Dutch Bros Inc. (BROS) Earnings Call Transcript & Summary

So I want to thank everybody here who's joining us and 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.

Yes. But maybe not personally. Dutch Bros is a high-growth operator, franchiser of dry -- and franchisor of drive-through shops that focus on serving high-quality and crafted beverages with unparalleled speed and superior service. And I can attest to that having been through the drive-thru in Phoenix, at Scottsdale, I think it was. There's a lot of demand, but they managed to get us through pretty quickly.

So let me start by asking about the demand environment because you and I were just chatting about that. And I know one of the questions that comes up with you is sort of as we think about your growth profile, there sort of low single-digit positive same-store sales going forward and then very rapid unit growth -- mid-teens I think we said is what the -- over time at least mid time -- teens.

Mid-teens. At least mid-teens, yes.

But you were like last year, same-store sales probably actually maybe in line with or a little bit below that low single digits, but the complexion of traffic and ticket have been very different. So maybe give us some context for thinking about the last 3 years versus -- or last year versus what like normal looks like?

Yes, 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. But you have to realize that we've been building so many stores the last 3 years, that about half of that is the transfer from an existing store to a new store. So now we're down to, call it, 3% to 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. So a lot of people now are working from home. They're either fully working from home or they're partially working from home. We are 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 and cars circulating and moving around. So the fact that our business could be a few 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. And 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. And I think what you're sort of alluding to is kind of now maybe we're a little bit more normal or at the very least stable maybe. So as we think about going forward, it's that, as you said, the, call it, 4 points of organic traffic declines, not so surprising. And then from here, maybe we see a different cadence.

Yes. 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. But what I can tell you, over the long term, it would be reasonable to grow your traffic a couple of points a year. That's just population growth and making sure the brand is healthy to take a point or 2 points of pricing every year over time on average, right? And so 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.

Great. Right. And so you mentioned kind of the -- even with the sales transfer, maybe traffic still looks kind of modestly positive, I think. And where does that come from, though? Because I know we've talked about, you don't necessarily get the tailwind from new unit maturation. Some of your new units actually open pretty high. So how do we think about the opportunity to drive that traffic?

I think a lot of it has to do with awareness. 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. So you can actually make the customer part of your R&D program. They come up with interesting combinations, interesting flavors that they like. They are a source for a lot of our ideas. So there's lots of ways to grow customers and occasions. And then we have 60% of our businesses 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. So just a few ways that we can keep the brand healthy and growing.

And I mean -- 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. So we'll get to you. But in the interim, I'll just -- I'll keep firing away. I want to talk about rewards a little bit. So this is going to be like a multilevel question.

Okay. I'm going to keep tracking.

Yes, exactly, better write it down. So talk to us about the opportunity for rewards. And also in the context of you've changed the rewards program structure a little bit and what does that mean in the near term, whether it's for the net revenue growth versus our margins. So kind of longer-term rewards as a driver, but near term, thinking about the economics.

Okay. You keep me honest that I make sure I answer all your questions.

Yes. It was only 2 parts. So I'm pretty proud of myself.

That is pretty good. Okay. So 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. So in early '21, we turned on cash back on in spring of '21, and we turned on a digital version of that rewards program through an app, we turned that on in late January. So first thing that did is it opened up the channel to speak to customers directly. And very quickly, we went from 30%, 40% of our revenue being in rewards to 60%, which it is today. So 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 5 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. So the program was getting a little more costly. But it's also our philosophy that direct give back is not as valuable to customers as personalization. So 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. We'll -- 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 Broista on an iPad or at the window. And so the fumbling for money and to identify yourself as a customer when on average cars pop out and those that 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. So 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. Then 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, this is about 1/4 of our business. We under-index in that aspect of our business dramatically in new markets. It's Dutch Bros Coffee. They think of us 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. Now 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. And we know that a good percentage 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.

So as we think about sort of to your point, like the rewarding people for their good behavior.

Stop comparing...

Yes, you do -- yes. So it's familiar. So 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? Because I think what we've seen across a lot of different rewards is that you've seen ticket perhaps grow faster even than traffic. So rewards programs are very successful, but it -- surprisingly, it seems to translate for some into more higher spend as opposed to more frequent. So I guess how are you think about that?

Well, I think we want it all, 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. 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. So we want to do that to get you to come a second time. And 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 [ build ] to customize. We have a product called, Soft Top, which is like a cold foam, but it's a little denser and it's -- I like it. It's a very good product. And that's a way you can add to your coffee experience through that. And then I think -- 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 activity, right? We're pretty good with video and the way we [ tic-talk ], et cetera. Now if there is a substitution for that someday, I'm sure we'll be able to draft off of that. But we're pretty good at digital activation. We're good at market launch. We use a lot of digital activation to get new customers, but I think we want both. Come in more often, spend more when you come in, please, enjoy more when you come in, and let's go find some new customers as well.

Right. All of the above?

Yes.

And I think to your point about like your digital activation, I think the brand is bigger, it strikes me then the source system right now. I think that's helped maybe we can sort of use that as a segue although I'm going to -- wanted to back to reward.

It's punches a little bit above its weight, I think, right now in some places.

Right. And so as you come into new markets, I guess, maybe what do you see with respect to the kind of the brand leading the development?

Well, 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 dayparts, right, again, morning. So 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 not -- this is literally the most basic thing. You come and you speak to a person. So -- 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, and they've heard about us, but they've never been there. And they kind of had the stop and stare a look when they're looking at the basic menu board by the pickup window. Well, immediately, the Broista 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, and they were surprised, 2 customers that they got to free drink, we do that all the time. So I would sort of 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 10 or so years ago.

And actually, that was something that I think came up on the last conference call is this idea that these new markets are following the script basically. So I guess as we think about that, I think there was a contrast between existing markets in terms of -- and you characterize like the different behaviors. I guess you said digital allows you to spin that up faster. How should we think about markets? And I don't know if there's a maturity curve we talk about or volumes, but sort of broadly speaking, how do we think about the development in the markets?

Yes. Well, we've been at this rapid pace of growth between 3 and 4 years. So I don't have a lot of data I can sort of represent in terms of how that process follows through. But we do a couple of things. One is we activate the first store with a lot of energy and effort, and 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 opened in 12 months. We're very pleased with how that turned out. We'll do that opportunistically. So 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. Now my comment on digital is just -- we start out in most markets where the rewards incidence is below 50%. And in about 12 months, we see that rise to over 60% to normal. That's an indicator, right, is once we activate with people, they latch on and we have a good business.

That's a helpful context because I think 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? And we'll get to actual returns. But I think one of the sort of debate is like how do we know that the group -- that capacity that you're opening up will then turn into growth from there? I mean it sounds like it takes a year and then you start to see behavior that looks a little more like...

A lot more typical.

Yes, more typical.

And 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. But 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? So 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 each slice of that pie is not going to be the same return. And 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, right. You can't only have the highest return, I think...

You need to be -- you have to get a good return, right? But you also have to be willing to invest in that slice of the pie that may not have the highest immediate return.

Right. And you may also not know which one it will be it's over time.

That's right. That's right.

So that -- so on the question of returns, I'll sort of think about it from a -- we talk about volumes, we're going to talk about margins a little bit because last year, obviously, the industry as a whole saw margin compression. You've taken, I think, less price than others. So there's been some of that. So there's a lot to unpack here. But I want to -- I'll start with the sort of pricing question. I know you've said the intention is -- are dealing not to take any more. How are you thinking about your pricing versus the industry? And when you think about relative value, who are you benchmarking against? Because I know there's like convenience stores that are coffee shops. So like you've taken less price. Some people like you to take more. Some people are wondering if there's elasticity. So how do you approach that?

Well, we do have a good reference point in all the markets. I'll just leave it at that, that we can kind of look at our pricing and set up relative to that. So that's a very effective data point. There's other organized competitors that we look at. We're not trying to be the lowest price, we're just trying to -- we're kind of -- 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 should 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. But one of the things that Dutch does very good is we understand we have 2 constituents. We have the customer and we have our people. And 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. So 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. So we'll watch that. We'll see where that goes. We should see some -- we are seeing some dairy relief, but 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 -- I'm not a dairy farmer, but it's a huge part of our business, that cost. So we really would love to get through the year without taking a price increase. We just rebased the rewards program and we also realize that now would not be the time to move prices as well. So we're also aware that we're kind of boxed out right now.

Right. I told you I'll be coming back to rewards, so you left an opening. So as we think about that, it's sort of -- I think the way you've explained it to me is for the discount -- the effective discount comes down. And then -- so in some sense, the net price, that's a little bit of a price.

It's -- it has the same economic impact as a price increase definitely and we've talked about we will -- we intend to spend a good portion of that back in the point system that we want to deploy. So we wanted to take the recurring discount down, which we think people largely over time, be kind of desensitized to and spend some of that back in more personalized ways. And because we have over 60% of our volume anchored in rewards, we're speaking to a lot of our customers that way.

Right. How do you get people on to the rewards platform? And I guess maybe said otherwise, what do you know about the difference and frequency between non-rewards, which is those are hard to measure by definition and -- or your average customer and your rewards customer?

We don't have the -- we don't have reliable data between non-rewards and rewards customers. We can do credit card scrapes like everybody else does, but it depends on what they're paying with. They may pay with different instruments. So we can't compare that frequency. But we do know the frequency amongst our rewards customers and our highest users and lowest users. And 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 you're talking about, mid-teen?

So the monthly.

Oh, the monthly, okay. Yes.

Yes, mid-teens. They would be a very caffeinated [ with 10, 15 times a week ].

Yes. I mean that sounds like me.

It sounds like you. Yes. So I want to make sure I'm kind of just trying to connect the dots on all the questions.

Yes. I'll lead you there. Yes. So the question was sort of what is joining rewards do for getting people on the rewards gives you information about them. It incentivizes them. But any kind of sort of as we think about what does it mean to have somebody go from either go from rewards or not? Or I think you said you see a difference between year 1 and year 2 that you see you can really measure the impact?

Yes. We know -- and it kind of -- 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 just tend to be -- they want to be more loyal. So they do spend more. They do come more frequently. We know logically, that's what happens. And then 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're not going to see us do advertising or TV, or things like that. So 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 Broistas. And there's a QR code and we try to have the balance of making it evident that it's a value to them without, frankly, annoying the customer and trying to -- we don't create incentives where we give people special payment for signing up customers. Our -- one of the things we did is we rolled this out to our Broistas first. And we got -- we made sure they loved it. And then once we knew they loved it, we were comfortable that they would sell it. And that's the best voice we have, frankly.

Yes. I think it's -- you talk a lot about engagement and the employee and how that sort of leads. It's employee sort of led, if you will, in terms of how you approach things. You talk a little bit about what that means. And in particular, I know it's come up in the context of like what keeps Bros ahead of the competitors and allows you to -- because with all these smaller drive-through native chains kind of nipping at your heels -- well, distantly nipping, talk a little bit about how the employee of 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. And our people are really excited about our growth. They've been waiting for this for years, frankly, and we hadn't been able to do it and capitalize it. And 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. And there's a strong culture of upward mobility. So everybody starts as a Broista, okay? I didn't, but the CFO. But in the retail operations -- maybe I should have started as a Broista.

I think you're reasonably qualified for the job.

Yes. But everybody starts as a Broista. You work your way up to a chef, to an assistant manager, a shop manager, to a regional operator. So that culture of a compelling future, whatever term we want to use to it, that permeates the organization. And then, the lens by which we look at the business is actually through the lens of the employee, and everybody tries to romanticize that. But we don't make any decision without considering how that reflects on the employee. And 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 Broista away from the customer. So speed, quality, service. Service, service, service, wherein 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. And they like hanging out with their fellow teammates. And 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. So if you kind of 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. So that's -- I think it's an impressive stat. But it does raise the question of if you are investing in labor this year. And so given the sheer quantity of applicants you have, maybe you could talk a little bit about the reason you're doing that?

Yes. So 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. And what I mean by that is we really just -- we have a good listening mechanism in the field and we didn't have to raise wages to get employees. But 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. And 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.

So that's my boss.

And I've been in that position before, and I'm sensitive to always staying a step ahead of the employees. So 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. And what they've all said universally, and I was with some of them a week ago, how is this landing? And they're just grateful that we put them in a position to win. And 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. And actually, it ladders up through all the pay structure. So everybody feels it.

Right. And I think just as an aside, and then I'll hand it over for a question. 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. That's helpful context because I think as people look at your overall wage bill, it looks like it wasn't up as much as it wasn't moving, but it was really about mix.

Yes, mix of geographies. Absolutely.

Right. So you were keeping pace with the industry and having sort of [ mixed results ].

Yes. We're not behind.

Right. Okay. Good.

So 2 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? And then I guess just question 2 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?

Well, I'd love to give you a whole lot of content there, but really, it's kind of steady as she goes on the unit growth piece. 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, 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 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. And so this is a critical juncture for all of us in the beverage business to watch that happen and play out.

Right. And I'll sort of tag on to that unit growth question because I know you talked about -- you have a talented team. And actually, I think the shift has been more towards ground lease and doing your own...

Managing our own projects.

Yes, managing your own projects. So that is, I think, a question that comes up sometimes, which is like the decision to do that. It's a little more capital-intensive upfront. I think you've talked about, we call it, the spread between what landlord and what you can do for. Does that change in the context of higher rates? Or is that still relevant?

It moves in sequence with rates. So if our borrowing rate goes up, their borrowing rate goes up, the spread they want to charge us an imputed rent goes up. We have -- 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. But we have a good and talented construction team, and we have a good network of contractors. So 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. So 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. So it's the simple calculus of that. Now that creates more near-term cash need and longer-term higher earnings. And 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. But 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. And we're going to be flexible and our eyes and ears are open and we're going to learn our way through this.

And when you talk about that imputed rent, what are sort of the -- what's sort of the magnitude of that spread, if you will?

So it's about 3 or 4 interest rate points. So if I'm borrowing at 5.5%, I'm paying a developer -- to borrow the money from the developer, I'm paying 8.5% to 9%. That's not a small difference.

No. And to your point, if you'd really...

That's forever.

Look at the NPV, right, pretty quickly starts to make sense the way you do things on your own.

And that is no disrespect to the developers. That's just the way they get financed and it's the choice we're making.

Right. Well, that's their business model. So yes, no disrespect. Everybody has a right to make money. I do have a question about that to your point about the sort of if you're fearful versus if you have a longer-term view that things will be very successful. What -- can we talk about AUVs coming into the new -- into new markets? Because I think when a couple -- 1.5 years ago, or I think when we first started talking to Bros, there was a pretty big spread between the new unit volumes and then the system average. Now that's narrowed in part because you just have a lot more of the system that is -- those new stores, but maybe you could talk a bit about how we should think about that?

Yes. I think that the last few years have been revealing and really, our new units came out higher than we could have ever expected. Now if you're opening something with a couple of million dollars volume, I'm not such a good guesser and our founder, Trav would say the same thing over 30 years that I can get that guest within 10%. So a couple of hundred thousand dollar variation in the gas is not untoward, it's not unusual. But we've come from a place where we opened a lot of new markets. First store in the market tends do a little better. And now where our new unit AUVs is more of a normalization, I would call it. And as we sequence forward, 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 cost 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 because one of the questions that has come up is this idea of franchising versus company-operated. And you have plenty of experience with franchisors so you can speak to this from both sides. But maybe talk about that decision to grow company operated.

Well, it's definitely counter to the trend that was established 15 years ago of everybody wanting to franchise. And I think for some brands, that makes a lot of sense. Our franchisees are all existing employees originally and so they're part of the family. And they earned their right to get that franchise. And Trav and his brother Dane, wanted to give them that opportunity. But 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 and we don't sell new franchises in new markets. So 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. And everybody who does that is resident in those markets. And 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. That cash margin is way better from an NPV shareholder value perspective versus franchising. Now sometimes you want to go to franchising because you could 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. So it all kind of -- we love our franchisees. They're great business partners. We don't want absentee owners. We don't want people absent the culture and the community. We have access to capital. We have good returns. It just kind of lines up to make sense.

Right. Right. And I guess if I'm an investor, I want you to deploy capital -- as much capital as possible with these returns that you're generating. And as you said, like the cash flow, the NPV of the cash was going to be a lot higher. But I guess last sort of question on that, which is we think about the sort of footprint, I think you talked about 4,000 stores. You don't have -- you don't need franchisees. You don't need the capital. Can you mean -- what kind of growth rate are you thinking about? I think it's a sort of a glide path to mid-teens, is 4,000 the right number? Or 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?

Well, I lived through this working for a company in China where some big numbers get thrown out, and they don't have a time frame on them. And I think what's important is to put it in a realistic time frame. So 4,000 locations is going to keep us busy for 1.5 decades, we'll call it. After that, all bets are off. One could argue are there more? But also time, value of money, you're probably not interested in more than 10 or 15 years to think about it anyway. So we might as well keep it in a digestible time frame.

Okay.

Fair?

Fair. That's fair. And I like the -- all bets are off after 10 or 15 years. Hopefully, I was going to say if either one of us will be doing this.

Yes, hopefully.

Fully retired.

So I'm really enjoying it as much as I am will be in my chair.

That's right.

Yes.

All right. Well, thank you so much for joining us, and thank you, everybody.

Thank you. Okay.