I want to thank everybody here who's joining us, and a special thanks to Charley Jemley, the CFO of Dutch Bros. I think most people here will know Bros although, since it's not yet in Florida.
Not yet.
Yeah. maybe not, personally. Dutch Bros is a high growth operator and franchisor of drive-through shops that focus on serving high quality handcrafted beverages with unparalleled speed and superior service. I can attest to that, having been through the drive-through in Phoenix, Arizona, Scottsdale, I think it was. There's a lot of demand, they managed to get us through pretty quickly. Let me start by asking about the demand environment.
You and I were just chatting about that. I know one of the questions that comes up with you is sort of as we think about your growth profile, your sort of low single-digit positive same-store sales going forward. You have very rapid unit growth, mid-teens, I think we said.
Mid-teens. At least mid-teens.
Over time. At least mid-t eens. Over, like, last year, you know, same-store sales, you know, probably actually maybe in line with or a little bit below that, you know, that low single digits, the complexion of traffic and ticket have been very different. Maybe give us some context for thinking about the last three years versus last year versus what, like, normal looks like.
Yeah. In all my conversations this morning and other conversations I've had, I've tried to frame it sort of simply this way, is if you take a snapshot of 2022, and you roll that back and compare it to 2019, and you look at that 2019 comparable store base, you decompose all of it, and you end up with about an 8% decline in traffic. You have to realize that we've been building so many stores the last three years that about half of that is the transfer from an existing store to a new store. Now we're down to, call it 3%-4% traffic decline. If I reflect on that, first of all, that's not alarming. It's actually pretty good, and it's pretty good given where we've been as a, in a customer, basis.
A lot of people now are working from home. They're either fully working from home, or they're partially working from home. We're a drive-through dominated channel, so we have a walk-up window and a drive-through. 90% plus of our business goes through the drive-through. Drive-throughs live on people in cars circulating and moving around. The fact that our business could be a few percentage points off in traffic, given that people are not yet circulating the way they were, is not entirely disturbing at all, right? It's pretty logical.
There's so much noise in all of what we've been through that if you get caught up in a month or a quarter trying to analyze it, which we can do very well ourselves. We get caught up in the data, and you really just step back and look at it over time, it's pretty logical where we've ended up.
Right. I think what you sort of alluding to is kind of now maybe we're a little bit more normal.
Mm-hmm.
At the very least stable maybe. As we think about going forward, it's that, as you said, you know, the call it four points of, you know, of, organic traffic declines, not so surprising. From here, maybe we see a different cadence.
Yeah. I think that we're all sitting around waiting for another shoe to drop. Is the recession that we've all been waiting for coming? I couldn't tell you that. I'm not a macroeconomist. What I can tell you over the long term, it would be reasonable to grow your traffic a couple points a year. That's just population growth and making sure the brand is healthy to take a point or two of pricing every year over time on average, right? Our guide, we would say long-term to a low single digit comp number given all the development we have because we're going to have so much sales transfer from development. That's not an unreasonable expectation.
Right. Right. you know, you mentioned kind of even with the sales transfer, you know, maybe traffic still looks, you know, kind of modestly positive, I think. Where does that come from, though? Because I know we've talked about, you know, you don't necessarily get the tailwind from new unit maturation. You know, some of your new units actually open pretty high. How do we think about the opportunity to drive that traffic?
I think a lot of it has to do with awareness.
Mm-hmm.
I think it has to do with innovation. We talked in a meeting earlier today about how do you put innovation in the hands of the customer to find occasions that they wouldn't otherwise think about. That's because you can customize so much at Dutch. You can actually make the customer part of your R&D program. They come up with interesting combinations.
Mm-hmm.
Interesting flavors that they like. They are a source for a lot of our ideas. There's lots of ways to grow customers and occasions. We have 60% of our business is in the rewards customer group. That's a pretty powerful number. We're able to speak to them sort of with a direct channel through our digital communication. That's a way to maybe get a customer to take a second occasion during the day or maybe spread the word about it as something they like, right? Through digital channels. Just a few ways that we can keep the brand healthy and growing.
Well, I'm going to interrupt myself. If anybody has a question, please feel free to raise your hand and I think we might have a mic circulating. Good. Okay. We'll get to you. In the interim, I'll keep firing away. I want to talk about rewards a little bit. This is going to be like a multi-level question.
Okay. I'm going to keep track.
Yeah. Exactly. You might want to write it down. Talk to us about the opportunity for rewards and also, you know. In the context of you've changed the rewards program structure a little bit, and what does that mean, you know, in the, in the near term, whether it's for, you know, the net revenue growth versus, you know, our margins. You know, kind of longer term rewards as a driver, but near term.
Mm-hmm.
-thinking about the economics.
Okay. You keep me honest, then I make sure I answer all your questions.
It was only two parts, so.
That was pretty good.
I'm pretty proud of myself.
Okay. I think there's a little history lesson that's deserved here. If you don't know Dutch, we had a paper punch card for years. You buy 10 drinks, you get the 11th free. When COVID came, we stopped taking that card for social distancing, and we stopped taking cash. In early 2021, we turned on cash back on in spring of 2021, and we turned on a digital version of that rewards program through an app. We turned that on in late January. First thing that did is it opened up the channel to speak to customers directly. Very quickly, we went from 30%, 40% of our revenue being in rewards to 60%, which it is today.
Part of that is just the maturation of the program from paper to digital to exploring and testing, which we've done a lot last year in terms of how we can use individual offers to drive behaviors to now activating around that to drive behaviors going forward. We did make a change. You used to earn five points for every $1 spent. We did not revalue the points earned. You will keep those points, and those points are worth the same free beverage they always were. However, you will now earn 3 points instead of 5 points going forward. Part of that is a reaction to all the price increases that we've had to take or we've taken. The program is getting a little more costly.
It's also our philosophy that direct giveback is not as valuable to customers as personalization. We will take some of that economic power, I'll call it, with a lower cost, discount promotion expense, and we'll redeploy that into personalized offers. I'll give you a couple of examples. One is about 1/4 of our rewards customers pay through stored value. That's really critical in an environment where every order is made personally with the customer and the barista on an iPad or at the window. The fumbling for money and to identify yourself as a customer when on average cars pop out of the nose of the line every 45 seconds, that's meaningful. How long does it take you to reach in your purse, get your credit card out, et cetera?
We will, and we've done this before, but we'll do it more broadly. We will incent people to load funds on their card and to hopefully turn on auto reload. That's operationally, that takes some friction out of the order process. As we all would know emotionally, if you give me your money, you may give me your loyalty. That's an important aspect to this as well. I'll give you another example of the power of this. In our newer markets, Rebel is our proprietary energy drink, and we've been very public about this. It's about a fourth of our business. We under-index in that aspect of our business dramatically in new markets. It's Dutch Bros coffee. They think of this, of coffee in the morning. They think of us as hot coffee.
We can drive in those markets because we only have to promote in those exact areas through the rewards program. If you come and try a Rebel beverage, we will give you some points. I'll never say we'll never do a discount offer, but it's far better to use points to drive behavior because I get to speak to you in the moment with the points, and I reward your good behavior, and then you come back and use your points later, which is another trip. We know that a good % of people turning in their points for a free beverage are actually additional trips. They treat themselves. They're not substitutions for what was a revenue-producing experience.
as we think about, you know, sort of to your point, you know, I think that rewarding people for their good behavior.
You sound like a parent.
Yeah, you do.
I am a parent.
Yes. it's.
Sounds like a parent.
It's familiar. When you think about that, it sounds like it actually increases frequency. Do you also think about increasing spend, or the focus is primarily on getting people to come more? I think what we've seen across, you know, a lot of different rewards is that, you know, you've seen ticket perhaps grow faster even than traffic. Rewards programs are very successful, but it, you know, surprisingly, it seems to translate for some into more higher spend as opposed to more frequent. I guess, how are you thinking about that?
I think we want it all.
Right.
Which is we want to use the rewards program to get our existing customers to maybe use a second occasion a day that they wouldn't think of otherwise. You know, we all have multiple beverages every day. Often, we consume them away from home. Sometimes we have a coffee, or sometimes you might drink a soda or an iced tea. We want to do that to get you to come a second time. We know you're coming in the morning or only in the afternoon, so we know your exclusivity, and we have that through the data. We also want to encourage you to take advantage of the ability to customize. We have a product called Soft Top, which is like a cold foam, but it's a little denser. I like it. It's a very good product.
That's a way you can add to your coffee experience through that. I think, you know, the other thing we want to do, not through rewards, obviously, but either get more people into the program, which gets attachment to non-rewards members, or use our other digital channels to drive you know, activity, right? We're pretty good with video and the way we, you know, TikTok, et cetera. If there's a substitution for that someday, I'm sure we'll be able to draft off of that.
Right.
We're pretty good at digital activation. We're good at market launch. We use a lot of digital activation to get new customers. I think we want both. Come in more often, spend more when you come in, please.
Right.
Enjoy more when you come in, and let's go find some new customers as well.
Right. All of the above.
Yeah.
I think, you know, to your point about, like, your digital activation, I think, you know, the brand is bigger, it strikes me, than the store system right now.
Yeah.
that's helped. You know, maybe we can sort of use that as a segue, although I am going to want to come back to rewards.
It punches a little bit above its weight, I think, right now.
Right.
In some places.
As you come into new markets, I guess maybe, you know, what do you see, with respect to the kind of the brand leading, the development?
You do see that less customization early. You see more traditional coffee occasions early. You see less attachment to the energy drink. You see more traditional day parts, right? Again, morning. You know, I think one of the things that we don't have is we don't have large digital menu boards. We don't have. This is literally the most basic thing. You come and you speak to a person. Because the menu board does not drive you to a certain behavior, we have to curate that. We have to be patient. I was telling the example of meeting some new customers in Dallas a week before last, they'd heard about us, but they'd never been there.
You know, they kinda had the stop and stare look when they're looking at the basic menu board by the pickup window. Immediately, the barista engages with them, walks them through the process. If you're a new customer, whether you're truthful to us or not, you get a free beverage on your first visit. We're very generous. We think that's a great investment. They were surprised, two customers, that they got a free drink.
Mm-hmm.
We do that all the time. I would sorta characterize it as we have to be patient but not passive in curating the brand when we're in a new market. We've done this many times. The great thing is through the digital channel, I think we feel like we can spin that up faster than we did when we opened Arizona, you know, 10 or so years ago.
Actually, that was something that I think came up on the last conference call, was this idea that these new markets, you know, are following the script.
Mm-hmm.
You know, basically. I guess, as we think about that, you know, I think there was a contrast between, you know, existing markets in terms of, and you characterized, like, the different behaviors.
Yeah.
I guess you said digital allows you to spin that up faster. How should we think about markets and, you know, and I don't know if there's a maturity curve we talk about or, you know, volumes, but sort of broadly speaking, you know, how do we think about the development of markets?
Yeah. Well, we've been at this rapid pace of growth between three and four years. I don't have a lot of data I can sort of represent in terms of how that process follows through. You know, we do a couple of things. One is we activate the first store with a lot of energy and effort. We use that as the linchpin in the market in terms of how we source employees and how we engage customers. We're very programmatic about that. We quickly follow the first store with additional stores. We have an example of a market we opened last year where we got 14 stores open in 12 months. We're very pleased with how that turned out. We'll do that opportunistically.
I think it's a combination of how we activate the customer digitally, our people, our hiring process, the hiring parties we have, those are big customer engagement events, and then how quickly we get placed in a market so that we're convenient to folks. All those things work in concert to build out markets. My comment on digital is just we start out in most markets where the rewards incidence is below 50%, and at about 12 months, we see that rise to over 60% to normal. That's an indicator, right? Once we activate with people, they latch on, and we have a good business.
That's a helpful context because I think, you know, one of the questions that's come up is this sort of idea of intentional sales transfer and how should we think about that in the context of returns on new units. You know, we'll get to actual returns.
Yeah.
you know, I think one of the sort of debates is, like, how do we know that capacity that you're opening up will then turn into growth from there?
Mm-hmm.
It sounds like, you know, it takes a year, and then you start to see, you know, behavior that looks a little more.
More typical.
Yeah, more typical.
I think that a lot of people, and I'm a financial person, so I can get hung up on marginal returns, the next marginal decision. In this business, you really can't thread the needle like that. You really have to look at a market holistically, and you're not going to get the same return on every store. Some stores are going to have excessive returns. Some stores are not going to have the average return. What we're trying to do is capture the volume in the market and do it in a relatively efficient capital way, right? How much capital does it take to generate that extra dollar revenue? There's an overall objective for the business and for a market, but, you know, each slice of that pie is not going to be the same return.
I've learned that in 30 years doing this with a couple of other places over and over, that you can't thread the needle like that. You have to take a market-based view of these things.
Right. Right. You can't.
You need to.
the highest return.
You have to get a good return.
Right. You have a good-- Right.
You also have to be willing to invest in that slice of the pie that may not have the highest immediate return.
Right. you may also not know which one it'll be, you know-
That's right.
... over time.
That's right.
On the question of returns, I'll sort of think about it from a, you know, we talked about volumes. We can talk about margins, a little bit because, you know, last year, you know, obviously the industry as a whole.
Yes
... saw margin compression. You've taken, I think, less price than others, so there's been some of that. There's a lot to unpack here. I'll start with the sort of pricing question. I know you've said the intention is, you know, ideally not to take any more. How are you thinking about your pricing versus the industry? When you think about relative value, who are you benchmarking against? Because I know there's, like, convenience stores. There are coffee shops. Like, you know, you've taken less price. Some people would like you to take more. Some people are wondering if there's elasticity. How do you approach that?
Well, we do have a good reference point in all the markets.
Right.
I'll just leave it at that.
Right.
We can kind of look at our pricing and set up relative to that. That's a very effective data point. You know, there's other organized competitors that we look at. We're not trying to be the lowest price. We're just trying to we want to come in at a reasonable level, especially in new markets, right. We don't want to come in thinking more of ourselves than we should. We shouldn't be too aggressive. I don't want anyone to think that our reticence last year to take prices up was a belief of a lot of elasticity because we didn't see that. One of the things that Dutch does very good is we understand we have two constituents. We have the customer, and we have our people.
Every time we take a price increase, we put our people in that position between them and the customer because every order is eye contact, personal. From a I want to address the pricing this year, right? Our intention, our desire is to not have to put any more on the backs of the customer. That isn't to say that we're feeling a ton of distress there. We're just very hesitant to go one more time to the pricing well. Even though we've been less aggressive than others, because we have really good margins and because our margins have largely healed in the back half of last year, we aren't pricing to hit a margin number right now. We're going to watch the commodities market.
Over 40% of our basket is in dairy and coffee. We'll watch that. We'll see where that goes. We are seeing some dairy relief, you know, it really depends on how the summer production season goes for dairy because cows don't like it when it's too warm. Not to get into the to be a dairy. I'm not a dairy farmer.
Right.
It's a huge part of our business, that cost. We really would love to get through the year without taking a price increase. We just rebased the rewards program. We also realized that now would not be the time to move prices as well.
Right.
We're also aware that we're kind of boxed out right now.
Right. Well, oh, I told you I'd be coming back to rewards, so you left an opening. As we think about that, you know, it's sort of I think the way you've explained it to me is sort of the discount, the effective discount comes down.
Yes.
So in some sense, the net price, that's a little bit of a price.
It's has the same economic impact as a price increase.
Right. Okay.
Definitely. Yeah.
Um-
We've talked about we intend to spend a good portion of that back, in the point system that we want to deploy. We wanted to take the recurring discount down, which we think people largely over time be kinda desensitized to, and spend some of that back in more personalized ways. Because we have over 60% of our volume anchored in rewards, we're speaking to a lot of our customers.
Right
... that way.
How do you get people onto the rewards platform? I guess maybe, said otherwise, what do you know about the difference in frequency between, you know, non-rewards, which is, those are hard to measure by definition?
Yeah
... and/or your average customer and your rewards customer?
Well, we don't have reliable data between non-rewards and rewards customers. We can do credit card scrapes like everybody else does, but, you know, it depends on what they're paying with. They may pay with different, you know, instruments. We can't compare that frequency. We do know the frequency amongst our rewards customers and our highest users and lowest users. You know, we have a mid-teens frequency in our highest cohort, which we've disclosed before and talked about before. That's a pretty healthy number.
Weekly we're talking about?
The monthly.
Oh, the monthly.
Monthly.
Okay.
Yeah.
Yeah.
Mid-teens. They would be a very caffeinated 15 times a week.
I mean, that sounds like me.
sounds like you. Yeah. I want to make sure I'm kinda just trying to connect the dots on all the questions.
Yeah. Oh, I'll lead you there. Yeah.
Yeah. Please do.
The question was sort of what is, what does joining rewards do for. You know, getting people on the rewards gives you information about them. It incentivizes them. I, you know, any kind of sort of as we think about what does it mean to have somebody, you know, go from either go from rewards to not, or I think you've said you see a difference between year one and year two, you know, you see you can really measure the impact.
Yeah, we know, it's again, it's a logical conclusion. People who take the step to put the app on their phone and take that screen space and invest in it, they want to be more loyal. They do spend more. They do come more frequently. We know logically that's what happens. We also, even if they didn't, we like that channel being open because we can speak to them. We don't do traditional media. You know, you're not going to see us do advertising or TV or things like that. We have to speak in very efficient terms. I think you asked about how we get them into the program. Well, we have this great advertising group. It's called our baristas.
Yeah.
Baristas. There's a QR code. You know, we try to have the balance of making it evident that it's of value to them without, frankly, annoying the customer. We don't create incentives where we give people special payment for signing up customers. One of the things we did is we rolled this out to our baristas first, we made sure they loved it. Once we knew they loved it, we were comfortable that they would sell it. That's the best voice we have, frankly.
Yeah. I think it's, you know, you talk a lot about, you know, engagement and the employee, the, how that sort of leads. You know, it's employee sort of led, if you will, in terms of how you approach things. Can you talk a little bit about what that means? In particular, I know it's come up in the context of, like, what keeps Bros ahead of the, ahead of the competitors and allows you to, you know, because with all these smaller drive-through native chains kind of nipping at your heels, well, distantly nipping.
Yeah.
You know, talk a little bit about how the employee or the culture is important to.
Well, it is absolutely the engine behind the growth. We couldn't open the stores if we didn't have the people. you know, our people are really excited about our growth. They've been waiting for this for years, frankly. We hadn't been able to do it and capitalize it. That's one of the great things about being a public company, is we have access to the capital markets to be able to fund these things. There's a strong culture of upward mobility. Everybody starts as a barista, okay? I didn't, but I'm the CFO. In the retail operations. Maybe I should have started as a barista.
I think you're reasonably qualified for your job.
Yeah.
Yeah.
Everybody starts as a barista. You work your way up to a chef, to an assistant manager, shop manager, to a regional operator. That, that culture of a compelling future, whatever term you want to use to it, that permeates the organization. The lens by which we look at the business is actually through the lens of the employee. Everybody tries to romanticize that. We don't make any decision without considering how that reflects on the employee. What keeps us honest about that is that every interaction with the customer is in person. I say that over and over. We don't yet and don't in the near term plan order ahead. That takes the employee away from the customer. That takes the barista away from the customer. Speed, quality, service. Service, service.
Our people are in servitude to the customer. They like to make these beverages for their customer. They like the order-taking process because it's human. They like hanging out with their fellow teammates. What's great about the job, frankly, is we're not in the food business, so that takes an element of complexity out. We don't have lobbies that we have to clean and police and deal with, and we don't have public restrooms we have to clean. If you kinda look at the content of the job, the content of the job is a very fulfilling job. You get paid well. You're in a positive environment. That's why we have roughly 20 applicants for every job we hire.
Wow. That's an impressive stat, but it does, you know, raise the question of you are investing in labor this year. Given the sheer quantity of applicants you have, maybe you could talk a little bit about the reason you're doing that.
Yeah. You know what I love about this conversation as CFO is I never got to be put in the CFO spot to deal with this. What I mean by that is we're really we have a good listening mechanism in the field, and we didn't have to raise wages to get employees. We want the best employees through the funnel, and we want our field teams to feel confident and comfortable when they're talking to people about how much money they're going to make, that they really feel front-footed on that. The way I would articulate that is if you ever have to have an employee come to you and ask to be paid more, you're on the wrong side of that equation, and you failed.
I'll tell that to my boss.
I've been in that position before, and I'm sensitive to always staying a step ahead of the employees. What we did was not a reaction to something that we felt we were behind on. It was proactive. It was welcomed. We tested it and how it would be received in markets prior to this because we heard what our people said, but we wanted to make sure that we tried it first. We believed them. What they've all said universally, and I was with some of them a week ago, "How is this landing?" They're just grateful that we put them in a position to win. It's kind of a small investment, frankly, to put our people in a position to have a positive conversation with that next new employee.
Right.
Actually, it ladders up through all the pay structure, so everybody feels it.
Right. I think just as an aside, and then I'll hand it over, for a question.
Mm-hmm.
I think it was interesting you mentioned earlier that on an apples-to-apples basis, if you will, wages were up 6%.
Last year.
Last year.
Mm-hmm.
That's helpful context because I think, you know, as people look at your overall wage bill, it looks like it wasn't up as much as...
Moving. Yeah.
Yeah. It wasn't moving, but it was really about mix to lower-
Yes, mix of geographies.
Right.
Absolutely.
You were keeping pace with the industry and having sort of mixed-
Yeah. We're not behind.
Right. Okay.
Yeah. That's good.
Please.
Hi.
Hi. Two questions. One would be just on the unit growth topic, given the recent rally in rates, I guess. Does that change the perspective on unit growth or the timing, and what challenges are you facing, if any, as a result of that? I guess just question two on top line would be, any intricacies you're seeing as it relates to different kind of shopping behavior, spending behavior, just kind of any small things that you might be noticing by your core customer?
I'd love to give you a whole lot of content there, but, you know, really, it's kinda steady as she goes on the unit growth piece. You know, certainly interest rates affect some of our developers and their access to capital, but we're well-positioned if they aren't able to execute a project that we step in and do it. We have a talented real estate construction team, and we'll do that. In terms of spending behaviors, you know, we're a frequent, regular sort of habit, I'll call it, and we see things pretty much in real time, I would say.
We're not seeing any shifts, you know, currently in behaviors, but we're watching this closely because for us and many others in the beverage business like us, you tend to build volume in the spring and into the early summer. This is a critical juncture for all of us in the beverage business to watch that happen and play out.
Right. I'll sort of tag on to that unit growth question because I know, you know, you talked about you have a talented team, and actually I think the shift has been more towards, you know, ground lease.
Managing your own projects.
Yeah, managing your own projects.
Yeah.
That is, I think a question that comes up sometimes, which is, like, you know, the decision to do that, it's a little more capital-intensive upfront.
Mm-hmm.
you know, I think you've talked about what's called the spread.
Mm-hmm
...you know, between what landlord and what you can do for. Does that change in the context of higher rates, or, you know, is that still relevant?
It moves in sequence with rates. If our borrowing rate goes up, their borrowing rate goes up, the spread they want to charge us in imputed rent goes up. I want to be clear, we have some awesome development partners who do a great job for us and do the build-to-suits and get us in newer markets, for example. We have a good and talented construction team, and we have a good network of contractors. The choice we make is we can manage the project ourselves, and then we have lower rent, or we can do it through a developer, and we pay rent forever, and that rent is debt. The choice we're making today is borrow in the short term through the banking facility we have.
We can pay that down, and our goal is to get rid of that by the end of the decade or early next, rather than signing myself up for a lease debt that lasts for 25 years. It's the simple calculus of that. That creates more near-term cash need and longer-term higher earnings. If you're fearful, you get concerned about risk right now. If you're confident and calm, you want to take the right economic decision long term. What I'd also want to express is we're not stubborn. We're mindful of this. We're watching it. There may be other ways to finance the business that could be a better way than just using bank debt. We're going to be flexible, and our eyes and ears are open. We're going to learn our way through this.
When you talk about that imputed rent, you know, what's sort of the magnitude of that spread, if you will?
It's about three or four interest rate points.
Okay.
If I'm borrowing at 5.5%, I'm paying a developer, to borrow the money from the developer, I'm paying 8.5%-9%.
Got it.
That's not a small difference.
No. Right.
Yeah.
to your point, you know, if you're.
That's forever.
look at the NPV, right, it pretty quickly starts-
Yeah
...to make sense to maybe do things, on your own.
That is no disrespect to the developers. That's just the way they get financed, and it's the choice we're making.
Right. Right. Well, that's their business model.
Mm-hmm.
Yeah, no disrespect. Everybody has a right to make money. I do have a question about that. you know, to your point about the, you know, sort of if you're fearful versus if you have a longer term, you know, view that things will be very successful. What, you know, can we talk about AUVs, coming into the new unit and into new markets? Because I think when, you know, a year and a half ago or something when we first started talking to Bros, there was a pretty big spread between the new unit volumes and then the system average.
System average.
Now that's narrowed, in part because you just have a lot more of the system that is those new stores.
Yes.
Maybe you could talk a bit about, you know, how we should think about that.
I think that the last few years have been revealing and, you know, really our new units came out higher than we could have ever expected. Now, if you're opening something with a couple million dollars volume, you know, I'm not such a good guesser, and our founder, Trav, would say the same thing over 30 years, that I can get that guess within 10%. A couple hundred thousand dollar variation in the guess is not untoward.
Mm-hmm.
It's not unusual. We've come from a place where we opened a lot of new markets. First store in the market tends to do a little better. Now where our new unit AUVs is more of a normalization, I would call it. As we sequence forward, you know, somewhere 1.7 million, 1.8 million, 1.9 million, whatever that number turns out to be, given our cash margins and given our build costs, is a very good spread on our capital.
We're running out of time, but I do want to ask about that sort of spread on capital, 'cause I know one of the questions that has come up is this idea of franchising versus company operated.
Mm-hmm.
You know, you have plenty of experience.
Yes.
-with franchisors, so you can speak to this from both sides. Maybe talk about that decision to grow company operated.
It's definitely counter to the trend that was established 15 years ago of everybody wanting to franchise. I think for some brands that makes a lot of sense. Our franchisees are all existing employees originally. They're part of the family, and they earn their right to get that franchise. Trav and his brother, Dane, wanted to give them that opportunity. I think he found over a number of years that, A, first of all, to go into new markets, we don't want someone living here and operating here. We don't sell new franchises in new markets.
To be able to grow and to be able to preserve the culture, it was better to, from a brand perspective, to have our employees go to Texas, go to Tennessee and open those markets and live and work in those markets. Everybody who does that is resident in those markets. Then you look at the economics, and if you have a 30% store level cash margin, yes, you have overhead and other things that drag on that cash margin is way better from an NPV shareholder value perspective versus franchising. Sometimes you want to go to franchising because you can go faster. I would argue you can't go any faster than we're going right now if you had a bunch of franchisees signing up.
Right.
It all kinda. We love our franchisees. They're great business partners. We don't want absentee owners. We don't want people absent out of the culture and the community. We have access to capital. We have good returns. It just kinda lines up to make sense.
Right. Right. You know, I guess if I'm an investor, I want you to deploy capital, as much capital as possible at these returns.
Right.
that you're generating. As you said, like, the cash flow, you know, the NPV of the cash flows can be a lot higher. I guess, last sort of question on that, which is, you know, we think about this sort of footprint. I think you've talked about 4,000 stores. You know, you don't need franchisees. You don't need the capital. What kind of growth rate are you thinking about? You know, I think you're it's sort of a glide path to mid-teens. Is 4,000 the right number, or is that a, you know, is that a sort of max, or is there, as you're seeing, as you're opening new units, is there something that suggests maybe the number should be bigger?
I lived through this working for a company in China where some big numbers get thrown out, and they don't have a timeframe on them. I think what's important is to put it in a realistic timeframe. 4,000 locations is going to keep us busy for a decade and a half, we'll call it. After that, all bets are off. One could argue, are there more? Also time value money, you're probably not interested in more than 10 or 15 years to think about it anyway. We might as well keep it in a digestible timeframe.
Okay. Right.
Fair?
Fair. That's fair, and I like the all bets are off after 10-15 years.
Yeah.
Hopefully, well, neither one of us will be doing this.
Yeah.
We'll be retired.
... someone really enjoying it as much as I am will be in my chair.
That's right.
Yeah.
All right. Well, thank you so much-
Thank you.
For joining us, and thank you, everybody.
Okay.