Caribou Coffee Expands in Chicagoland

Caribou Coffee Company Inc. (CBOU) remains geared up to expand its presence in one of its key markets, Chicago, with its newest coffeehouse location in the Oakbrook Terrace Square shopping center. The latest opening is consistent with the company’s strategy to consolidate its position in its existing markets before venturing into the new ones.

Located in Oak Brook, Illinois, Terrace Square shopping center is one of the largest open-air shopping malls in the United States, housing several retail and restaurant giants. Management believes that with the ongoing fall season, the new location will likely post good business.

However, with the presence of restaurateurs like Starbucks Corp. (SBUX - Analyst Report), The Cheesecake Factory Inc. (CAKE - Analyst Report), California Pizza Kitchen, Subway along with many others in Oakbrook Center, Caribou Coffee should be wary of competition too.

Caribou’s intent to grow in the Chicago market can also be affirmed from its recent partnership with Chicago’s grocery giant Jewel-Osco. As per the alliance, Caribou will unveil seven new coffeehouses in Jewel-Osco stores within 2013. Presently, there are more than 55 Caribou coffeehouses in the Chicago area.

The promising restaurant industry in Illinois, in which Chicago is the largest city and third largest in the U.S., acts as a major economic growth driver. According to National Restaurant Association, total revenue from the restaurant sector in Illinois is projected to be around $20.7 billion in 2012. Further, management commented that Chicago has excess capacity for expansion.

As of April 1, 2012, Caribou Coffee owns and operates 585 coffeehouses, including 174 franchised locations in 21 states, the District of Columbia and nine international markets. The company is expanding further in the international market.

We believe that Caribou Coffee remains well-positioned to sustain its growth momentum while generating improved earnings on the heels of innovative offerings. Apart from its variety in coffee, the company is trying several menu options to strengthen its foothold in the market.

Caribou Coffee currently carries a Zacks #3 Rank that translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock.