JAB Holdings, the Luxembourg-based investment arm of the wealthy Reimann family that has accumulated a growing number of coffee-related companies in recent years, is developing a chain called Coffee & Bagels. The co-branded chain will sell coffee from Caribou Coffee and bagels from Einstein Bros., Bloomberg reports.
Coffee & Bagels has plans to open more than 50 locations, primarily in or near Minnesota, where Caribou is based. The first Coffee & Bagels location opened in 2015, in Colorado Springs, Colorado.
JAB acquired Caribou in 2013 for $340 million. Soon after, the chain closed 80 locations, and rebranded 88 others as Peet's coffee shops. Today, the chain has 273 locations, primarily in Minnesota where the brand remains a regional favorite.
Einstein Bros., meanwhile, was originally founded by Boston Market's then-financier Boston Chicken, Inc. JAB bought the bagel chain's parent company Einstein Noah for $370 million in 2014. At the time, the chain was operating more than 850 stores nationwide.
JAB's new Coffee & Bagels shops will attempt to combine the best of both brands: the coffee credentials of Caribou with the freshly baked goods of Einstein. The menu is a combination of the slightly scaled down menus of both chains, with Caribou's signature drinks like the Turtle Mocha and Einstein's bagel-centric all-day-breakfast menu.
"Very Einstein, very [C]aribou. Comparable to Starbucks, but way better food with the Einstein hook up," reads one Yelp review of a Colorado Springs location. "Not exceptional espresso, but a clean environment, and a good place to meet up."
Some locations are additionally serving Argo tea, a brand that JAB licenses, but does not own.
On its own, Coffee & Bagels isn't that interesting as a small chain with less than 50 locations. However, as a concept, it reveals JAB's future aspirations to combine multimillion-dollar chains in a way that could create a challenge for rivals like Starbucks.
Starbucks has long struggled with its food business, looking outside the company for assistance.
In 2012, Starbucks acquired the bakery La Boulange for $100 million. While Starbucks has grown its food business in the double-digits ever year since the acquisition, La Boulange shuttered in 2015. Starbucks still uses the bakery's recipes.
More recently, in July, Starbucks announced a partnership with Princi, an artisan Italian bakery and restaurant, with plans to use the bakery's recipes in its new upscale Reserve and Roastery locations.
Starbucks' reliance on outside brands to grow its food business reveals a gap in the coffee industry that could create an opportunity for JAB. Indeed, the Coffee & Bagels co-branding is just one of many combinations that JAB could create with its portfolio of brands.
Most recently, JAB acquired Krispy Kreme for roughly $1.35 billion in May. Before the acquisition, Krispy Kreme was working hard to boost beverage sales by trying out a new store concept and improving its offerings.
JAB has the opportunity to bring better-known coffee brands to Krispy Kreme, or bring Krispy Kreme doughnuts to chains that have struggled with their sweets selection.
One such brand could be Peet's, which JAB acquired back in 2012 for about $1 billion. Peet's, which opened its first location in 1966, in Berkeley, California, represented the company's first major investment into the American coffee business.
Under JAB's control, Peet's has been on a buying spree. In 2015, the brand announced it was purchasing stakes in two trendy, small coffee chains: Chicago-based Intelligentsia Coffee and Portland-based Stumptown Coffee.
JAB has also acquired companies with the potential to help with coffee brewing and production. In 2015, the holdings company acquired Keurig Green Mountain, which makes the Keurig coffee brewers and single-brew K-cups, in a deal that valued the company at $13.9 billion.
Similarly, JAB owns coffee manufacturers, like the Norwegian brand Friele, that focus on producing coffee to be sold commercially. These are assets that could be sold in any number of JAB-owned chains, as well as on grocery store shelves.
All-in-all, JAB has more than $50 billion in assets.
It's hard to compare the brand directly to Starbucks, a business built on just one chain that made $19.2 billion in net revenue in 2015. However, with JAB's aggressive coffee-centric acquisition strategy, it's clear that the holding company wants to take control of a larger piece of the global coffee business.
Coffee & Bagels reveals a new strategy for JAB to do just that. Prior to the opening of the first location last year, JAB has kept its brands mostly separate. Now, with a wealth of coffee brands - both coffee makers and chains - JAB has the opportunity to create new brands that are larger than the sum of their parts.