Caribou Coffee Revels In Its Role As The Little Guy

Alfredo Martel doesn't care about whether Caribou Coffee ever becomes as big as Starbucks.

"We don't have any interest in being the biggest," said the senior VP-marketing and product management at Caribou. "We don't want to be in every aisle of the grocery chains in America. We'd rather be great at what we do." Caribou Coffee's product line now includes teas and juices for summer.

Caribou Coffee's product line now includes teas and juices for summer.

Starbucks has become the country's biggest coffee chain by a wide margin. It has also expanded its menu in recent years, rolling out everything from oatmeal to mini-desserts, while ramping up its single-serve home-brewing business.

But Caribou, despite an acceptance of its stature as a smaller chain, hasn't sat idly by. "We have a product innovation pipeline that answers blow by blow," said Mr. Martel.

The chain began offering breakfast -- including oatmeal -- in 2010 and last year launched lunch items, including "grown-up" grilled cheese sandwiches such as Three Cheese Classic, Aged Cheddar Roast, Italian Chicken Melt and Gouda Turkey Pesto. It's also unveiled new drinks, both permanent and limited-time offerings. Most recently it rolled out six new sparkling juices and teas to spike summer sales: Lemon Ginger Pomegranate Juice, Green Tea Lemonade, Peach Black Tea, Very Berry Juice, Berry Black Tea and Mint Lime White Tea.

Caribou is hoping consumers will see it as a higher-quality chain with little pretense. According to Mr. Martel, the "most important marketing tool is the everyday experience that we deliver. ... It's the most powerful brand tool we have." He added that "when folks discover Caribou as an alternative to Starbucks, people fall in love," describing the environment as relaxed, non-judgmental and approachable. "We don't expect you to be an expert." Starbucks has become "ubiquitous," according to Jefferies restaurant analyst Andy Barish. "It gets harder to focus on quality as you get larger," he said, which benefits Caribou because consumers view it as a higher-quality brand and "maybe a little bit more authentic from a customer perspective." Caribou has driven its brand with a more middle-of-the-road, medium-roast coffee, whereas Starbucks has been seen as specializing in a dark roast and Dunkin' Donuts has been positioned as a light roast. "There's a huge swath in between, and that's probably 40% to 50% of customers," said Mr. Barish. Even Starbucks has recognized the opportunity, unveiling its Blonde roast last October.

Caribou, of course, is somewhat limited by its retail footprint. Internationally, the chain opened its 100th location last month. And at the end of 2011, Caribou had an estimated 465 locations in the U.S., according to Technomic. The chain has said it will open between 55 and 70 locations in 2012. By comparison, Starbucks had almost 10,800 stores in the U.S., while Dunkin' Donuts had about 7,000.

Caribou is the fourth-largest chain by systemwide sales in the limited-service coffee caf� category, according to Technomic. It had $274 million in sales last year, up by 3.4%. Still, Caribou trails Starbucks as well as Dunkin' Donuts and Tim Hortons.

But Caribou's expansion into grocery stores and club stores, particularly locations outside of markets where it has a retail presence, has helped increase awareness among consumers who might not otherwise have access to a brick-and-mortar location. "The brand probably comes across as a little bit larger than it actually is," given its other channels of distribution, said Mr. Barish. He estimated the brand is in 9,000 stores with coffee and 15,000 locations with K-Cups for Keurig single-serve machines.

"The name's gotten out there before people have had a chance to have [a cup of coffee] in the coffee house, which I think is the heart and soul of the business," he said. That level of brand awareness will serve Caribou well as it adds retail locations.

Caribou's marketing strategy, though unorthodox for most fast-food chains, is similar to Chipotle's approach -- and reminiscent of vintage Starbucks marketing -- in that little measured media is actually spent. Caribou spent less than $1 million on measured media in 2011, according to Kantar Media. Mr. Martel said that number is low, though he declined to provide specifics. Starbucks' measured media spend dwarfs Caribou's, at $108 million. The coffee giant, which was long known for spending less than the average fast-food chain, has more than doubled its spend since 2009.

Caribou is also not relying on TV -- typically the biggest medium for quick-service restaurants -- to market itself. It dabbled in TV, launching its first ad -- which took aim at Starbucks -- in 2009, but Mr. Martel said the chain has shifted away from broadcast spending in favor of the digital space, particularly social media.

"We've found that digital platforms are much more cost-efficient in getting impressions," said Mr. Martel "To try and compete with McDonald's and massive broadcast marketers -- we're not going to win that game, so we have to fight a smarter fight. Relevance of message is clearly better achieved through digital and social, as well as the ability to have a conversation. ... [You] can have folks give you immediate feedback," he said.

Mr. Martel says Caribou has used input from customers for initiatives such as its package revamp. Caribou works with Minneapolis-based Colle & McVoy, which produced the redesign.

That redesign was part of a rebranding the chain began in 2010. Mr. Martel said that the Caribou brand "had gotten tired and repetitive," and noted that the chain's color palette was green and black -- not unlike Starbucks.' "We weren't differentiated. ... I'd put my hand over the [logo on the] cup and say, "What brand is this?'" The result of the repackaging was a more contemporary look, including a new color scheme of blue and brown, a new font and a redesigned caribou for the logo.

As for what's next for Caribou, the chain will continue to add retail locations and has plans to announce new food products later this year. It's also looking into extensions in the grocery aisle for its teas and juices, as well as opportunities that may be available with Keurig's new Vue system, a premium line of brewers that can brew dairy with coffee.

Caribou did, however, cut its 2012 sales outlook amid slowing growth of the single-serve market after the first quarter of this year. "While the single-cup business continues to experience significant growth, recent industry trends lead us to believe this business line will experience a moderation in its growth trajectory for the remainder of 2012," Caribou CEO Michael Tattersfield said in a statement at the time.

Mr. Martel's not too worried. He said the slowdown in the single-serve market is coming after a "ridiculous growth rate" in that category. "Our lines of businesses are healthy," he said. "We just have to continue to drive growth across all of them."

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