Corporate Strategy at Caribou Coffee

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 ¨C let¡¯s just say Chicago ¨C 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. Then when we get open, instead of a district

manager having ten stores, a district manager has one store so that¡¯s very inefficient until there¡¯s

ten stores built in Washington. So, there¡¯s a lot of inefficiencies in going to a new market. Your

shipping is less in truckloads of quality coffee, so your shipping costs are higher. So it¡¯s very

inefficient to go to a new market. So there¡¯s a cost associated with that. There¡¯s an entry cost

associated with that.

So you want to capitalize on the economics. So one things is, what¡¯s the size of the market? Is

the size of the market worth the investment up front or the potential payoff. Then, what¡¯s the

quality of the market. Is it a coffee drinking market? Does it have a high brand development

index in terms of gourmet coffee? Do a lot of people drink coffee? You know, are the

demographics right for people that drink coffee.

The thing that tipped the scales for me in favor of Washington was, once you establish a

beachhead in Washington, you can create up and down the coast with¡­more economically. If I

go to Denver, which is another good coffee market, where do I go from Denver? Now I¡¯m

reinvesting again. I¡¯m flying people in someplace else. I can drive people, you know, from

Washington to Baltimore, Philadelphia, you know, and, and therefore the economics of east

coast expansion, in that capacity, are much better than going from Minneapolis to Denver, you

know.

[Scott Winters] Don¡¯t approach to easing into new markets makes a lot of sense. It worked well

in DC so we tried the same approach in Chicago. Everything seemed to work perfectly¡­until¡­

[Don Dempsey] We had one store on Monroe Street in Chicago, a second site on LaSalle Street

(cannot understand what he is saying here) in Chicago, both doing very well and then we had an

opportunity for a third site, second site, at Monroe Street actually, same street, and we looked at

the site and it¡¯s in a small building that has a bank next to it, ATM kind of facility, and gazillions

of people walking by and we opened it and it underperformed. We came to the conclusion if

you¡¯re going to build a store downtown, people are going to stop for the coffee, they¡¯re going to

stop the last place before they hit their office. They¡¯re not going to stop half way through and

carry it, you know, to the office. They¡¯re going to stop right before they get to their office. So we

were kind of in between everything, you know, we weren¡¯t the first place you hit coming off the

train, we weren¡¯t the last place you¡¯d hit before the office. We were in between and as a result it

affected our business.

Also, we were in a building that was not a high rise building. All of the Starbucks were in high

rise buildings so they get a lot of support from the building they¡¯re in. People coming up and

down every day to get coffee. The building we were in, was a nothing, was not an office

building, was just a small building. So we lacked that support. So those are things we¡¯ve learned

in a particular case. This happens to be a negative example but a particular case we learned

about. I think we learned something important from that one site that is applicable, generally

speaking, to downtown sites. So it was a valuable lesson learned.

[Scott Winters] Caribou Coffee strategy may have had some ups and downs but Don¡¯s pretty

clear that there¡¯s light at the end of the tunnel. Of course, Don¡¯s had some fairly serious business

experience.

[Don Dempsey] I was in international with McDonald¡¯s for fifteen years and I can still

remember when I had to market McDonald¡¯s in Japan because nobody knew what it was. Now

they¡¯re lined up¡­ you open your first door in Uzbekistan and they¡¯re lined up for four miles to

get in because it¡¯s an event. So the brand now proceeds McDonald¡¯s wherever they go

internationally. The brand proceeds Starbucks wherever they go domestically.

In Minnesota, we have virtually 100% brand awareness. We are the brand leader in Minnesota,

unfortunately, everywhere else the reverse is true. So, when we go into a new market, we¡¯re

Joe¡¯s coffee shop. So we have to build our brand, build our reputation and we do that store by

store. It¡¯s getting stronger every day and awareness is increasing as penetration of the restaurants

increase as long as we stay focused on the quality operations, the brand reputation in terms of

quality coffee, good service, and a pleasant environment it¡¯s growing but it¡¯s a slow build.

[Scott Winters] Caribou Coffee¡¯s take on strategic management followed a multi-stage approach.

They evaluated their goals and corporate mission. Analyzed the business situation and made

some pretty specific plans. When some of those plans went awry, they learned from their

mistakes and continued to develop new ideas. Well, I¡¯m going to keep on the lookout for those

giant cardboard caribous. With any luck, one will turn up in our elevator any day now! I¡¯m Scott

Winters, this is Biz TV and¡­I¡¯m out of here.

[On Screen ¨C 2nd half) Strategic Planning at Caribou Coffee

[Scott Winters] Howdy! You know, everybody has to plan for the future. Whether it¡¯s summer

vacation or kid¡¯s education, you know, and organizations are no different. We took a trip to

Minneapolis to find out how Caribou Coffee has consistently grown over the years. Caribou is

the market leader in Minnesota and even though it¡¯s squaring off against some very tough

competition, it¡¯s also making excellent inroads in DC and Chicago. So we wanted to ask their

CEO, Don Dempsey, just what goes into Caribou¡¯s one to three year plans.

[Don Dempsey] The results are more important because the plan doesn¡¯t mean anything. It¡¯s the

results that mean something but the plan is important in getting the results. We¡¯ll plan one year

out with hard numbers and three years out from what I call a strategic point of view. All the

planning is done in the fall. The entire corporation is involved in it. Everybody has a piece of it.

How many people do you need to hire, okay? If you need to hire anybody. What are they going

to spend? So the GNA component, in other words, the General Administrator Expense

component, what are you going to pay them? How much are they going to travel? How many

pencils are they going to use? You know, the cost of running the business component.

And then for marketing. How much money do you want to spend in marketing? What are you

going to do with it? You know. Etc. Etc. From operations, you know, how many stores are we

going to build? Where are we going to build them? You know. If we¡¯re manufacturing, you

know, do we have sufficient capacity? Do we need new equipment? Do we need major repairs?

Do we¡­you know. From a remodeling perspective or asset management perspective, how many

stores need to get remodeled? How much is that going to cost? You know. So all those things,

we will develop for the following year which goes into the budget that we¡¯re going to spend and

the rest of the year we devote to, hopefully, excellent execution. You know. So¡­

[Scott Winters] At Caribou, the entire organization is involved with the company¡¯s plan but

flexibility is the key. See, in the real world, the details of a plan will always change. There¡¯s a

constant process of review and corrections. We asked Don how he deals with the gulf between

predictions and reality.

[Don Dempsey] The thing that always makes planning difficult because you¡¯re not dealing with

facts, you¡¯re dealing with assumptions. Okay? Now you use facts to make the most educated

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download