Caribou Coffee Provides a Lower Franchise Cost Kiosk Option (2024)
Caribou Coffee Company is an American coffee company and coffeehouse chain. It was founded in Edina, Minnesota, in 1992 and started franchising last year, now you can open your Caribou Coffee franchise! In 2005, Caribou launched its IPO listed on NASDAQ under CBOU – the company experienced rapid growth, from declining sales growth to a public holding company. In 2012, Caribou was taken private in a $340 million deal by German equity company JAB Holding Company. Although merged with a bigger company, Caribou had operated as an independent company with its own brand. In 2021, Caribou announced that it had merged with Panera Bread and filed paperwork for another IPO.
As of December 31, 2021, there were 139 franchised or licensed Caribou coffeehouses in the United States, and 321 company-owned. With a full chain of coffee manufacturing, a Caribou Coffee franchisee will operate a retail coffee shop business featuring coffee, coffee-based beverages, and teas.
How is Caribou Coffee Positioned in the Food & Beverage Industry?
The food industry is a significant contributor to regional economies and to the U.S. economy. It is a stable industry in terms of employment and labor income due to the consistent demand for food. The food sector accounts for about 5% of gross domestic product (GDP), 10% of total U.S. employment, and 10% of U.S. consumers’ disposable personal income (DPI). It has total sales of $1.4 trillion, of which $164 billion in value-added is generated by the food and beverage industry alone.
Food franchises are often the first thing people correlate with the franchise industry. Food & Beverage is certainly one of the most popular areas of franchising. Although food franchising is often associated with fast food, the industry also includes fast-casual, coffee, and pizza.
Of the food and beverage concepts we have reviewed, total investment amounts can start as low as $3,000 for smaller kiosk concepts all the way up to $6,732,615 for a full-service restaurant. Caribou Coffee positions in the middle point of the industry in terms of the initial investment. In our research, the average royalty fee takes up 5.3% of gross revenue, and the average marketing fee is 2.3% of the gross revenue.
What is the Caribou Coffee Franchise Cost?
Caribou coffee offers franchisees for the operation of the retail shops of varying sizes: a “Chalet,” “Cabin,” and “Kiosk.” Specifically, “Chalet” and “Cabin” operate at stand-alone or more traditional locations, and “Kiosk” typically operates at non-traditional facilities, including college campuses. “Chalet” is the largest format with dine-in and drive-thru available, while “Cabin” is drive-thru only.
The below chart summarizes the total investment necessary to begin operation for each type of operation. The fees for “Chalet” and “Cabin” include $40,000 to $50,000 that are paid to the franchisor or affiliates; the fees for “Kiosk” include $25,000 to $35,000 that are paid to the franchisor or affiliates.
Total Investment Necessary to Begin Operation in 2022 (excluding leases)
| Type of Operation | Total Investment in 2022 |
|---|---|
| Chalet | $722,100 – $1,146,300 |
| Cabin | $446,100 – $732,300 |
| Kiosk | $249,100 – $606,300 |
The total investment includes an initial franchise fee varying in the type of operations. The initial franchise fee for both “Chalet” and “Cabin” is $30,000 and $15,000 for “Kiosk.” Additionally, franchisees are required to purchase certain inventory from the affiliates, which ranges from $10,000 to $20,000.
Once the operations begin, franchisees are expected to pay the company a royalty fee of 5% on gross sales for “Cabin” and “Chalet” and a royalty fee of 6% on gross sales for “Kiosk.” Each franchisee is required to pay another up to 3% of gross sales on marketing.
How Much Do Caribou Coffee Franchise Owners Make?
Kiosk coffeehouse is currently Caribou’s only franchised coffeehouse. There are 119 active licensed Kiosk locations as of December 28, 2021.
The Closet Factory Franchise Corporation Statements Of Income (Loss)
| Gross Sales Distribution 2021 | Kiosk (Non-Traditional) | |||||
|---|---|---|---|---|---|---|
| $’s | # of Stores | Average Sales | # of stores exceeding Average | Median Sales | High Sales | Low Sales |
| Grocery | 61 | $264,729 | 27 | $237,915 | $921,524 | $88,332 |
| Grocery with Drive Thru | 32 | $553,928 | 13 | $478,587 | $1,245,064 | $215,308 |
| Airport | 7 | $1,368,347 | 4 | $1,771,092 | $2,769,496 | $348,830 |
| All Other | 19 | $345,906 | 11 | $350,465 | $781,790 | $86,361 |
The above chart shows that locations open in the airport have the highest average sales in 2021, presumingly with more consumer traffic. The average sales for locations open in the grocery with a drive-thru are $300,000 higher than that without a drive-thru.
2021 Average Kiosk Franchise Sales: $633,227
| Initial Investment (midpoint) | %Profit margin of average franchise sales | Estimated profits | Time to recoup investment |
|---|---|---|---|
| $427,700 | 12.5% | $79,153 | 7 years |
| $427,700 | 17.5% | $110,814 | 5.5 years |
| $427,700 | 22.5% | $142,476 | 4.5 years |
In 2021, based on the average sales of $633,227, at an average 17.5% profit margin, it will take around 5.5 years to recoup the investment. Although it is similar to other franchise opportunities, you may not get a 17.5% profit margin which would elongate getting a return on your investment. The time to recoup investments incorporates roughly a 1.5-year period to scale up the store. This includes finding the location, building the store, passing break even, and then reaching significant income.
Is the Caribou Coffee Profit Worth the Franchise Cost?
To assign a valuation multiple for a Caribou Coffee franchise, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.
Under $1 Million Net Sales
- Estimated Selling Price = Net Sales * 0.44
When you go to sell a Caribou Coffee franchise based on the median multiple of 0.44 and net sales of $633,227, it would sell for $278,619. This is significantly lower than the midpoint investment of $427,700.
How Many Caribou Coffee Units Have Opened and Closed?
| Year | Outlets at Start of Year | Outlets Opened | Terminations | Non-Renewals | Reacquired by Franchisor | Ceased Operations – Other Reasons | Outlets at End of Year |
|---|---|---|---|---|---|---|---|
| 2019 | 126 | 12 | 8 | 0 | 0 | 0 | 130 |
| 2020 | 130 | 8 | 6 | 0 | 0 | 0 | 132 |
| 2021 | 132 | 11 | 4 | 0 | 0 | 0 | 139 |
The number of franchisees is increasing over the last three years. In 2021, there were 4 stores terminated, resulting in a failure rate of 2.87%. This is much lower than the average industry failure rate of 19.17%! Even during the COVID-19 pandemic, there was a net increase in the number of stores. As of December 31, 2021, there are 5 new franchise agreements signed, 15 projected new outlets, and 46 company-owned stores open next year.
Caribou Coffee Income Statement Takeaways
Although Caribou Coffee experienced a temporary decrease in revenue during the COVID-19 pandemic, the revenues in 2021 reached $857,464,000. This is an increase of over $100 million since 2020. The revenues primarily came from coffeehouse and bagel bakery sales, which consist of 83% of the net sales. Although the cost of revenues is increasing as well, Caribou Coffee is able to control the cost and reach a positive net income of $37,512,000 in 2021, compensating for the net loss in 2020.
CARIBOU COFFEE COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
| Fiscal Year Ended | |||
|---|---|---|---|
| December 28, 2021 | December 29, 2020 | December 31, 2019 | |
| Coffeehouse and bagel bakery sales | $709,744 | $599,983 | $759,215 |
| Franchise royalties and fees | 20,000 | 16,975 | 24,212 |
| Franchise advertising sales | 3,524 | 2,519 | 3,545 |
| Franchise and commercial product sales | 124,196 | 116,418 | 127,492 |
| Net sales | 857,464 | 735,895 | 914,464 |
| Cost of goods sold | 173,808 | 146,597 | 196,841 |
| Labor | 221,362 | 198,536 | 256,285 |
| Occupancy | 80,742 | 89,687 | 85,515 |
| Other operating expenses | 101,794 | 88,922 | 102,514 |
| Total coffeehouse and bagel bakery expense | 577,706 | 523,742 | 641,155 |
| Franchise operations and other expenses | 2,357 | 2,284 | 3,901 |
| Ad fund expense franchise | 3,524 | 2,519 | 6,655 |
| Franchise and commercial product cost of goods sold | 94,319 | 84,296 | 87,489 |
| Depreciation and amortization | 41,502 | 49,795 | 48,290 |
| General and administrative expenses | 71,892 | 73,216 | 93,654 |
| Pre-opening expenses | 1,109 | 804 | 1,276 |
| Total costs and expenses | 792,409 | 736,656 | 882,420 |
| Operating income (loss) | 65,055 | (761) | 32,044 |
| Interest expense, net | 17,831 | 19,163 | 20,889 |
| Other (income) expense | (1,029) | – | 8,516 |
| Pre-tax income (loss) | 48,253 | (19,924) | 2,639 |
| Income tax expense (benefit) | 10,741 | (2,826) | (1,301) |
| Net income (loss) | $37,512 | $(17,908) | $3,940 |
| Less net income (loss) attributable to noncontrolling interest | 1,480 | (536) | 490 |
| Net income (loss) attributable to Caribou Coffee Company, Inc. and Affiliates | $36,032 | $(16,562) | $3,450 |
Caribou Coffee Cash Flows Statement Takeaways
Liquidity is one of the most important measurements of a company’s ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, operations, and expansion of franchised restaurant locations. According to the cash flows statement, Caribou Coffee has a $24,701,000 increase in cash and cash equivalents. At the end of the fiscal year, its total cash and cash equivalents amounted to approximately $100 million.
CARIBOU COFFEE COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
| Fiscal Year Ended | |||
|---|---|---|---|
| December 28, 2021 | December 29, 2020 | December 31, 2019 | |
OPERATING ACTIVITIES: |
|||
| Net income (loss) | $37,512 | $(17,098) | $3,940 |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||
| Depreciation and amortization | 40,509 | 45,374 | 47,777 |
| Amortization of deferred financing fees | 1,797 | 967 | 706 |
| Stock-based compensation | 3,656 | 4,026 | 5,324 |
| Deferred income taxes | 6,371 | (3,964) | (115) |
| Impairment of restaurant assets | 993 | 2,111 | 108 |
| Right of use asset impairment charges | 824 | 2,310 | 405 |
| Impairment of notes receivable | – | – | 8,516 |
| Losses on disposal of assets | 1,398 | 4,992 | 1,841 |
| (Benefit from) provision for losses on accounts receivable | (1,224) | 1,407 | 6 |
| Other | 1,932 | 160 | (33) |
Changes in operating assets and liabilities: |
|||
| Trade and other accounts receivable, net | (1,247) | 408 | 429 |
| Inventories | (2,124) | 2,095 | (623) |
| Prepaid expenses and other | (2,269) | 1,223 | 3,572 |
| Deposits and other | 4,005 | 1,892 | (3,070) |
| Accounts payable | 15,287 | (7,770) | 3,827 |
| Accrued expenses | 6,328 | 3,938 | 18,583 |
| Operating lease assets and lease liabilities | (15,893) | 16,567 | 2,240 |
| Other long-term liabilities | (6,073) | (974) | 229 |
| Net cash provided by operating activities | 91,782 | 57,664 | 93,662 |
INVESTING ACTIVITIES: |
|||
| Payments for property and equipment | (28,802) | (20,807) | (34,822) |
| Proceeds from disposal of property and equipment | 14 | 4 | 48 |
| Notes receivable | – | 1,600 | – |
| Net cash used in investing activities | (28,788) | (19,203) | (34,774) |
FINANCING ACTIVITIES: |
|||
| Distribution of noncontrolling interest | (272) | (31) | (557) |
| Issuances of noncontrolling interests subject to put provisions | 2,450 | 801 | 1,195 |
| Repurchases of noncontrolling interests subject to put provisions | (1,159) | (489) | (27,633) |
| Proceeds on line of credit | – | 78,000 | 32,375 |
| Repayments on line of credit | (21,000) | (55,000) | (66,375) |
| Settlement of shareholder promissory notes | (12,703) | – | – |
| Term loan repayments | (5,000) | (2,500) | (2,500) |
| Dividends | – | – | (4,848) |
| Proceeds from Payment Protection Program | 596 | 426 | – |
| Payment of debt financing fees | (1,205) | (1,220) | – |
| Net cash (used in) provided by financing activities | (38,293) | 19,987 | (68,343) |
| Net increase in cash, cash equivalents & restricted cash | 24,701 | 58,448 | (9,455) |
| Cash, cash equivalents and restricted cash, beginning of period | 75,537 | 17,089 | 26,544 |
| Cash, cash equivalents and restricted cash, end of period | $100,238 | $75,537 | $17,089 |
Conclusion
Investing in a Caribou Coffee franchise can be an interesting and viable opportunity. By opening a “Kiosk” location, you are able to appropriate the large consumer traffic while limiting your initial investment. However, our analysis shows that the profit for opening a multi-unit Caribou Coffee is not significant. If you are interested in stepping into the food and beverage industry, particularly coffee, Caribou Coffee can be your first stop, with a relatively lower initial investment and stable revenues.
