Caribou Coffee CEO on U.S. franchise program, competing with bigger chains

Yahoo Finance’s Brian Sozzi and Julie Hyman speak with Caribou Coffee CEO & President, John Butcher, about the company’s U.S. franchise program, the state of the coffee industry, and outlook.

Video Transcript

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- Coffee is having a new moment in the sun on Wall Street in recent weeks. Dutch bros saw a strong response to its IPO analysts have come out bullish on Starbucks into earnings. And today, we shed light on a formidable competitor to both of those names, privately owned, Caribou Coffee.

The coffee chain which operates 718 locations says it's ramping up franchise development as it looks to expand to more states. John Butcher is Caribou Coffee's CEO and joins us now. John, good to see you this morning here. So how many locations are you looking to open over the next year?

JOHN BUTCHER: We don't have a defined target for our franchise goals, but we will continue to expand our company owned development rapidly. And our focus on franchise is finding the right partners. I don't need a million partners. We need sophisticated operators that care about the same things that we do.

- And so how are you finding those folks? And aren't you finding a lot of them? Is there a lot of demand right now?

JOHN BUTCHER: Well, we just launched on Monday. We just actually announced our franchising endeavor. So you guys are hot on the case. Conversations are suing a lot of interest. And we're currently in the vetting process.

- So many mixed trends, John, at this point in the pandemic. You know, what are you seeing in your business in terms of traffic and sales?

JOHN BUTCHER: Our sales have been really strong throughout the pandemic. Our teams are incredible. You know, they've faced with 1,000 different challenges, but they've been resilient. The business has been sound. Traffic is up both to last year and to 2019, or I should say sales are up to both of those. Traffic is still somewhat erratic depending on the type of store that you're operating. Drive throughs are performing exceptionally well. Non drive-throughs especially in densely populated urban areas are still challenged but not as many office buildings full. But the business is doing great.

- And as we know-- just sort of dig into that a little bit. Breakfast was really challenged during the pandemic because not as many people were going out for breakfast. They were drinking their coffee at home. So when you look at different day parts, are you seeing a lot of that flow come back, and geographically, are there certain areas that are stronger than others?

JOHN BUTCHER: Well, Julie, you're right. Breakfast shifted a lot during the pandemic, but one thing that is always the case is people need their coffee. So luckily, especially for Caribou, we're positioned to meet that demand wherever it is. So we have a thriving grocery business. We're on grocery store shelves in most states. We ship our coffee and k-cups to all 50 states. So if it was at home consumption, we could meet that demand. But a lot of people showed up to our stores, and our teams were absolute just heroes throughout the entire pandemic you know , serving first responders, showing up to make sure that the people in the community that needed to be fueled got their morning cup of coffee and then some.

- There are two major chains in this country, John. You have Dunkin' Brands. You have the beast that is Starbucks. But I look at you and I look at Dutch Burrow's that just came out, very successful IPO. Why do you think some of these smaller chains have been able to compete with these two behemoths?

JOHN BUTCHER: Well, I think for Caribou, you know, it's really our focus on people, on our product quality, and on our purpose statement. I mean, we-- back when our company was founded in 1992, our original founders said we want to eradicate crappy and personal service from the industry. And so we started to hire people differently based on being others focused, believing that we can train them to do many of the roles.

Our product is the best. We are the only national coffeehouse to serve 100% Rainforest Alliance certified coffee and espresso. And all of our beverages, our clean label, so for us that means absolutely no colors, flavors, preservatives, sweeteners, nothing. It took us many years to develop that. But if you come to Caribou and get a mocha, there's three ingredients in it, coffee, well, espresso, dairy, and chocolate chips. You know, because we just believe that real ingredients taste better.

And then our purpose, I think, resonates. It resonates with our team. It resonates with the people that come to Caribou on a daily basis. And that's to make people's experiences so great that they sparked chain reactions of good throughout the communities that they serve.

So I think for us we stay so close to what our customers want, that our flat organization can continue to meet those needs faster than maybe some other companies can.

- I'm going to refrain from poking fun at our producer who loves putting gallons of oatly coffee in her coffee. We'll leave it there, though. But talk to us about staffing, John. There-- can you get the workers you need right now to support the demand you are seeing in the morning hours and of course, in the drive-thru?

JOHN BUTCHER: Well, I wish we could say we were immune from some of the staffing challenges, we're not. We always see fall turnover when students go back to school and work. But what we've seen is that the inbound applicant flow is less than it typically is. And I think there's a variety of reasons for that. But for the most part, our team is faring pretty well. We have the extra challenge, of course, of having to staff the existing stores and then fuel all the growth that we have coming for the next couple of years.

But we're ready. We have many of the next store managers already on staff. So we continue. It's just a daily battle, right? You just have to continue to get out there and share the story and find the exceptional talent in each of the marketplaces that we compete in.

- So I see-- I hear you rolling out or getting more aggressive in opening new restaurants. I see a positive reception in the market to a Dutch Burrow's. Are you thinking about returning to public markets here with an IPO?

JOHN BUTCHER: Well, I don't have any comment on any potential IPO. We are focused solely on continuing the momentum that we have at Caribou and then expanding through our franchise business.

- All right, we'll leave it there. Good luck in the path forward. John Butcher, Caribou Coffee CEO. We'll talk to you soon.

JOHN BUTCHER: Thanks, Brian.

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