7 Brew is in a bidding war for many of the sites owned by the shuttered chain Salad and Go. | Photo by Jonathan Maze.
Last week, Dutch Bros announced a deal to buy up to 65 locations of the shuttered Salad and Go brand, including 51 that will cost the drive-thru beverage chain $105 million.
In court filings, Salad and Go referenced a second company that was in talks for the locations. And at a hearing on Friday, it was revealed that said company was, probably unsurprisingly so, Dutch Bros’ rival 7 Brew.
The latter, drive-thru coffee chain argued that Salad and Go should run an auction process and that it had better offers on the table than its rival.
“7 Brew is serious about these lease assets and has been exactly the type of tenant that meets the criteria for prospective purchasers” that Salad and Go wants, Ross Fiedler, New York-based attorney with Kirkland & Ellis, said in a court hearing on Friday.
“My client put forth an LOI (letter of intent) a week ago, and we were iterating on multiple bids that provided more dollar value and provided certainty of closing greater than that which was provided by the Dutch LOI,” he added before noting that 7 Brew put forth another bid on Friday.
The dispute revealed the mounting competitive dynamic between the two fast-growing chains and their willingness to devote tens of millions of dollars to secure new sites and keep them out of the other’s hands.
The two chains are locked in an arms’ race for supremacy in the fast-growing, drive-thru beverage market. That race has already been a huge gain for Salad and Go, which filed for bankruptcy early last week, shuttering its remaining 70 locations.
The $105 million that Dutch Bros has agreed to pay for 51 of those locations, in Arizona and Nevada, amounts to more than $2 million per unit and provides enough that the company will be able to pay all its vendors during the bankruptcy process. It also has a deal to take over leases for up to 14 additional sites in Oklahoma and Texas for $50.
That’s before the company has an opportunity to hear from bidders potentially interested in some 100 other sites.
“We’ve had outreach from many parties,” Omar Alaniz, an attorney with Reed Smith out of Dallas. “It’ll be a very interesting dynamic.”
But no dynamic is quite so interesting as the one between Dutch Bros and 7 Brew.
Dutch Bros grew out of the Pacific Northwest, went public in 2021, and has been on a growth tear ever since. The chain has more than 1,200 shops and has plans to get to 2,029 by 2029. It is aggressively looking at sites to fill this need, having recently acquired the 20-unit North Carolina chain Clutch Coffee, which it is converting.
The Salad and Go locations will solidify its presence in key markets. “We look at this as a great opportunity for us to get ahold of some fantastic real estate in markets where we see a lot of potential to continue growing,” Dutch Bros CFO Joshua Guenser told analysts last week.
It’s also difficult, however, to ignore the potential need to keep the sites out of the hands of its rival.
7 Brew was started in Arkansas in 2017 and is already the country’s fourth-largest coffee chain, behind Starbucks, Dunkin’, and Dutch Bros. It finished last year with 600 locations, but is already up to 800. It has been the fastest growing restaurant chain in the country over the past three years.
At its current rate of growth, it will have 2,029 locations before Dutch Bros.
Salad and Go’s sites fit both chains’ models well. They are 1,000 square feet with drive-thrus, no kitchen and no indoor seating. Dutch Bros and 7 Brew are two of the three chains with the ability to take over that many, drive-thru-only spaces. That they happen to be two chains in this kind of competitive race has worked out well for Salad and Go and its vendors.
Both companies preferred a direct sale process, rather than go through an auction, according to court documents. “There have been burdens placed on this marketing process that are not really consistent with obtaining the highest and best price,” Fiedler said in a hearing.
He added that 7 Brew was willing to go through an auction process and be a “stalking horse bidder,” or a bidder willing to pay a minimum price going into an auction. “We believe it’s incumbent upon the debtor to evaluate whether it’s willing to entertain other bids here and make that transparent to the court,” Fiedler said.
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