Caribou Coffee to refocus on cozy cafes instead of drive-thru speed

Caribou Coffee’s new CEO sipped a spicy mocha inside a spacious new Edina location on a recent Tuesday, a fire burning beneath a golden chandelier as customers sat in plush armchairs surrounded by exposed stone and wood accents.

The Australia native appeared to feel the warmth, relaxation and comfort he wants all visitors to enjoy when dropping by these “chalet” concept stores. The Minnesota-founded brand is staking its future on the cozier, “sit down and stay a while” cafes rather than the drive-thru “cabin” model Caribou bet on in 2019.

The feel is strikingly similar to the original 1992 storefront, also in Edina, that launched the chain.

“A drive-thru-only box isn’t personal,” said Scott Kennedy, who took the helm of Caribou earlier this year. “It’s really the team and the experience that differentiates why a coffee might taste or feel better in a certain environment.”

After decades of expansion, contraction, leadership changes, ownership transitions, business model revamps and new products — like boba tea — Caribou’s return to its foundation is what leaders hope will set it apart from industry behemoth Starbucks. Competition for customers is especially fierce, as many people rethink their daily $7 latte in an era of persistently high inflation and economic uncertainty.

The new strategy could determine Caribou’s survival amid a slowdown in foot traffic.

When John Puckett and his wife, Kim, founded Caribou more than 30 years ago, the two were fresh out of corporate jobs in Boston and looking to build a business where they wouldn’t “spend Sundays dreading to go to work on Monday,” he said.

Building neighborhood gathering places became the business plan. Stores stayed open until 10 p.m., Puckett said, and employees knew customers’ names.

“We always said when we were training our employees, ‘We want to make Caribou the best part of someone’s day,’ ” Puckett said.

By 1999, the Pucketts had stepped away from leading the company. By the next year, they had sold a 70% stake in Caribou to Crescent Capital of Atlanta. Caribou proceeded to expand into an empire of more than 800 locations in 20 states and 11 countries. Listed as a public company in 2005, it eventually went private again after Germany’s JAB Holding Company acquired it for $340 million in 2012.

Shortly before Kennedy joined Caribou as chief financial officer in 2019, the company launched the cabin storefronts, about the size of studio apartments and meant to attract customers prioritizing speed and convenience, executives reasoned at the time.

Usually positioned off busy commuter routes in the suburbs, the 600-square-foot stores seemed built for the pandemic’s demands. Drive-thru or walk-up ordering didn’t require as much customer interaction, for example.

Caribou’s changing strategy is emblematic of the divide brewing across the entire retail landscape for coffee.

Some low-cost drive-thru chains, such as Scooter’s Coffee, have flourished since the pandemic. But mainstays like Caribou and Starbucks are both leaning into comfy coffeeshop vibes, better java and friendlier workers.

At least according to Kennedy, Caribou had the idea first. Kennedy said every time he hears Starbucks executives say they want a “cozy experience,” he snickers.

“To me, it’s like they want to be like us,” he said.

Last year, Caribou handed off its roasting and packaged coffee business to JDE Peet’s (which Keurig Dr Pepper then acquired this year) with the intent to focus more on its coffeehouses.

That might unshackle Caribou from trying to attract both convenience-driven customers and experience-focused drinkers at the same time, said R.J. Hottovy, the head of analytical research at Placer.ai.

“When you try to do that, you generally don’t serve either customer well,” he said.

Hottovy said drive-thru chains were the winners during this volatile year for the coffee industry, capturing market share by spreading to untapped markets like the Southeast and establishing customer loyalty.

Kennedy acknowledged the Southeast — where Starbucks is not a dominant presence — is a promising new market for Caribou. The company has expanded there in recent years, with eight locations in Georgia opening this year.

Kennedy is committed to keeping competition out and preserving Caribou’s market-leading position in Minnesota and the Upper Midwest, which he refers to as the company’s “fortress.” And the Mall of America might just be its castle.

While stopping for fuel at Caribou’s third-floor location while Christmas shopping, Meg Nodzon, of St. Paul, suggested the chain could launch a smaller cortado, a drink with equal parts espresso and steamed milk, to bring down costs.

“Coffee in general is just, like, crazy expensive,” she said.

Reena Nwachukwu, of Bloomington, said she orders her caramel high-rise with oat milk and one pump of vanilla to get herself out of bed on winter mornings.

“It is kind of more as a reward or a bribe,” she said. She has invested in at-home brewing methods in light of rising costs.

Kennedy said less expensive, smaller-sized drinks are in the works. Caribou and other coffee shops price some of their specialty drinks north of $7, as tariffs and low-crop yields have driven up the cost of coffee beans.

“As we move forward, our focus will be on: ‘Real tastes good,’ ” the CEO said.

That means focusing more on coffee and espresso. Kennedy said he does not want to fixate too much on innovation.

“Because, again, that’s the distraction, and I think we had some of that in our environment a couple of years ago that we ratcheted back on,” Kennedy said.