Caribou Coffee looks to expand through franchises, more Minnesota locations

A new Caribou Coffee location opened in November in Wooster, Ohio, marking the company's first-ever domestic franchise outpost.

The company has now lined up six franchisees to open more than 300 new locations as one part of its plan to grow the chain — one of the most recognizable in Midwest states.

More locations will open in Ohio, plus Florida, Michigan, Missouri and Pennsylvania.

"Domestic franchise partners can help us expand," said John Butcher, CEO of Brooklyn Center-based Caribou. "If we have the right partners we can grow the brand faster and more efficiently."

Like other restaurants and stores, Caribou is faced with changing demographics as the hybrid work model takes hold. It closed eight locations in downtown Minneapolis, citing changes in business traffic.

But Butcher said that the company is currently looking at two potential new locations downtown.

"Some of downtown is still thriving," Butcher said.

Coffee shops like diners and some retail thrive on hyperlocal traffic. So far this year, Caribou has closed 13 locations and opened five new stores in Minnesota. Additional openings in the state are planned for this year.

Caribou also is emphasizing its relatively new Caribou Cabin concept, with drive-thru and walk-up windows but no indoor seating. The first cabin location opened in Jordan in 2019. The company now has 51 Cabin locations, all of which are company-owned except for the new store in Wooster, Ohio.

"The cabin is very fast," said Butcher of the efficiency the concept offers customers.

The concept lends itself well to outstate and second-ring suburban locations. The Cabin is an extension of the woodsy, lodge-like aesthetics that have been a Caribou hallmark since it launched in 1992.

Franchisees will have their choice of opening a traditional or Cabin location.

The chain currently has Cabin locations in Minnesota, Wisconsin, North Dakota, South Dakota and now Ohio.

The fight for good franchise locations among coffee chains is heating up, said said Garrett Oden, the Austin, Texas-based publisher of Fresh Cup Magazine which focuses on the coffee and tea industries.

"We're in the middle of a period of coffee franchise explosion," he said. "Companies like Scooter's Coffee, PJ's Coffee, Dutch Bros and many others are facing off in a rapid land grab. Given that these franchises often serve very similar menus, it often comes down to who can capture valuable real estate first, since any given market can only sustain so many of these franchise locations."

At the end of March, Caribou had 765 locations across the globe with nearly 300 stores in Minnesota. The portfolio includes 294 franchised locations in 11 countries outside the U.S., including Egypt, Morocco and Saudi Arabia.

Butcher expects it will take five to seven years to open the more than 300 units planned by franchisees. A handful of new franchise locations will open in Florida, Michigan and Ohio this year.

"Each franchisee has their own timeline," said Butcher, Caribou's chief executive.

Germany-based JAB Holding Co. acquired Caribou for $340 million in 2013. JAB combined Caribou with Panera Bread and Einstein Bros. Bagels under the Panera Brands umbrella in 2021.

Four of Caribou's new franchisees also own Panera Bread locations.

Sam Covelli, CEO of Ohio-based Covelli Enterprises, is Panera Bread's largest franchisee. He plans to open 100 Caribou locations in three states.

"After visiting Caribou coffee houses, speaking with their leadership team and tasting the quality of their products, it became obvious that Caribou is the future of the coffee industry," said Covelli in a statement.

The company continues to seek additional franchisees but will not franchise any locations in Minnesota.

Paul Vaaler, a professor at the University of Minnesota Law School and Carlson School of Management, said franchising offers a way to build the brand without some of the costs of adding more company-owned stores.

"It's a way for Caribou to increase their footprint nationally. You become asset-light because you don't have to build bricks and mortar," said Vaaler.

Caribou also has a line of beans, canned coffees, and packages of single serving K-Cup Pods available for retail sale.

"We're already in grocery stores in all 50 states," Butcher said.

Caribou previously had much wider reach in the U.S. In 2011, when the company was still publicly traded, it had locations in 20 states and the District of Columbia, according to financial filings.

Just a few months after closing on the acquisition, JAB significantly cut back Caribou's national presence with a move to close 80 stores, all but three of which were outside Minnesota. It also converted another 88 locations into Peets Coffee & Tea stores, a brand also owned by JAB.