The Company Taking Over Breakfast in AmericaBy
Billionaire Reimann family is backing U.S. coffee empire
Company is using new co-branded restaurants to tout properties
JAB Holding Co., the European investment firm that has quietly acquired many of the best-known U.S. coffee and food brands, is beginning to put the pieces together in its bid to build a caffeine empire.
The company, backed by Austria’s billionaire Reimann family, has developed a fleet of co-branded restaurants that highlight its properties. The chain, called simply Coffee & Bagels, offers Caribou java and Einstein Bros. bagels -- an effort to entice customers by wrapping its existing brands in a new package. JAB’s Caribou business is now taking the mashup concept a step further with new cafes that also tout Argo Tea, a brand it licenses but doesn’t own.
The plan underscores the challenges facing the sprawling JAB. The company has quickly assembled a startling array of brands: In addition to Caribou and the Einstein Noah Restaurant Group, it has Stumptown Coffee Roasters, Keurig Green Mountain, Krispy Kreme Doughnuts Inc., Jacobs Douwe Egberts and Peet’s Coffee & Tea, among others. But it hasn’t been clear how linking up the names will make them stronger.
The Coffee & Bagels chain, though still small, is a test of whether JAB can generate some synergy -- and potentially take on Starbucks Corp. By pairing fresh baked goods with coffee-shop atmosphere, the company hopes to fill a void in the market, Caribou Chief Executive Officer Mike Tattersfield said in an interview.
“We can create something that doesn’t exist,” he said. “People want a community gathering spot -- and people like the kind of funkiness and quirkiness of a coffee shop feel.”
JAB’s managers, meanwhile, are leaving the day-to-day handling of the project up to Caribou.
“While JAB is involved in approving and contributing to that strategy, management teams are given meaningful leeway to make decisions for their individual companies and that will not change,” the holding company said in an e-mailed statement.
JAB, realizing consumers’ tastes for coffee has gone more upscale in recent years, may have an opportunity to build a more direct competitor to Starbucks.
“There’s this gap between Starbucks and everyone else in the marketplace globally,” said Jeffrey Young, head of research firm Allegra Group in London. “There really is no other major competitor to Starbucks in the mid- to premium-coffee market.”
Others haven’t been so successful with restaurants featuring multiple concepts. Yum! Brands Inc. abandoned its two-for-one strategy in the late 2000s -- before that, putting KFC and Taco Bell under one roof was one of its key tactics. Darden Restaurants Inc. also tried the approach starting in 2011 with two of its casual-dining brands. After opening Olive Garden-Red Lobster combo locations in the Southeast, it ended up closing or converting all of them into Olive Garden-only sites.
“It’s generally too confusing,” said John Gordon, a restaurant and franchisee consultant at Pacific Management Consulting Group. With newer, more modern brands, however, “they could be synergistic,” he said.
With Coffee & Bagels, the idea is to do something that the company couldn’t accomplish with its existing chains. Einstein Bros. bagel shops, for instance, didn’t have the quirky feel of a neighborhood cafe, Tattersfield said. Caribou, meanwhile, wasn’t making bagels fresh throughout the day.
The Coffee & Bagels locations are brightly lit and feature community tables, a bar where customers can sit and watch drinks being made, and a large retail section with packaged coffee, mugs and other branded merchandise.
There are plans for more than 50 Coffee & Bagels stores in the U.S. About 35 will be open by the end of this year, Tattersfield said. The first one debuted in September 2015 in Colorado Springs, Colorado, which is about 70 miles (113 kilometers) south of Denver. That compares with Starbucks’ 12,900 U.S. cafes.
Coffee & Bagels has its biggest concentration in Minnesota, though, where Caribou is based. The company also is testing the Argo Tea brand in some stores through its licensing deal with that chain. So far, customers are liking it, Tattersfield said.
The concept has “tremendous potential” for growth, but for now the company is being disciplined about adding sites, he said. “We want to be very thoughtful about how we grow,” Tattersfield said.
It’s no wonder that JAB is interested in growing its cafe business. U.S. coffee-chain sales jumped 9.9 percent last year, compared with growth of 5.5 percent for limited-service restaurants in general, according to data from research firm Technomic.
JAB is taking other steps to revamp its holdings. Earlier this month, the firm agreed to acquire Krispy Kreme’s U.K. business from a private equity owner, unifying the brand across the Atlantic.
Keurig, which sells coffee brewers and single-use pods, gives JAB another way to market its properties. Caribou-branded pods serve as advertising for Caribou cafes, for instance, and vice versa.
JAB also has invested the Reimann fortune in a variety of consumer-goods companies, such as cosmetics giant Coty Inc. and Durex condom maker Reckitt Benckiser Group Plc. Four of the Reimanns each have a net worth of about $3 billion, according to the Bloomberg Billionaires Index.
Analysts have speculated that JAB isn’t done with its caffeine acquisitions. The company’s “march to consolidate coffee” could lead to a bid for Dunkin’ Brands Group Inc., according to Pablo Zuanic, an analyst at Susquehanna International Group LLP. JAB also could have its eye on Panera Bread Co. or some of Kraft Heinz Co.’s coffee brands, he said in a report earlier this year.
“They have a very big war chest,” said Allegra’s Young. “I think we haven’t seen the end of their buying spree.”
— With assistance by David De Jong, and Robert Lafranco