Caribou’s Michael Coles on building a company, one cup at a time
Michael Coles arrived in Minneapolis from Atlanta in mid-January as CEO of Caribou Coffee, hand-picked by its major investor, Crescent Capital, to jump-start the chain’s growth plans. The chain has grown to 210 stores since John and Kimberly Puckett started it with a northwoods theme in the 1990s, but hasn’t had enough success outside of the region to satisfy financiers.
Coles knows something about growth. He started the Great American Cookie Co. in the 1970s, building the franchised operation to more than $100 million in sales before selling in 1998 to finance an unsuccessful run at the U.S. Senate. Before he was tempted to scratch the political itch again, he says, he took on the challenge of building Caribou Coffee.
“I started my first business when I was 9. My Dad went bankrupt. We went from an upscale life to a lowscale life overnight. They used to make a football game that vibrates, it cost 6 or 7 dollars. I wanted to buy that. We moved from our house to a house in an OK neighborhood, and I signed up snow-removal customers. I was not of a big stature, even at 9. I got 50 cents from the first house, and I couldn’t imagine doing it again because it was back-breaking work.
I got a contract for 10 houses, and I went around and got neighborhood kids to shovel, and I took 10 cents from each. I very quickly learned I would be better off by having outlets and I’d just get a franchise fee. That was my best experience until I was 33 and started the cookie company.
In ’96 I stepped outside the business arena and ran against Newt Gingrich for the House. I almost beat him, lost by four points. In Cobb County there are 17 percent Democrats, and I carried 47 percent of the vote against the Speaker of the House. I figured that would be the race of my life, but when it was over I decided there were so many issues that, as a private citizen, I wouldn’t be able to do anything about. So I ran for the Democratic nomination for the U.S. Senate, and lost.
I met the folks at Caribou last summer. They asked me, how could Caribou grow? It’s been tough outside of Minneapolis. I gave them my evaluation and then they said, ‘OK, why don’t you come do that for us?’ Starbucks is so far ahead of us. But there’s still room, even in a city with 100 Starbucks, if we could have one Caribou with the highest quality.
The design of the stores is great. The lodge experience is great, whether you’re in Maine or in Alaska. At the same time Caribou has a young, energetic feel. We want to portray the outdoors. I want to see people coming down the ski slopes holding their Caribou coffee. I believe that’s part of the experience.
We do this one cup of coffee at a time. We have now created a mission statement that says Caribou coffee is an experience that makes the day better. We have 3,000 employees now and 210 locations. We put together a sales and service policy. They’ve never had one before. It has simple things, like greet a customer within 10 seconds, smile, thank the customer for coming, and then there’s the minutiae behind that, like the coffee has to be fresh, and the food fresh. We also made a training video about what the customer experience should be like. I’m a great believer that you can’t just tell people, you have to show them.
We do a good job of training, but we don’t do enough. A friend of mine is the CEO of Capital Grille, and you have a restaurant here. If you ask anyone who works there how often they get training, they’ll say they get trained every day. The worst thing you can do is assume that they know how to do it. We’ll train our district managers, who will train the managers, and then the managers will train the front-counter people.
It’s not rocket science, but if you strive for zero tolerance you’ll see improvement.
We are going to have a new focus on food at Caribou. My background is confection goods. It will be much more consistent from city to city. Food is now 10 percent of the business; I’d like to get that up to 15 percent to 20 percent.
I don’t know John and Kim Puckett. The thing that has been impressive is that their legacy is one of very high quality. It’s unusual for people to start a business and to be able to take that next step, to keep it entrepreneurial yet manage it.
There is a discipline that has to be put into place. When we started the cookie company, we had $8,000 and we borrowed $25,000 to get to $100 million in sales. We had to make a big change at the five-to-seven-year mark. That’s the magic number, I’ve found. By then your ability to grow is reduced. You go from one store to two, you’ve doubled your size. Then getting from five to 10, and 10 to 20, and so on, it’s harder. You’ve cut your growth rate so your decision-making process has to be much more careful.
As an example: At 65 stores, the G&A part of the business — general and administrative — had 38 people. At 350 stores we had 32 people. We were able to streamline by using technology.
When I started the cookie company, I was in the clothing business. I had three small children and I didn’t want to travel anymore. I was getting disgusted with the business. I made the prediction that all the retailing industry was going to be discounted in 20 years.
I went to a cookie store in a mall in 1977, and there was a big line. I waited in that line and had a cookie. It was OK. I talked to a store manager who told me probably way more than he should have. I left the mall, went to a grocery store, and bought ingredients and a postage scale. I had a suite, and I weighed out the ingredients, baked the cookies, and served them to my customers. I thought that’s a good business, and I just opened up a store.
I never intended that to be my main business. But six weeks after we started I was in a near-fatal motorcycle accident, and I couldn’t walk. I couldn’t do anything else, and by the time I could walk we had another store. I was forced into the cookie business.
I don’t think you can emphasize enough — accept nothing but the best. With the cookie company, we sold a product that’s very expensive and that nobody needs. That’s very much like Caribou. There’s no doubt we have the best coffee in the market, but that’s not enough. We have to give added value in the whole experience.
The first guy I ever worked for taught me to never get comfortable. We had a great Saturday, and I remember saying to him, we had it made. He said, ‘Kid, just remember there’s 100 people standing offstage wanting to steal this business.’ We did that to them, with the cookie business.
Will we do that to Starbucks? We’re going to be the best coffee experience out there. We’ll just let time figure all the rest of it out.”
— Interview by Beth Ewen
mjcoles@cariboucoffee.com
