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1 Company's Caribou Coffee Closure Celebration

By Andrew Marder - Apr 10, 2013 at 10:55AM

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Starbucks gets validation from Caribou's change of heart, and adds to its already wide audience.

It's been a year of good news for Starbucks (SBUX 8.15%), and this week's announcement that Caribou Coffee is closing or rebranding a number of its locations is just one more good tiding. Caribou made the announcement that stores would be closing in certain regions starting on April 14. Some of those businesses will be permanently shuttered while others will switch over to Peet's Coffee locations later this year. The company behind both Caribou and Peet's is German holding company Joh. A. Benckiser, an investment vehicle for the Reimann family.

White ground to run
While the store closures are a nice touch, the real win for Starbucks is the move to Peet's locations, which goes some way to validating the moves Starbucks has made recently. Peet's splits its focus between coffee and tea, and is a more upscale experience than Caribou. That aligns almost precisely with the Starbucks model, which recently added Teavana to its portfolio.

That acquisition is going to put more tea on Starbucks' shelves, and give the company a stronger foot to extend into tea-heavy markets, like Europe. The addition will also help Starbucks differentiate itself from competitors like Caribou and Dunkin' Brands' (DNKN) Dunkin' Donuts chain. Dunkin' has been on a tear recently, with comparable sales up 3% in the U.S. and operating margin surpassing 47% last quarter.

The tea addition should help Starbucks continue its strong growth. But the move from Caribou and Peet's isn't the only thing going Starbucks' way recently.

Coffee fit for a king
In February, Starbucks' Seattle's Best Coffee brand became the new coffee for Burger King (BKW.DL). The collaboration should help Starbucks compete with McDonald's (MCD 0.35%) McCafe program, which has helped the burger-chucker increase revenue over the past few years. Last quarter, management said that work is continuing behind the scenes to keep McCafe as a driver of long-term growth.

Now, Starbucks has a way to capitalize on that same customer segment through its Burger King partnership. While the move is clearly aimed at the McDonald's crowd, there's sure to be some overlap with Dunkin's customers, as well. That's a double win for Starbucks, which is successfully tapping both the high and low end of the market in a bid to maintain its dominance.

For now, things look good for the company, and as it expands its tea line over the year, look for news of new international expansion, which the company has said will be more in focus this year.

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Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$75.60 (8.15%) $5.70
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$245.04 (0.35%) $0.85
Restaurant Brands International Inc. Stock Quote
Restaurant Brands International Inc.
BKW.DL
Dunkin' Brands Group, Inc. Stock Quote
Dunkin' Brands Group, Inc.
DNKN

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