Executive Insights | June 2010 | By Robin Van Tan

Field of Beans

Caribou Coffee CEO Michael Tattersfield is convinced if the company can reinvent the coffee experience, customers will come to play. So far, he’s right.

Caribou Coffee aims to be 100 percent Rainforest Alliance Certified in the next
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Mike Tattersfield was living in Columbus, Ohio, in 2005 and working as vice president of store operations at Limited Brands, an apparel company, when he first visited a Caribou Coffee. The brand immediately piqued Tattersfield’s interest.

“It had outstanding coffee,” he says. But even though he came to visit at least three times a week and his family made Caribou coffee at home as well, something was always missing.

“It was a bit of a functional experience,” he says. “It was more focused on throughput than on connection, and I’m a customer that’s looking to have a conversation.”

Tattersfield would go on to spend several more months at Limited and then another year and a half as chief operating officer of lulu-

lemon athletica, but he never forgot his earlier experiences as a Caribou customer.

So when Tattersfield took the role of CEO and president of the brand in August 2008, he knew exactly which direction to take the company.

“The brand always, from its inception, was built on a belief of having the best coffee, but we weren’t delivering that in every single consumer touch point that we have available,” he says. “It was all there in front of us, we just weren’t executing around it. We weren’t living the culture.”

Ever since, Tattersfield has examined each aspect of the brand, reinventing everything from its logo to its marketing plan to its expansion strategy, all the while making sure Caribou finally does live the culture.

Overcoming Growing Pains

When Tattersfield came to Caribou, he was the third CEO the company had had in as many years. At the time, the company was at a low point financially. Its stock price was $1.89—less than the price of many of its coffee offerings.

“One of the first things that we did as a team is we looked at the business from the outside looking in and started to address some of the major issues,” he says.

Real estate problems immediately became apparent. An emphasis on rapid expansion had led to poor decisions when it came to site selection and store managers. Tattersfield and his team assessed each Caribou store based on the value of its real estate and its performance.

“We had opened up in some wrong locations, so we closed the ones we should close,” he says. And as expansion fell into the background, Caribou turned to elevating the entire brand experience for customers.

The numbers show the real success of Tattersfield’s strategy. Caribou’s stock prices rose 500 percent last year, making it the best in Caribou’s financial history. During the same time period, competitor Starbucks struggled, facing massive closures and falling stock prices.

“We’re at an advantage that we’re still small,” Tattersfield says. “Starbucks, when you include their licensed business, is over 15,000 stores, and in the U.S., our licensed business is 500.” The company’s manageable size affords it the ability to refocus on the details that get customers to start and then continue choosing Caribou over an increasing number of fast food coffee offerings. The strategy is key, Tattersfield says, in increasing Caribou’s average unit performance.

“We’re focused on doing what Caribou needs to do,” Tattersfield says. “Our aspiration is: How do we build $1 million coffeehouses?”

A Menu Jolt

Tattersfield’s extensive experience serving various customers—he’s worked at Yum! Brands, Limited Brands, and most recently lululemon athletica—have taught him what consumers respond to.

“Ultimately, it’s the quality that wins over time,” he says. “An exceptional focus on quality, whether it’s the experience or product, will resonate with customers.”

So at every point in the Caribou experience, Tattersfield has taken the approach of being “extremely passionate about a lot of the nuances.”

“More important than anything is: How does it positively impact the brand experience in the store?” he says. “If it’s easier for them to read the menuboards, it’s easier for them to understand how we’re looking at categories, [and] it helps them in their experience.”

Another important part of improving the in-store experience involved making every item on those menuboards as high-quality as the coffee.

“If we continued to be on the path that we were on, eventually we would cause a conflict for a lot of our customers,” he says. “They might really want our coffee or our beverages, but pass on our food and might make another decision that was more convenient for them.”

The first product platform launched under this new philosophy was a line of chocolate beverages introduced in late 2009.

“Mochas aren’t new to the industry, but … we believe we’re delivering the best hand-crafted mocha experience in the country,” Tattersfield says. “We brought real melted chocolate into our businesses, versus what we used to use, which was a cocoa powder.”

Caribou took the same approach when it introduced high-quality, customizable oatmeal options in January.

“We’re really addressing opportunities for different dayparts and new customers that we might not normally attract,” Tattersfield says.

A tea customer, for example, is very different from a coffee customer—which is why the company recently unveiled a new line of tea latte fusions.

The brand is also piloting two new platforms: fresh menu items baked in-store and breakfast sandwiches. If Caribou’s breakfast offerings perform well, menu items for lunch and dinner could be in its future. 

“We can see that the platforms are resonating with our customers, so we’ll also continue on line extensions along those platforms,” Tattersfield says. “We believe that if we can plug in these platforms and build on them, we can fundamentally change the economics of our business.”

The ‘Emotional Details’

Tattersfield knew the Caribou experience couldn’t be just about the food if he wanted to increase the average unit sales. Consumers had to feel it was their Caribou.

If Caribou’s breakfast offerings perform well, menu items for lunch and dinner could be in its future.

“Customers come to Caribou for the connection the team members can have with you,” Tattersfield says. “There’s a fun and engaging aspect to it, and I think it really matters.”

Especially to Caribou’s regular customers.

“This is not a once-a-month category visit,” Tattersfield says. “Our heavy users visit us four times a week or more. They want to have a conversation.”

A key part of that conversation is Caribou’s trivia board, where store managers post a new question each day.

“It’s not about the 10-cent discount they get if they answer the question correctly,” Tattersfield says. “Customers want to be challenged. … They want to know they own the record of 10 days in a row getting it right.”

Team members also contribute to the in-store experience by making the coffee right in front of customers and initiating the kind of friendly banter that makes them feel at home.

The key, Tattersfield says, is keeping employees happy so they’ll keep customers happy and engaged.

“When team members are really behind you, you tend to have a really positive customer experience, because they believe in what we’re doing,” he says. “That’s the most important thing that we really and continually work on.”

Caribou also looks for opportunities to connect with customers and the community on deeper levels.

“We do things like have clubs come in on a Wednesday night, for example, and our Caribou becomes their place,” Tattersfield says. “When people can call it their Caribou because it feels like a home to them, those are the aspects of the experience that make you come back. … There are functional things like WiFi or comfortable chairs, but it’s the emotional details that really matter to customers.”

The Growing Rate

While Caribou hasn’t hit the “$1 million coffeehouse” milestone yet, the top third of its 413 stores have increased their yearly performance to between $750,000 and $800,000. With the promise of those stores and a mean average unit performance of $550,000 (that number goes up to about $700,000 for the locations that were opened under the new site-selection strategy), Tattersfield feels confident enough to take Caribou’s expansion plan off of its hiatus.

“We made sure we had the right development tools in place and the right people processes,” Tattersfield says. “But when those start to stick and you can see we can operate and consistently drive performance, which we have for five quarters in a row … you know you have a strong enough in-store experience to expand.”

As a result, Caribou is looking to extend its retail presence beyond the 16 states and the District of Columbia where its stores operate. Tattersfield says the Caribou brand could successfully operate nearly 2,000 stores nationwide, but that doesn’t mean he plans to hit that number any time soon.

“You lose a lot when a company starts to build beyond its capabilities,” he says.

Tattersfield’s 20-plus years of business experience have taught him that any given concept could grow a maximum of about 10 percent of its store base.

Under that logic, “We could grow at 40 stores in the near future,” he says. “But you’ve got to earn the right to do that. We’re not ready to do that today.”

Tattersfield is careful to emphasize that, to develop the quality Caribou experience he has worked so hard to create, “you need our team there that is well-trained and ready to take on the challenge, as well as real estate. Great real estate is something you don’t want to get too far ahead of.”

So instead of 40 stores, Caribou will aim to open up about five stores this year.

“The goal is to eventually get to that 10 percent target,” Tattersfield says. “To us it’s not about being the biggest; it’s about being the best.”

Bringing Home the Beans

While Tattersfield focuses on creating a premium in-store experience for customers, he also is quick to credit another key strategy in Caribou’s financial success.

“Eighty percent of coffee is consumed at the home or office, and we weren’t in that category significantly,” he says. In 2008, when Tattersfield joined the brand, Caribou’s commercial interests were performing well, with its products available at just more than 2,000 stores.

“If we really wanted to build the brand, we knew we needed to evolve from a branded retail coffeehouse to a branded coffee company,” Tattersfield says. “That’s one of the key decisions we made as an organization to invest in this and grow it.”

Today, Caribou-brand coffee is available at 7,000 stores, including Costco and Sam’s Club.

The company has also looked at new ways to make Caribou coffee available to customers at home. Tattersfield saw an opportunity in Green Mountain Coffee’s K-Cups, which offers consumers one-cup brewing instead of a whole pot.

“They license our brand, and they’ve figured out that consumers at home are looking for convenience with multiple different flavor profiles,” Tattersfield says. “Clearly Caribou resonates with that consumer.”

Even though Caribou’s commercial customers don’t get to experience the in-store interactions that the brand prides itself on, they still get a taste of the concept’s quirky personality; Caribou’s ’Bou-isms, fun messages that embody the company’s “Life Is Short. Stay Awake for It” tagline, are printed on the coffee bags sold in grocery stores just as they are on the cups, napkins, and décor found in stores.

“Unfortunately we’re not in all the states,” Tattersfield says. Commercial sales give Caribou a chance to sell its coffee and expose its personality to customers in all 50 states—without the expense of expansion.

Evolving, Not Changing

Tattersfield is confident in Caribou’s new strategy and the financial success he expects it will continue to bring—so much so that he repeats it several times during his interview.

“I’m not interested in being the biggest, but I’m really interested in being the best,” he says. “I want to build the best coffeehouse and branded coffee company in the U.S.”

But someday soon Tattersfield might have to tweak his mantra to say “the world.”

“We have a great franchise business today in Korea and the Middle East,” he says. “We’ll see where our world footprint takes us.”

Tattersfield also would like to step up the brand’s sustainability efforts. Eighty-five percent of Caribou’s coffee is certified Rainforest Alliance. While the company is one of the few to use the sustainably sourced coffee beans in such high numbers, that’s not enough for Tattersfield.

“Our goal in a year is to be 100 percent,” he says. “I don’t believe in doing things halfway, and I don’t believe in playing with numbers to make us feel better.”

Despite all of the changes Tattersfield already introduced at the company—and the ones he has in mind for the future—he’s quick to emphasize that the brand will stay true to its roots.

“I look at words like change, and those concern me,” he says. “I always think brands are constantly evolving, and it’s really more our evolution of where we are. It’s not a dramatic change, it’s just continuing to deliver the quality message.”