Starbucks it isn't-and purposely so

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Caribou Coffee tries to be everything Starbucks isn't.

With a design reminiscent of a ski lodge or rustic Alaskan cabin, the distant No. 2 coffeehouse brand contrasts sharply with the hip, urbane sophistication of Starbucks.

"We are the coffee shop that is the most non-Starbucks out there," said CEO Michael Coles.

Caribou, with 306 locations in 12 states, will likely never catch Starbucks. With sales of $200 million and revenue growth of 30% over the last two years, Mr. Coles sees no roadblocks to 1,000 U.S. stores in five years-a far cry from Starbucks' 9,000 worldwide-and Ron Paul, president of Technomic, thinks Starbucks' figure could climb as high as 15,000 to 20,000 or more.

Yet against all odds, observers believe Caribou will continue to thrive in the shadow of the industry's 800-pound gorilla. "Starbucks is the perfect poster child on how to do a brand right. If there ever was a segment where it might be possible to prove the point that there is only room for one brand, coffee might be it," said Dennis Lombardi, exec VP-food service strategies at WD Partners, a Columbus-based retail design firm. "But Caribou proves there is always room for one more brand."

So what's Caribou's secret? Experts believe America's seemingly unquenchable coffee habit can sustain several chains, particularly one that stands out against Starbucks. "We are a long way from seeing the country saturated with coffee-based concepts," said Mr. Paul.

"Caribou gets you out of the urban environment and gets you in a different world for a short period of time," Mr. Lombardi said. "In many ways, Starbucks is an extension of the hustle and bustle of a city street."


You will be hard-pressed to find synthetic materials at Caribou. The color palette sticks to earth tones. Wood is everywhere-floors, tables, chairs, ceiling beams, bookshelves and window seats. There is a fireplace, requisite comfy leather couches and oversized chairs. Employees know the regulars' names and their DNA, or drink normally asked for. To get customers talking, there's a daily trivia quiz. Get the right answer and you get 10% off your order.

Instead of the pretentious venti and grande drink sizes, Caribou sticks to the straightforward small, medium and large. "We are very real, we are not plastic and phony," Mr. Coles said. Caribou also offers a "kids corner," which usually includes a chalkboard, a box of toys and board games. And unlike Starbucks, Caribou gives one free refill on regular coffee each visit.

Caribou needs to boost unit sales. The average unit volume at Starbucks topped $877,000 in 2003, compared to $575,000 at Caribou, according to Technomic.

Like Starbucks, though, Caribou isn't building a brand with mass-market advertising. The chain spent less than $40,000 on media last year. Instead, a seven-member in-house marketing team focuses on in-store signage with a pithy tone to promote high-margin specialty drinks like Caramel High Rise and VaVa Vanilla.

To expand the brand beyond the storefront, Mr. Coles is looking to exploit Caribou's underdog status and create cafe-within-a store partnerships similar to those Starbucks created with Barnes & Noble and Meijer, a Midwest supermarket chain.

"Not every retailer wants to have a Starbucks. Caribou lets them say, `Look, we are different,"' said Mr. Coles, whose eclectic career path prior to joining Caribou in June 2003 includes a failed congressional run and creating two mall-based chains-the Great American Clothing Company and the Great American Cookie Company.

That's helped woo marketing partners like Frontier airlines. An upstart, feisty brand fighting big guys, Frontier in January began serving Caribou on the airline's 47 planes, which are distinguished by animal portraits on the tails and the tagline, "A whole new animal."

"Starbucks you can get pretty much anywhere," said Joe Hodas, senior manager-corporate communications. "The ubiquity wasn't seen as a benefit."


The partnership works both ways: It also helped Caribou introduce its brands before several stores open in Denver later this year, the chain's farthest expansion West.

Mr. Coles said he plans to announce partnerships with several retailers soon, after successfully testing an in-store concept with a high-end Minneapolis area grocer. Caribou also opened in EQ-Life, a test store concept opened up by Best Buy in Minneapolis (see related story, P. 4).

Ironically, what is driving growth at Caribou could tarnish the brand as the chain continues to grow. Most customers patronize Caribou because they believe it is locally owned.

It's an understandable misconception. In every Caribou shop, customers see an idyllic photo of founders John and Kim Puckett sitting on the summit of Sable Mountain in Alaska. The following narrative is offered: "When we got home, we decided to create a place that would feel as good as the view from the top of that mountain."

Despite the impression that the Pucketts still own the chain, they sold out in 2000 to Crescent Capital, which today owns 88% of the company. Crescent Capital is a private equity arm of First Islamic Investment Bank.

But not everyone believes it's family owned: Crescent Capital has been the subject of a nasty Internet rumor that said Caribou funded terrorism. The rumor broke in June 2002 and eventually forced Caribou to close a Chicago location, where sales had plummeted as much as 35%. First Islamic Investment Bank and its subsidiaries, including Crescent Capital, will launch a new identity and name March 15, the religion-neutral Arcapita Bank.

David Crosland, executive director of Crescent Capital, said the name change was not directly related to the rumor, but added: "The name of First Islamic can give the impression we might have a political or religious agenda, neither of which is the case."

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