Caribou Coffee still growing after 25 years

Caribou Coffee has come a long way since December 1992, when Kim Puckett would leave her frazzled husband to run their new coffee shop alone while she raced next door to hand out fliers to people standing in line for the movies.

She would dash back just in time to help serve the after-movie crowd.

"That was back in the day," said co-founder John Puckett during a recent interview some 17 years after the couple sold their business. "We'd run out of milk and hand a customer a $20 bill to go get us more milk. Our customers were so loyal. They really gave us a chance. If it didn't go well, we wouldn't be here right now."

Caribou Coffee, which celebrated its 25th year in business earlier this month, is no longer the tiny Edina business the Pucketts once steered with the help of long hours and cash infusions from friends, parents and investment banks. It is now the nation's second largest coffee chain.

Still retaining an updated version of the North Woods store decor, the business boasts 798 owned and franchised locations in 23 states, Washington, D.C., and 12 countries. Its beans sell in grocery stores in all 50 states, and the retail chain has bragging rights as the No. 1 coffee shop in Kuwait.

"Every bean that you buy in the world with the Caribou name is sourced by us, and every bean is roasted right here in Brooklyn Center. I am always kind of shocked that Minnesotans don't know that," said John Butcher, the former Target executive who became Caribou's president in June.

He will be flying to Costa Rica and Colombia in a few weeks to meet with coffee farmers and to test and buy beans, Butcher said as he walked through the roastery and warehouse, where sky-high piles of coffee bags arrive by plane and truckload every week.

Inside the roastery, 50 workers operate an arsenal of giant silos, vacuums and other equipment that sorts, roasts, grinds and packages every bag of Caribou coffee, said Butcher, who has been an avid fan of the brand for 22 years. Another 200 work at the headquarters in other roles.

Butcher is one of the latest executives to lead the chain following several ownership changes — from the Pucketts, to the Crescent Capital investment arm of the First Islamic Bank of Bahrain and the renamed Arcapita. In 2012, the chain was bought by the Luxembourg-based food and drink giant JAB Holdings Co. for $340 million.

In 1998, Caribou had 90 stores and $70 million in revenue. JAB won't disclose Caribou's current sales, but retail experts estimate that Caribou likely exceeds $500 million in annual revenue.

If Butcher gets his way, Caribou will grow even more. The strategy, pushed by Butcher and the new Caribou/Einstein Bros. Bagels CEO Sarah Spiegel, includes new stores and new products such as coffees on tap and a new "nitrogen-infused" coffee drink with a thick frothy head.

The strategy also includes marketing coups, such as being named the official coffee of the Super Bowl Host Committee. For weeks, 30 Minnesota employees experimented with 20 different beans from 12 countries before landing on just the right blend for the big game, said Butcher while holding a newly packaged bag of Bold North, a dark roast coffee with notes of caramel and oak.

Bold North will be featured prominently inside the U.S. Bank Stadium on game day Feb. 4 and at Mall of America and Nicollet Mall Super Bowl events.

It's a bold move. Most people associate football with beer or energy drinks, not coffee, said Akshay Rao, a marketing professor at the University of Minnesota's Carlson School of Management.

Still, the strategy could work, he said. "Any brand that gets associated with the Super Bowl has a huge audience right away and that is a good thing."

Aside from stepped up marketing, Caribou plans to add 25 new stores a year and to energize Caribou's footprint in the Upper Midwest, officials said.

While Minnesota is Caribou's largest market by far, with 279 stores, South Dakota has only 17 stores and Wisconsin, 28.

"So there's opportunity. We want to be focused on the Upper Midwest," Butcher said.

Company growth plans also include bulking up on carbs. Caribou is expanding its fledgling combination of "coffee and bagel" stores.

In 2014, JAB bought the Einstein Bros. Bagels chain for $364.5 million. It now has 47 owned and franchised stores featuring Caribou Coffee and Einstein bagel stores that sit right next door to each other. Another 78 locations sell the two brands inside a single "Coffee & Bagels" store.

Last month, Caribou's parent company bought the 270-store Bruegger's Bagel chain for an undisclosed price. It remains to be seen how JAB will cross-market Bruegger's and Caribou Coffee.

"The reason [we] invested in Einstein and Bruegger's was to broaden our breakfast" offerings, Butcher said. "Now we have a portfolio that allows us to do that."

It's possible Caribou will eventually sell coffee inside Brueggers Bagel shops, he said. "Our guests are asking for it. But we have no plans yet."

Rao, the U marketing professor, said Caribou may be wise to tread slowly.

"On the face of it, combining coffee and bagels appears to make sense. But if I was a consultant, I would urge them to go back and look at the fundamentals and see who really is their customer," Rao said. "Millennials who go into coffee [shops] with their computers are not likely to be carb consumers."

So he said the key question should be, "What else can Caribou offer to go with coffee?"

Finding the right focus is key when looking to expand, Rao said. Retailers from Target and Home Depot to Starbucks and Dunkin' Donuts all struggle with product mix and profit margins when trying to grow or enter new territories. They must intensely study the buying habits of prospective customers to ensure they get the culture right.

Butcher agrees that a customer-centric culture is important.

After years at Target, "I know how important culture is, and I was excited to be part of this Caribou culture," Butcher said. "What I learned at Target is how to be hyper-focused on the customer and how to step back and learn what do people really want from our product and how do we access their needs."

At the same time Caribou is expanding, the chain also is modernizing some of its stores and introducing the new coffee drinks plus menu items such as the "schmere," a warmed bagel version of the doughnut hole filled with cream cheese.

The schmere is the kind of "product innovation" Butcher likes and will push for, he said.

At Caribou, "people love the fireplaces and the wood. People love the name, the alliteration and the warmth and culture of the coffee," said Butcher, who enjoys hanging out in Caribou Coffee shops, introducing customers to new drinks and even working the drive thru.

"It's so much fun," he said. "This summer I worked in one store, and a guest bought the coffee for the person in line behind her. And then 29 cars in a row bought the coffee for the car behind them. Where else does this happen?