One of the biggest narratives from this year’s Datassential Top 500 report is the accelerated growth of the coffee segment. Gone are the days when it was Starbucks versus Dunkin’ with various QSRs, like McDonald’s and Wendy’s, vying for a coffee veto vote. Now, caffeine-seeking consumers have their pick of dozens of coffee-focused startups, all of which are growing at a swift clip.
One of those concepts is Arkansas-based 7 Brew Drive-Thru Coffee, which was founded in 2016 and has since surpassed 100 units in 22 states. The company’s growth story has plenty of intrigue and is backed by heavyweights, including an acquisition from parent company Brew Culture, formed by a group of entrepreneurs in 2020 and led by CEO John Davidson. A year later, the company received a majority investment from Drink House Holdings, created by Jimmy John’s founder Jimmy John Liautaud, and Jamie Coulter, Lone Star Steak House founder. Liautaud and 7 Brew have since found themselves in a legal battle over ownership of the rapidly expanding chain, and are seeking to resolve the matter through mediation.
Meanwhile, Larry Wilson, founder of CoreLife Eatery, and Brandon Sebald, a former Planet Fitness franchisee, began accelerating the concept’s growth about two years ago when the company launched a franchising program. The program has also since attracted major franchisees such as Tacala Companies and K-Mac Enterprises, each of which operate hundreds of Taco Bell locations.
In December, 7 Brew brought on Nicole Miller Regan to serve as its CFO. She had previously spent over 20 years as a Wall Street analyst, most recently as managing director and head of the consumer equity research practice at Piper Sandler. Regan believes 7 Brew’s fledgling franchising program is the company’s key differentiator in an increasingly crowded segment and it is part of what attracted her to the brand.
“I really wanted to challenge myself to do what I had asked the companies I covered to do and that is connect culture and capital. Are these companies more than their financial output? What about the people behind them? Here, it’s about protecting the culture, from the stands to corporate,” she said. “If we can protect that culture and our returns are phenomenal, that’s where we have our opportunity. Everything we do is to support our franchisees.”
Regan said 7 Brew provides field and brand support to make the culture/capital connection, and points to operational differences that drive those returns.
“Basically, waking up every day and being fast and accurate is necessary,” she said.
The culture/capital connection also comes from 7 Brew’s intentional focus on hospitality, backed by a purpose-driven mission of “cultivating kindness and revolutionizing the drive-thru experience by treating people like people, igniting happiness, and creating enduring connections with customers.”
“I think about two lanes in an all-glass building with multiple entrances, so employees feel good about being in a stand that looks and feels good and moves quickly,” Regan said. “The physical aspects of the building that help us be faster and accurate, but also make the employee feel good and engage with the customer. Being nice and hospitable is always in style.”
Of course, in this business, so is unit economics. 7 Brew’s box is about 500 square feet, with a total land size of about 15,000 square feet to allow for two drive-thru lanes. According to the company’s latest FDD, average unit volumes are about $2.35 million. A unit costs between $900,000 to $1.8 million to build, but the company is targeting $1.3 million and below.
“Those are very robust returns,” Regan said, adding that two factors drive such returns. “The first is frequency. Our most loyal customers come in very frequently. Also, we have a very wide audience of users. If you were in the drive-thru line, you would not notice one demographic profile.”
Regan adds that the consumer behavior shift to the afternoon daypart throughout the past several years has also been an important business driver for the company. Consumers have always sought out that afternoon boost, but now they do so with coffee and energy drinks that are convenient to access. Having variety also helps.
“A couple of decades ago, people were getting their afternoon energy maybe eating a candy bar and drinking soda at their office. The evolution of that is now something ready to drink that can be different every time. We have less than 70 SKUs and 20,000-plus drink combinations,” Regan said.
The company recently added cold brew to the menu to jump on that high-demand trend. The menu could very well expand even further at some point, but anything on the drawing board would need to go through a stage-gate process. This includes the potential for more food attachment opportunities. Currently, there is no cooking equipment and only some grab-and-go muffin tops.
“We could get to the point of more innovation someday with a whole host of products that would be appropriate for the box and still allow for us to be fast and accurate. But we’re opening stands at a pace that doesn’t make sense to do those introductions today,” Regan said.
To get a better idea of this pace, the company had about 40 stores at the end of last year and over 120 now. There will be close to 200 by the end of this year. There were approximately 2,000 stands under development agreements at the end of 2022. Because of these commitments, Regan is optimistic about the chain’s potential, even as the category becomes increasingly crowded.
“The opportunity is just massive, and anything is possible. The whole idea of what we’re doing translates across the globe. We want to break sales and development records,” she said. “The most important thing is we make sure the leadership structure amplifies so that as the business evolves, we grow it safely to protect the human capital investments we’ve made. They’re everything.”
Contact Alicia Kelso at [email protected]
