Corporate Strategy at Caribou Coffee [On Screen] Corporate Strategy At

Corporate Strategy at Caribou Coffee [On Screen] Corporate Strategy at Caribou Coffee [Scott Winters with Biz TV] Recently I was stranded in the Minneapolis Airport and needed a cup of coffee. Well I looked around for a Starbucks and couldn’t find any but in its place was something called Caribou Coffee. I figured, “Okay, a latte is a latte.” but I ended up with the best coffee this side of Milan so I did a little checking later on. Turns out Caribou consistently beats Starbucks in the Minneapolis area. Not only that, they’re rapidly becoming the java of choice in Atlanta, D.C., and Chicago. I wondered how Caribou’s Don Dempsey could dare to go toe to toe with Starbucks. Well, the secret turned out to be strategy. [Don Dempsey, CEO Caribou Coffee] And it was very interesting when I came in here because nothing ever mentioned in this company about profit. Never. It sounds very callous to say, “all I care about is profits” but all I do care about is profits because profits drive everything. There’s only two ways to get profits. One is to increase sales. One is to cut costs. Okay? Let’s take the cut costs thing. This is a good thing. You want to run lean. Okay? You want to run efficient. Okay?. But you’re only going to do that once. You can’t cut costs beyond where you can get growth. Okay? Or you’ll be cutting off your nose to spite your face. So it brings you back to sales. Okay. So you gotta get sales. Well how do you get sales. Well, in our business, at least in the retail shop business, as long as we confine ourselves to a retail shop, there’s only two ways to get sales. One is you build more stores. Two is you increase the sales in an existing stores. Can’t think of a third one. Only two ways. Okay. Now, let’s take one of those branches. Let’s take how do you increase sales in existing stores? First you have great, confident people in it. Now we’re getting down to the warm fuzzy stuff. Okay? You have great, confident people in there. You train them well. You pay them to retain them. All those things people put in vision statements. Okay? But if you don’t have those things…if you’re smart and you’re in a single minded pursuit of profits, you very quickly come to the realization that you can’t get there without getting here first. [Scott Winters] The first part of Caribou’s strategy involved the creation of a quality product. Well, coffee aficionados know, the best cup of coffee starts with the best beans. So we caught up with one of Caribou’s roasters to learn more about the process. [Stuart Craver, Coffee Specialist] This is where we roast the coffee at Caribou. It’s our first plant and this is our G120 roaster. What’s happening right now is the roaster is analyzing the beans to determine what stage of development they’re at. It’s very important that the roaster concentrates fully on his craft. Making the best decision on how to get him to the next roast. At Caribou we work purely on a “just in time” philosophy. We do this in order to have the freshest coffee in the market. [Scott Winters] You see, the roasters concentrate on craft, analyze need, make strategic decisions and work small to ensure the best possible quality product. Let’s stay with Caribou for a while and see what other secrets we can learn. [Don Dempsey] I think one of the challenges for me and for the company, is to stay focused on what we do. I don’t pay a lot of attention to competition because there’s nothing I can do. There’s nothing I can do. I watch the competitor’s very carefully to see if they’re doing something better than we are or if they’re doing something that we’re not doing that looks like a good idea, I’ll steal an idea from them very quickly. I think Starbucks is no different it’s just that they’re bigger, they’re better organized, they have more capitol, they have more financial resources, you know. They train their people better. You know. Blah, blah, blah. So it’s like everything else. It’s the coffee shop on the corner versus the other coffee shop on the corner and we have to be sure we’re better. [Latte maker] Really I think the drink that requires the most skill is a latte. It’s very hard to find a good latte out there today. You have to have the right amount of froth, tamp, and swirl. I think that‘s the most important technique that’s missing out there. You want to hit the back of the cup. You have a nice half-moon latte. [Scott Winters] There was a time you could be number one just by having a quality product but there’s a lot of competition today and businesses have to go the extra mile to impress customers. We stopped by Caribou’s White Bear Lake store and spent the morning with Michelle Langkau, district manager. [Michelle Langkau, District Manager] One of the things we could do to help people see the promotional material, what if we took and had one of these things built… like right here -one of these holders and then anytime anybody walks up, they’d actually see whatever was being promoted at that particular time. [worker] I think that would be great. [Michelle Langkau] Right now it’s kind of buried. My name is Michelle Langkau and I’m a district manager for Caribou Coffee. I oversee eleven stores. As shift supervisor, you want to…you want to kind of assess the staff. Are people smiling? Are they saying please and thank you? Are they greeting people? So as you’re doing your walk through as a shift supervisor, you want to make sure they’re doing those things also because they are the extension of you when you’re not here. So, you want to make sure that’s happening on all day parts. [Customer] I used to go to Starbucks and now I go to Caribou. Why? [Michelle Langkau] Yeah [Customer] Because I like the coffee better. I like the people better. It’s a friendlier place. [Michelle Langkau] So what do you order? [Customer] Vanilla latte. 500 I walk in, they have it made for me before I even pay for it. Seriously! [Michelle Langkau] People may not really know when they go into a store if everything is perfect . They may just walk out and say that was a great experience but when things are wrong or when things are dirty, they’re able to walk away and say, “ew, that didn’t really look very good” kind of a thing. [Don Dempsey] In all the markets that we deal in, for dual users of Caribou and Starbucks, we beat Starbucks on quality. We beat Starbucks on service and we beat Starbucks on ambience. So the good news is we’re operating well at the store level relative to our major competitor. Our strategy for marketing really is focused almost single mindedly on generating trial. Once you get people in the store, once you get them to try the brand, then the store takes over. [Scott Winters] Obviously when you’re the small business going up against an industry giant, you have to be clever about how you go about getting people into your store. [Don Dempsey] How you spend a dime and get a dollar’s worth of publicity? We would take these to a given city – let’s just say Chicago – leave them in elevators. Just scatter them around and then on the back of it, it just says “The great Caribou coupon roundup. Present this coupon at any Chicago Caribou location and receive enough coffee for your whole herd (up to 10 cups). So they find the Caribou in the elevator and they bring it into a Caribou store, they can get 10 free cups of coffee. But the purpose obviously, of it is to generate buzz around the funny thing of having these just scattered around. [Scott Winters] I would do that for 10 free coffees. Okay, obviously Caribou scores major points for using its limited marketing budget to its greatest possible fact but the real strategy has to come back to that old retail adage “location, location, location”. But, what hurdles did Don see in stepping into new markets? [Don Dempsey] There’s two bogies going into market. One it costs money and the reason I say it costs money is if we open a store in Minnesota, okay, or even a store, you know, even an hour and a half from Minnesota, we’re drawing from our existing base. In other words, whereas the district manager may have to drive an hour but he’ll get to that store, okay? We can train in stores in Minnesota. Okay? If we open a store in Minneapolis, we can train the people for that new store and existing stores in Minnesota. If we open our first store in Washington DC, where are they going to train? So, we’re flying people into Washington DC, we’re flying people out of Washington DC. We’re flying people into Washington DC and having them stay there for extended periods of times in hotels to train people.

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