over 50 new deals
really believable. Yeah,
well, I appreciate that. That’s That’s my team. You know, we had a hiring freeze ready to ready to bring two new people on board to help us. Literally the day we this pandemic, lockdown started, wanted to hire somebody to be in Texas and just was ready to send an offer and couldn’t do it. And team couldn’t travel. And so I’ve got folks who are stuck in Grants Pass Oregon in our office and I don’t mean stuck. It’s a lovely little town but they can’t they obviously they can’t go out travel and I just myself solo living in a hotel room right now to help get out and look for sites and do day trips. And I’ve done I’ve done 25 different market tours where the new normal is tag team. brokers in their car, I’m in my car and we’re falling following each other. Wow. You know, if I’m following each other, simply put, well, we’ll drive it, you know, not not a car together. And, you know, we might hit a drive thru and grab lunch together while he’s in his car. And I’m in my car. So it’s just a very unique way to do business.
Yeah, really unique. The, with your organization? Have you been on the Zoom calls all day like everyone else?
Yeah, we have been. And I think sometimes you just get the Zoom fatigue, right? You just have to you just have to walk away. And, you know, we have contests, you know, we’ve got to zoom, whatever we can do with Zoom backgrounds. Other times, it’s I never talked to you this much before the pandemic started. Why do I need that see a face to face right now we can just do it over the phone. So I think there’s been a little revolt from a few of us. But But absolutely. And frankly, my days have never been better scheduled than they are right now.
Yeah, that is true. Same here. busier than ever, but definitely better scheduled. Yeah. One of the things you said that I loved was
Dutch Bros didn’t just sit back and relax. You leaned into it, you guys took it head on and face the challenges. And I think that’s really important. Right? And in a crisis and in, in anything in business, you know, sitting back and waiting is not the answer. You have to you have to face the challenges head on. So I really think that’s awesome that you guys leaned in,
in you know, one of the things Chris, just just be
blunt about it.
We’re making deals right now, but a lot of the world isn’t. And now that’s shifted over the last six weeks people have found out drive throughs work really well during the pandemic. So it’s gotten competitive for me all of a sudden, but I was standing behind the deals we put together. Some of my competitors had sent some letters asking for major rent relief and force majeure type considerations and walked away from some leases. We never did that. We obviously exercised all of our rights, but we never wants to ask for rent relief. That’s just not who we were at the time. And I don’t think it’s who we are in the future. I don’t know about legal team like me saying that, but whatever. But we weren’t we we said let’s make some deals. And the good news is when people were panicking, I was able to get some of the principles on the phone, meaning, I mean, I may not always be able to talk to the principals of some of these REITs but all of a sudden, wow, somebody wants to make a deal with it when everybody else is not paying me rent. I was able I was able to get action very quick. And so that’s one of the things that we talked about leaning into it. It’s let’s not take six weeks to figure this out. We’ve got that we’ve gone through an approval process. We liked the site, we know it works. Let’s get the deal done. It’s got all the decision makers on a call. Don’t tell me you have someplace else to be because no one does right now. Let’s get it done.
I love the attitude and the enthusiasm. Ah, and I can just tell that it probably permeates through Dutch Bros. So that’s really, really awesome.
We got to get you up to Oregon let you drink and annihilator and you’re going to be bouncing off the walls later in the day. You’ll love it.
When travels back, I will definitely get there. And hopefully one day a Dutch Bros is a DLC tenant. But that is really, really, really cool. So I want to bring us to the next part of the show, which is the story behind the deal. And you mentioned it earlier. You’re opening a store this morning in Albuquerque, New Mexico, which is a little unique. And I’m gonna let you tell the story about about this, because I think it starts Long, long ago, not just when the Dutch Bros happened. Yeah.
So I keep saying Albuquerque is technically Rio Rancho a suburb of Albuquerque, New Mexico. Sure. And long before I long before I was doing the work here with Dutch Bros, I was head of development over at Popeyes and working with some of our franchisees to make some deals. And we had looked at relaunching, we had two stores in the market with Popeyes and we looked at doing several others in the market, and was working with the franchisee and just toured the market. So we haven’t opened it 10 years let’s open a few new stores. I worked with a few of our modeling companies to put some things together and we were using we were using analytics companies like birch wood and Buxton and whatnot, kept pinpointing back to one new site or something was being built right across the street from petroglyph medical Plaza on the corner of uncertain Wellspring, and it just kept pushing, pointing back to their on our modeling tools. And then once we get up there, I see that a developer has done all the infrastructure and put in all the roads and these pads set up for development just you can’t ask for anything better, and brand new hospital being built and all these brand new homes and this is exactly what you want when you’re looking to do in retail development, right? You push them to the corner and you say this works. And of course, I was working with a franchisee who did not really want to grow. And it was a great opportunity and the prices were right. And, and, and I’m going back about six years looking at these empty bats and he just never would do the deals.
we we tried to twist his arm and he just wouldn’t get there for whatever reason. And when I I just always loved to Albuquerque loved the New Mexico area. When i What happened is when he when he refused to do the deal, I ended up eventually leaving Popeyes and obviously working with Dutch. And the first things I said is we need to go into a couple of new markets. And I think Albuquerque is a great one. Now this was four years removed from my frustrations trying to develop with the Popeyes guy there. And I run new models using our analytics and our data and our point, you know, pain points where we need to be sure enough the pin drops on the map right there at the spot again, real estate always wins. This shouldn’t be a shock, right? And well, I’ll be darned if that site’s not available in the pad next door and the one we were looking at was available and it’s been built out a little sense. But that pads available. Now, wow. This is just serendipitous. This is where we need to be this is where we need to launch the market. And we we worked really hard to get that put together. And I just kind of share with you the county in the city of Rio Rancho and the people of New Mexico have been incredible to work with. And our permitting process was incredible. And our construction process was incredible. And frankly the neighbors I mean just a couple of local pizza joints calling us up saying hey, we know you’ve got people coming into town and let’s let’s feed your while we appreciate you opening new business we that’s what people have done for us there. And I think the punch line here and I mean I could talk about this for hours but the punchline here is that store opened this morning at 430 we had cars in our drive thru line at 930. Last night apparently people parked out in the parking lot to be the very first customer for Dutch Bros in Albuquerque New Mexico. And that is just freaking amazing. So as we speak and I will tell you it what is it it is 830 right now and as we speak I am looking at 22 cars in our drive in our drive thru stack and we’ll do that all day long. And wow, that’s incredible.
That is incredible. People camping out there. night before. Awesome. I do have to ask you, you just looked at your phone and said you have 22 cars in your stack. What? What tells you that? What do you have that says that? You’re in Texas?
Unknown Speaker 20:09
Oh yeah, no,
i Come on i stay. I stay connected. I have text from the kids right now who are who are all on site and I see the kids. I’ve got a construction manager twice as old as I am who’s actually on site to make sure everything’s okay this morning. And I think he’s the most excited of any of the kids in the store today. Right.
Unbelievable. That’s great. How did how did New Mexico learn about Dutch Bros? How was this fan following?
Alright, so I think I looked at this as it’s our second most successful market is probably Phoenix, Arizona, outside of our home market in Grants Pass Oregon. Yeah, in Oregon, our second most successful market would be Phoenix and I, I felt that just coming out of interstate 10 coming out of Phoenix and Tucson and El Paso or before coming out of Phoenix into Albuquerque, it just seems like a natural extension. I think I think what you’ll see sometimes is there’ll be some folks, you’ll see a lot of Arizona license plates as you’re hanging out in New Mexico. And I think there’s just that regional draw. So so you get some of that. What uh, one of the things we’ve been known to do is carry like some Dutch Bros stickers. And as as you’re out looking at empty buildings or whatnot that you’re gonna build, but one of those stickers up there is Dutch Bros. Not coming soon. Just a Dutch Bros. Stick. It goes viral a little bit right. And people start reaching out to our social media team soon. Dutch Bros stickers in New Mexico. What’s going on?
What’s got it? That’s great. I love that, that that boots on the ground budget getting?
Absolutely. And we we definitely get that buzz and we definitely get that buzz in places like like Utah as well. But absolutely. Very, very
cool. When you were working
with Popeyes, I’m assuming that you had spoken to the developer or landlord of that parcel. Did Is it the same owner today?
No, it’s not, you know, uniquely. The person who had put that together before sold the project. And he literally just wanted to do the infrastructure was old farmland. And so no, a retail developer, retail developer, Greg sophio, and Mako Caleb Kellerman out of anvil development actually purchased that property developed it for us. They did it, they did a great job, they put together a great project. Probably, frankly, you know, give them a shout out right here, some of the best developers I’ve ever worked with.
give us some context of timing, you know, especially now in the pandemic it opened today. When did this lease get signed?
This lease was signed in October of last
year. Okay, so October, you’re now signed, you went, you got your permits all that stuff. When did construction start?
We were under construction to the store for 109 days. So it was 109 days of construction, which is a little longer than we’d like to take. But first, what first time out for this GC? You know, new market, whatnot. We’ve been turned over for about two weeks, we’ve been to in two weeks of training before opening.
We like to keep our typical construction days under 90. Love that.
So you’re and that’s not including site work, though that includes site work. That includes site work? Absolutely. Absolutely. Wow.
Like, construction guys listen to this. They’re like, Oh, come on, Aaron, go do this. You know, we’ve actually seen we’ve seen in Arizona and Nevada, some guys consistently turnout stores in the 80s 80 days. And then we’ve seen We’ve seen some unique challenges in places like Colorado where we have some typography, typography issues, where we can go slightly over 100. But the goal is on this freestanding single tenant building to get them open and 90. Absolutely.
Any and you signed 50 deals. I’m sure you were under construction. And I don’t know about this store in Albuquerque, but did you get shut down anywhere from construction?
Yeah, um, the good news is, we were able to meet all the social distancing requirements and keeping folks apart from each other. And I think all of our GCS figured out a way to kind of stagger some shifts where you may have a tile crew and doing some work at one point. They have a drywall crew coming in a little bit later, but we kept the people working. We did have several communities where they shut work down all together. And that was really a function of the community. Not the city saying all work has to stop but probably some some some concerned citizens driving by saying we don’t think that should be going on. And okay, we’re not going to argue with you. Cool. We’ll stop some of that and Yeah. So we actually, we have one project that we actually shut down for four months. It is sensory start started. That’s on state of Washington. Yeah,
I’m assuming, you know, given that this open today, and the construction was 109 days, you didn’t have any shutdowns on the Albuquerque store.
Absolutely. No shutdowns whatsoever.
Yeah. Amazing. And, you know, this is really a, you know, I get
a couple of lessons and takeaways here for me, which is, you know, one, it’s
a don’t give up,
right, you kept going. I mean, this is a deal site you’ve been looking at, for multiple brands for six years, you had conviction around it.
And I think to the other one
is just really knowing your markets, you had, you know, go back to conviction, you had conviction about this site for QSR. And understanding the market. And I think that’s really important for the listeners out there, really knowing your markets having convictions about certain pieces of real estate, and in the proof is in the pudding. Were sitting here today. And there’s 22 cars in queue right now.
And Chris, I think it’s really important. Remember,
this isn’t just one man’s opinion, we
do actually lay behind some data on this, we lay data into it. Our company spends a lot of money for analytics to pull it from there. And we’ve worked, we worked with Deborah Hayden and qualitative analytics to put together a model that tells us how our store should perform. And then we work with Michael Simon at Site wise and tetrad to help us also pinpoint all of the data we need to make the right decisions when it comes to building sites. So I mean, as much as I’d like to drive by my hunch is that’s great. But then, as my team likes to say, Okay, now let’s back it up. Yeah.
Yeah. Do you ever get in arguments about the data? And like, the data is? That’s not right. I know.
You know, the biggest channel? Yeah, of course, I mean, that. The biggest, the biggest challenge that I have, when I’m trying to get in arguments about data is green, when you’re in it when you’re in a Greenfield, I think data is 18 months old, at best, no matter what you have. And so when you’re in a brand new development, where stuff was coming in, and two years ago, it was just farmland or industrial property, which is being redeveloped, it’s never gonna model well, because the the factors that you’re looking for the retail draws to traffic counts weren’t there when these data points were pooled? And so that’s the argument you have to get to is, I don’t necessarily want to be first, but I want to be I want to go along for the ride, so to speak with some of these other retailers. And I hate to say it, but Walmart’s going there. Why wouldn’t I Right? I mean, Walmart spent a lot more money to figure out why they need to build in this particular and there’s a platform and run a Walmart. Sure, game over next.
Right? I think I, you know, in the Greenfield space, that’s really, sometimes it’s less about site specific, more about the demographics of the market, when you’re looking at the analytics, obviously, the site matters, but you need to have conviction around the demos that the market is going to work and that,
you know, you’re hoping that’s the right, the right piece of dirt. And that’s where the markets going to shop, once you build it, but the market matters a lot in those Greenfield spaces. You know, even you know, more than probably then that specific corner, you got to get the market, right if it’s really a green space.
Absolutely. Yeah. Well,
listen, this was a fantastic story. This is really an exciting brand. You’ve got me energized on a Friday, Aaron, and I really appreciate it. We’re gonna go to the last part of the show.
Retail wisdom. And I have three questions for you. Tell me when you are ready. I’m ready. All right, Chris, question one. Best piece of commercial real estate advice out there for the listeners. Never give up. You find the
corner, don’t settle for where you are and never give up. So push them to the corner. This is where you want to be. Be patient, the site’s gonna come. Don’t give up and don’t make exceptions for who you are. Don’t say well, this is the best we can do for now. So we’re gonna get we’re gonna go ahead and settle because that’s how you end up with an average store.
That would be my biggest advice. Got it. And speaking of average store from from a, from an AU V, you know, how do you stack up versus other QSR?
For sure. As far as as far as other QSR is we I mean, I’m not doing as much as Chick fil A or in In and Out Burger. That’d be nice. But we our sales are probably about 20% At higher than the average Popeye’s, Arby’s or Taco Bell. And then I think if you look at us compared to the average Starbucks, we’re probably running about
30% Higher. Wow. Yeah. Now
that we we’ve got some we have some really good stores and I think as I think that might settle down a little bit as we open a few more, but we’ve definitely got a buzz around our around our product who said people in line at 930 last night for a drive thru that opened at four this morning. Gotta love that.
Gotta love that. Okay. Can’t complain about that. That’s for sure. All right. Second question. A fan favorite. What extinct retailer, do you wish would come back from the dead? Tower Records? Uh huh. Your music buff.
I’m a music buff. I’m also I’m a kid who grew up in Los Angeles. And there was nothing cooler than having you know, having one of our friends. Older brothers dropped us off on the Sunset Strip. And we would go to tower we would go to Tower Records on Sunset in Hollywood. Yeah, nothing better than Tower Records and just just look at the album covers all day long.
I love it. Yeah. All right. Last question, Aaron. Yes. My phone has been giving me fits lately. It’s time for a new phone. And I even have, you know, the 10 the 10. But it’s time for a new phone. And
I’ve been you know, the battery’s going on this bill. So I’ve been charging it like crazy. And so right now I’m on zag.com. And I’m looking at the Mophie wireless charger. The 10 W universal wireless charging pad. It’s in it’s It’s good with Apple and Samsung. What does that retail for? Oh.
So good. You’re gonna ask me the price of the phone
at 999 Well,
it’s normally 5995. But today it is 2995. So that seems like a steal to me. So I don’t shop. But thank you for playing.
Thank you. Thank you so much.
Well, listen, Aaron, this has been great. I really appreciate you coming on this story is awesome. I love the story of how you ended up getting a site that you wanted but with a different brand and wish nothing but Dutch Bros and you continued success man.
Thank you so much. Look forward to talking to you soon. Buddy.
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