Caribou Coffee will close 80 underperforming stores and rebrand another 88 outlets to Peet's Coffee & Tea, just four months after a German firm purchased the Brooklyn Center-based company.
With 26 percent of its outlets closed or rebranded, Caribou will have its national footprint significantly diminished. But it will remain a major brand in Minnesota, with only 3 of 201 stores closing in the Twin Cities, its largest market.
Some Caribou coffeehouses in Ohio, Michigan, Pennsylvania, Washington, D.C., Maryland, Illinois, Georgia and eastern Wisconsin will be converted to Peet's, another brand with the same ownership as Caribou.
"Over the past few months, we have revisited our business strategy, have taken a hard look at our overall performance, and have made decisions that best position us for long-term growth," Caribou CEO Michael Tattersfield said in a statement.
Caribou and Peet's will "maintain our own separate operations, brands and growth strategies," Tattersfield said in the statement. Caribou's senior leadership team will continue to operate Caribou as an independent company based in the Twin Cities, he said.
Locations converted to Peet's will no longer be a part of Caribou. The store closings will occur Sunday.
German conglomerate Joh. A. Benckiser (JAB) Group bought Caribou for $340 million in December, taking the once publicly traded company private. Benckiser earlier in 2012 also bought northern California-based Peet's for nearly $1 billion.
At the time it bought Caribou, Benckiser gave no indication that it planned a strategic change. Benckiser's chairman, Bart Becht, said at the time that "Caribou has a fantastic brand and unique culture and fits perfectly with [the company's] investment philosophy of investing in premium and unique brands in attractive growth categories like coffee."
Analysts said the decision to close some Caribou stores and convert others to Peet's isn't a major surprise.
"There are a number of stores where the unit economics are not desirable," said Dennis Lombardi, a restaurant industry consultant with WD Partners.
Lombardi and others said Caribou remains a strong brand, particularly in the Upper Midwest.
But Peet's "has more national recognition than Caribou," said R.J. Hottovy, who covers Starbucks for Morningstar. "When you start to consolidate brands in a portfolio, you have to assess which ones resonate the most with consumers."
Caribou has a relatively small presence in many markets. Plus, it's a "mainstream" brand, whereas Peet's has a more upscale flavor to it, said Joe Pawlak, a vice president at restaurant consultant Technomic.
468 outlets to remain
After the changes, Caribou will be a chain of 468 outlets in Minnesota, the Dakotas, western Wisconsin, Iowa, Kansas, North Carolina, Denver and 10 international markets.
After Minnesota, Illinois was Caribou's second-largest market with over 60 stores, many of them in the Chicago area. The company is closing the majority of its Illinois stores, the Chicago Tribune reported.
Caribou didn't release information about individual store closings. Employees at the Caribou Coffee at 5309 Lyndale Av. S. in Minneapolis and the Caribou at 6600 Lyndale Av. S. in Richfield said they were told their stores will close permanently at noon Sunday; store employees said they weren't given a reason.
Analysts say that given the cross-pollination of Peet's and Caribou unveiled Monday, it wouldn't be surprising if at some point their new owner combines some operations.
Last week, Joh. A. Benckiser Group made a preliminary $9.7 billion bid for another coffee company, Amsterdam-based D.E. Master Blenders 1753.
JAB is more than just coffee
In addition to its coffee foray, the JAB Group has several investments in high-end retail, including such brands as Jimmy Choo and Bally, and cosmetics maker Coty Inc.
JAB paid $16 per share for Caribou, a company in dire enough straits in 2008 that its stock was below $2 when Tattersfield became its CEO. It had gone public at $14 a share in 2005.
During Tattersfield's tenure, the company has improved the quality of its products and expanded its menu, particularly with new breakfast offerings.
Caribou didn't disclose the number of workers who will lose their jobs because of the store closures.
"The most challenging element of this decision has been the potential implications for Caribou team members," Tattersfield said in his statement. "We are going to do out best to ensure that the transition is as seamless as possible."