Caribou chief is right blend of casual and effective

To understand the laid-back style of Caribou Coffee CEO Michael Tattersfield it helps to know shoes. He wears a pair of chunky brown Nikes that he calls funky. "See?" he says, swinging them up onto his office table.

Not a wingtip kind of guy, Tattersfield might at first blush seem like an odd choice for top management, a skate punk trapped in a 43-year-old man. He awards top employees with "melon heads," usually a melon and a dancing doll, for using their "melons." Get it? And he eschews the perks of leadership with such practiced aversion -- his VIP parking spot at company headquarters goes empty -- it's as if he doesn't feel worthy of the job.

But his casual demeanor doesn't keep him from making tough decisions. Soon after taking over, Tattersfield tabled opening new company-owned coffeehouses. Tattersfield said that former CEO Michael Coles, who left in 2007, grew the company by opening too many locations too fast. The company shut down 25 company-owned stores last year and now has 515 stores, 414 of which it owns.

Tattersfield instead has turned to increased commercial sales, franchise fees, royalties and product sales from 38 franchise coffeehouses opened in the last year, including six in this year's first quarter.

The strategy seems to be working. Since Tattersfield came aboard in August, Caribou Coffee has made a profit in two quarters -- something that eluded the chain for 14 straight previous quarters.

Stay funky, investors might say. It's working.

Born in Mexico City to his "serial entrepreneur" Mexican father and an American mother, Tattersfield lived there for most of his childhood, moving north to a Connecticut boarding school for high school. He picked up an accounting major at Indiana University, then added a Harvard MBA.

He's a 13-year veteran of Yum Brands Inc., the world's largest operator of fast-food restaurants, with Taco Bell, KFC, Pizza Hut, Long John Silver's and A&W. He spent his last few years at Yum as president of A&W. He left to become a vice president at Limited Brands. Then he left to help run a start-up, Lululemon Athletica, a yoga-apparel company based in Vancouver.

He resigned early last year and a few months later was named CEO at Caribou, replacing interim CEO Roz Mallet.

"He really reflects the brand quite well," said Gary Graves, Caribou's board chairman. "He's casual but driven. He's a very smart guy, who obviously takes the business seriously. Doesn't take himself too seriously."

Tattersfield said he spent the first month to six weeks finding his executive team, hiring CFO Tim Hennessy, the former global CFO of Carlson Wagonlit Travel; Senior Vice President Daniel J. Hurdle, who had worked five years with Starbucks Coffee Co., and Senior Vice President of Marketing Alfredo V. Martel, a Yum Brands executive who had worked with Tattersfield there.

When he took over the company, the Dow hovered above 11,000. By the time he reported first-quarter earnings this year, it had fallen below 7,000. And yet, the coffeehouse business has been on an unlikely ride in the past few months, not just at Caribou, but across the industry.

People may drink smaller portions, but they're not giving up their java, said Chris Eilers, CEO of Dunn Bros. "In our stores we've seen people trade down a size but our customer counts haven't been that different," Eilers said. Consumers also are buying more coffee to brew at home. "We've seen a big increase in whole-bean sales," he said.

The National Coffee Association says just as many adults drink coffee daily as they did last year, about 54 percent of the population. Yet they have more choices than ever, including McDonald's, which rolled out a premium coffee line to pick up customers turned off by Starbucks prices, and the spreading Dunkin' Donuts coffee brand.

A Mintel forecast of the $4 billion roast coffee segment (both ground and whole bean) predicts 4 to 5 percent annual growth for the next five years.

Commercial sales at Caribou Coffee, the segment that sells roasted whole bean and ground coffee through supermarkets, mass merchandisers, club stores and online, saw sales leap 61 percent from the first quarter of 2008 and the first quarter this year. Though it contributes just 7 percent of Caribou's revenue, or $5.7 million in the most recent quarter, its growth intrigues Tattersfield.

"If 54 percent of American adults every day get up and drink a cup of coffee, and 80 percent of that is either done at home, or brewed at home, you have to acknowledge that is a clear channel that you have to grow," he said.

Soon after taking over, Tattersfield stopped opening new company-owned coffeehouses. "We're in 16 states. We don't need new geography. It's how do you start to fill that in," he said.

So the company is experimenting in four locations around the Twin Cities to find the best mix of food, coffee and merchandise.

"I'm a big believer in testing," Tattersfied said. "It should be the brand experience, a better state of bean. Serious coffee, but not too serious."