Bruegger’s Bagels and Caribou Coffee have embarked on a co-location strategy to mutually build up their businesses by tearing down walls in the Minneapolis market.

The chains are constructing two co-branded units in that market to test whether it would produce the same strong performance Bruegger’s and Caribou have both seen in their restaurants in the Twin Cities that happen to be located next door to each other.

“Common sense prevails,” Bruegger’s chief development officer Paul Carolan said of the move. “Ten of our restaurants in the Twin Cities are right next to a Caribou, with a common shared wall between them. We do way above our average unit volumes in the marketplace there, and when we talked to Caribou about it, they noticed the same phenomenon [in their adjacent locations].”

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Caribou is owned by German firm Joh. A. Benckiser, and Bruegger’s is owned by Dallas-based Le Duff America Inc.

Burlington, Vt.-based Bruegger’s has some experience with co-branding, as a Connecticut-based franchisee last year opened a dual Bruegger’s/Jamba Juice location.

In the Minneapolis-St. Paul market, Bruegger’s and Caribou will keep their next-door restaurants, build the ground-up co-located units, and also test remodeled stores where a Caribou location imports some Bruegger’s products, signage and décor elements, and vice versa.

“We’re going to test all the prototypes to see how they behave and see which ones prove to be the best,” Carolan said.

In the partnership, Bruegger’s gets a credible coffee offering from Caribou, and the Minneapolis-based coffee chain adds credible baked goods to its food platform, Carolan added. “When you can marry up coffee that people are rushing through the front door to get with our bagel offerings and food, what a huge leap you can make with your brand,” he said. “It’s much easier to build that credibility — almost instantaneously — than it would be for Bruegger’s to build a new coffee program that could compete with Starbucks, Caribou or Coffee Bean [and Tea Leaf].”

He added that the two chains should benefit from complementary product offerings that would allow guests to make one stop for everything they seek in a meal, rather than having disparate brands vying for the same customers in the same dayparts and force an “either-or” choice.

“I used to work for HMSHost running a lot of different brands in one place, and in one Taco Bell/Pizza Hut/KFC we had, there would be a level of confusion in the customer because you’d be competing for the same thing at the same time,” Carolan said. “You’re trying a real estate play, offering all these choices in one location, but it creates confusion.”

Pair apparent

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The move from Bruegger’s and Caribou follows several recent co-location agreements from other restaurant brands, including the partnership forged earlier this week between Philly Pretzel Factory and Rita’s Italian Ice.

In addition, bakery-café chain Tim Hortons will partner with Cold Stone Creamery in some new locations, while Atlanta-based Focus Brands has increased a “co-blend” strategy among its Schlotzsky’s, Moe’s Southwest Grill, Auntie Anne’s, Carvel and Cinnabon chains, including a test of some triple-branded units.

Yum! Brands Inc. made co-locating units a hot trend in the middle of last decade. Following its acquisition of Long John Silver’s and A&W, the company paired the brands with its flagship KFC, Pizza Hut and Taco Bell chains. The practice never went away — even when Yum cooled on the strategy, said Dennis Lombardi, executive vice president of Columbus, Ohio-based WD Partners.

“It’s a tactic that works for some operators at some locations,” he said. “It’s not a panacea, and it’s not a silver bullet. But it’s not the kiss of death either.”

Lombardi added that Dunkin’ Brands Inc.’s divestiture of Togo’s in 2007 was another example of co-branding’s limitations.

The recent spate of dual-branded locations makes sense, he added, because the brands have products that complement those of their co-tenants and are simple enough to easily share the back of the house. “What made the traditional dual-brand concepts problematic is that they’re difficult to run and to train employees to run well,” Lombardi said. “The simpler the concept, the easier it is to dual-brand, which is why something like a Baskin-Robbins is far easier to add than something requiring separate equipment and processes.”

While Yum has largely backed away from the co-branding growth strategy — divesting Long John Silver’s and A&W in 2011 essentially signaled the end of the tactic for the company — in favor of new-unit growth with new prototypes for Pizza Hut and Taco Bell, customers likely will see its dual-located buildings for a while, Lombardi said.

“There’s a pretty significant retrofit cost, especially for the ones built as combo units,” he said. “They’ll just let those run their course, either until a franchisee opts out or undertakes a major rehab.”

Bruegger’s executive Carolan said a co-location strategy with Caribou could open the door to both brands securing better real estate in new markets, especially in territories where one brand is established and the other might not be.

“If this marriage works, the runway is huge,” he said. “It’s a great opportunity to deliver two great brands to a consumer in a convenient, effective way.”

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