Will McLane & Max Howard (@CapitalCapi): Starbucks (SBUX), Dutch Bros (BROS), and Investing in Consumer Brands
Will McLane and Max Howard from Capital Capi discuss their investment theses on Starbucks (short) and Dutch Bros (long), detailing their research methodology that combines AI tools like Claude for data aggregation with primary research and consumer observation. They explain their investment process focused on identifying where market expectations diverge from fundamentals, using specific catalysts and signposts to time trades.
Summary
Will McLane and Max Howard, Georgetown-based investors running Capital Capi, explain how they developed their bearish thesis on Starbucks and bullish thesis on Dutch Bros. Their Starbucks short centers on three main arguments: (1) Dutch Bros and Seven Brew have captured 16 percentage points of Starbucks' share of wallet over four years, with Seven Brew expected to grow 60% annually and Dutch Bros accelerating expansion; (2) these competitors are opening locations near Starbucks (70% within a mile) but represent largely incremental competition rather than displacement; and (3) Starbucks faces unsustainable labor pressure—they cut employees per store from 26.8 to a trough of 20, then back up to 21.3, but competitors staff 27 per location, forcing Starbucks to choose between losing more share or compressing margins through labor investment.
For their Dutch Bros long thesis, they highlight the company's significantly stronger brand value (3x revenue per square foot versus prior coffee shops in same locations), exposure to growth in energy drinks and all-day consumption patterns among Gen Z, expansion into CPG and urban markets not yet priced in, and attractive valuation trading at 18.5x next-twelve-month EBITDA versus Starbucks at 19x despite being a grower. They emphasize this is best executed as a pairs trade (long Dutch Bros/short Starbucks) to hedge broader coffee industry competitive pressures.
The pair detail their innovative research methodology using Claude AI and web scraping. They extracted store opening dates from Dutch Bros' JSON store locator file via the 'OA_active_date' field (order ahead active date), verified accuracy against Wayback Machine, and used satellite imagery with reinforcement learning to identify competitor density around each location. For Starbucks, they analyzed franchise disclosure documents revealing 73 Seven Brew locations planned within a mile of Starbucks, identified menu complexity complaints on Glassdoor (10,000+ scraped reviews showing quadrupled complaints about complexity and understaffing), and used geospatial analysis to track competitive encroachment—finding Starbucks locations with nearby emerging competitors increased from 8% in 2023 to 16% by September 2026.
On Reddit, they identified a bear case overlooked by most investors: the Contributor Quality Score (CQS) spam filter launched in early 2024 creates a negative feedback loop where new users can't post (low account age), can't build karma, can't escape low CQS scores, and thus churn away. This mechanism coincides with daily active user deceleration and Google's AI Overviews reducing traffic to Reddit for information queries. They note daily active users as percentage of weekly active users has declined materially.
Regarding AI in their workflow, they stress avoiding outsourcing critical thinking while leveraging Claude's strengths in data aggregation, research compilation, and creative problem-solving through novel prompting. They assume Claude can accomplish tasks, try them, and iterate rather than asking permission. However, they maintain idea generation flows primarily from reading, consumer observation (Peter Lynch style), and understanding competitive dynamics rather than AI-generated theses.
Their investment process emphasizes (1) understanding market expectations embedded in stock price, (2) isolating 4-7 key business drivers and identifying 1-3 that move daily stock price, (3) conducting primary research others aren't doing to develop variant views, (4) identifying short-term catalysts to change perception, (5) establishing specific signposts for conviction adjustments, and (6) trading the path not the outcome—willing to move from long to short or reduce positions if catalysts don't materialize. They stress emotional detachment from ideas and rigorous post-mortems on both wins and losses to build pattern recognition and avoid repeated mistakes.
About this episode
<p>I hope you guys enjoy my conversation with Will McLane and Max Howard. Will and Max attend Georgetown University and run a hedge fund. </p><p>They publish their thinking and ideas online, for the world to see, and engage in thoughtful discourse/pushback on their theses. </p><p>They are doing it the right way. This is the blueprint I would give every new aspiring investor. </p><p>We discuss Starbucks (SBUX), Dutch Bros (BROS), and how Will and Max invest in the age of AI and leverage those tools to help make better investment decisions. </p><p>Please remember nothing is investment advice. Do your own work and always consult an investment professional. This is educational and entertainment purposes only. </p>
Key Insights
- McLane and Howard's Starbucks short thesis relies on Dutch Bros and Seven Brew capturing 16 percentage points of share of wallet from Starbucks over four years, with Seven Brew projected to add 500 units this year and 900 the next year (60% annual growth), representing competitive inflection.
- Despite rapid expansion of Dutch Bros and Seven Brew, only 8.3% of new units displaced existing coffee shops, meaning competition is largely incremental to Starbucks rather than cannibalistic of their installed base, making the margin pressure structural rather than cyclical.
- Starbucks has unsustainable labor economics—they cut from 26.8 to 20 employees per store, recovered to 21.3 after investing $500M in labor, while competitors like Seven Brew staff 27 per location, forcing Starbucks to either lose more share or compress margins through required labor investment.
- The pair used Dutch Bros' JSON store locator file containing 'OA_active_date' (order ahead active date) to predict store openings with 100% accuracy against verified opening dates using Wayback Machine, giving them 2-3 weeks lead on unit growth announcements versus the street.
- McLane and Howard scraped 10,000+ Glassdoor reviews using a Claude-built Chrome extension and found employee complaints about menu complexity and understaffing quadrupled in the past two quarters, with deterioration most severe in Tennessee, Ohio, and Nevada where Dutch Bros competes most intensely.
- Dutch Bros achieved approximately 3x the average unit volume of previous coffee shop operators in locations where they took over existing boxes without renovation, representing quantifiable brand strength and indicating meaningful differentiation versus competitors.
- Reddit's Contributor Quality Score (CQS) spam filter creates a negative feedback loop where new users cannot post due to low account age, cannot earn karma to improve CQS, and churn away, coinciding with materially declining daily active users as a percentage of weekly active users.
- The pair conducts their ideal trade as a pairs strategy (long Dutch Bros/short Starbucks) to hedge systemic coffee industry competitive pressures while capturing idiosyncratic factors specific to each company rather than as isolated longs.
- McLane and Howard emphasize 'trading the path, not the outcome'—maintaining long-term constructive views on Dutch Bros while taking short positions into periods of overextended sentiment, and adjusting conviction based on specific near-term catalysts and signpost metrics.
- The investors identify 4-7 key business drivers per company but note that only 1-3 actually move the daily stock price, requiring focused primary research on those specific variables rather than broad business analysis to develop market-beating views.
- McLane and Howard stress avoiding outsourcing critical thinking to AI despite using Claude extensively for data aggregation, and maintain that pattern recognition and idea generation must flow from reading, consumer observation, and competitive analysis rather than algorithmic suggestion.
- The pair discovered 73 Seven Brew locations in Texas are planned within one mile of Starbucks locations through analysis of franchise disclosure documents, providing quantitative evidence of accelerating competitive overlap in Starbucks' core urban markets.
Topics
Transcript
This is Brandon from the Macro Ops Value Hive podcast. Just a quick note that nothing you hear is investment advice and you should always consult an investment professional before making any investment decisions. Everything that I say or any other guest that says anything in this podcast is for educational and entertainment purposes only. Please do not take this as investment advice. It is not to consult your professional. And with that out of the way, let's get into the show. I am always on the lookout for talent and talented investors, young, hungry, talented investors and credit capital, the guys behind credit capital, William McLean and Max Howard. You guys popped up on my feed for no reason.…
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