When reclusive German conglomerate Joh. A. Benckiser announced it would acquire Peet’s Coffee back in July for $1 billion, it seemed an odd move for a company with a portfolio of fashion and perfume brands. The deal seems a lot less odd now that Benckiser announced it is also buying Caribou Coffee, another major regional player.
Even put together, these two are hardly a challenge to sector leader Starbucks, which recently upped its growth plans to aim for 20,000 worldwide stores by the end of 2014. Peets and Caribou don’t have 1,000 stores between them.
But the two brands have much in common, including rabid local followings and a reputation for higher quality brew. Oh yeah — and positioning themselves as an upscale alternative to Starbucks, for those who wouldn’t be caught dead in one.
What is Benckiser up to with its foray into coffee? There are a few basic ways this could go — the corporation could give them a quick fix-up and sell them off, take a hand-off attitude and let them continue much as they have, merge them together (despite its assurances to the contrary), or acquire more coffee chains in hopes of building a bigger portfolio in this sector. Green Mountain Coffee Roasters is another publicly held coffee chain that might make a likely candidate.
A merger could make geographic sense, as Caribou is mostly in the Midwest and East, while Peet’s is strongest in the West. To German bean-counters, it may simply not make sense in the long run to maintain two headquarters staffs and facilities for such similar businesses. A spinoff might also happen after such a merger/rebranding.
The strategy will likely take a few years to fully play out, whichever path Benckiser chooses. In the meanwhile, having the same, deep-pocketed corporate owner could prove beneficial to both Caribou and Peet’s. Here are some of the benefits the two chains could reap from being under the same corporate umbrella:
- Expansion. Twin Cities leaders are already applauding the cash injection for Caribou from Benckiser, and expressed hope it means a growth spurt for local fave Caribou, and more jobs. The corporate money may help these two chains snap up prime locations before Starbucks gets to them in its new growth initiative.
- Behind the scenes efficiency. While Peet’s and Caribou might continue to operate as discrete brands, there may be some economies of scale they might realize by pooling their buying on supplies, maybe even — gasp! — their coffee buying. No reason one buying team could travel the world finding those rare beans instead of two, then bring them home and brand some blends for each chain. That might help margins for both. Peet’s profits were down a bit in the first half of this year and Caribou’s were way down, thanks largely to a favorable tax situation in the previous year.
- Streamlined business model. Peet’s does not franchise its stores, while Caribou has roughly 200 of its 600 stores franchised, a fairly low percentage. Ordinarily, the vast majority of stores would be franchised in a franchise chain. Benckiser may not like the franchise approach, which also presents a difference in operating model if the two chains were to be merged. It might be fairly easy to un-franchise Caribou, as more than half the franchise units are with a single franchisee.
- Adding bench strength. Benckiser is already at work on this one, bringing in former Weight Watchers exec Dave Burwick as 10-year Peet’s president and CEO Patrick O’Dea steps down. “Professionalizing the management” is a classic move after an acquisition — one that can telegraph a desire for a spinoff IPO.
No matter how this one shakes out, coffee fans will no doubt be watching closely, praying their favorite coffeehouses survive.
What do you think is next for Caribou and Peet’s? Share your theory in the comments.