Caribou Coffee

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Caribou Coffee ( CBOU) is the second-largest company-owned premium coffeehouse operator in the U.S. based on the number of coffeehouses. The company sells premium coffee and hand-crafted espresso-based beverages, as well as specialty teas, baked goods, whole bean coffee, branded merchandise and other coffee lifestyle items. In addition, Caribou Coffee supplies its products to grocery stores, mass merchandisers, club stores, office and foodservice providers, hotels, entertainment venues and e-commerce channels. Furthermore, Caribou Coffee licenses third parties to use the Caribou Coffee brand on quality food and merchandise items.

Caribou Blend coffee can be purchased across the country and can be brewed using the Keurig K-Cup system at home or at the workplace. Think of the Keurig system as the razor and the coffee cups as the razor blades. While Keurig is owned by the troubled Green Mountain Coffee Roasters ( GMCR), the patent for the Keurig system is about to expire. This will mean that more companies can sell a version of the system, which will provide more channels of distribution for Caribou's products.

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As of Jan. 1, Caribou had 581 coffeehouses, including 169 franchised locations, in 20 states, the District of Columbia and nine international markets. This compares with 407 company-owned coffeehouses and 147 franchised and licensed locations as of July 3, 2011. More domestic and international expansion is planned for 2012 and beyond.

The coffee market continues to grow domestically and internationally. Starbucks (SBUX) is all too saturated in the U.S. and is looking toward the Far East for growth. Dunkin Donuts (DNKN) is too concentrated in the Northeast. Caribou, on the other hand, is headquartered in Minnesota and is slowly spreading through the nation with significant opportunities for expansion in its future.

Coffee prices have been on the decline since peaking in the spring of 2011. I expect those prices to continue to decline in early 2012 and then moderate. With consumers now accustomed to higher coffee prices, this will result in increased margins for a company like Caribou.

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