The evolution of Caribou: Food saves the whole day

St. Paul native Sarah Kevelin used to go to Caribou almost every day for coffee. Now, she goes there almost every day for coffee and breakfast. At first, Kevelin, 30, was a fan of the chicken apple sausage breakfast sandwich before recently switching to the turkey bacon and egg whites. "They're a lot healthier and not greasy," Kevelin said. "It's pretty good if you're looking for something quicker." Kevelin and customers like her are, in fact, the key to Caribou's long, slow turnaround.

A wave of new and improved food and beverage products has helped turn Caribou from a perennial money loser when current CEO Mike Tattersfield arrived in 2008 to a profitable company that is set on growth. It is regularly surprising Wall Street with better-than-expected financials, and the market is returning the favor, with its stock now trading at all-time highs.

"It's really about what can you do at the store level, what you can do exceptionally well and what can the consumer be willing to give you credit for," Tattersfield said.

Revenue increased by 8 percent from 2009 to 2010 and net income jumped 83 percent in the same time period. In this year's first quarter, operating income almost tripled, while sales increased from $67 million to $72 million.

"With new management, they've seen much better sales trends and are much more profitable," said Sharon Zackfia, a stock analyst at William Blair & Co. "I think everyone's waiting for them to open more stores, but the existing restaurant is in the best shape it's been in since the company went public."

When Tattersfield, 45, joined the company as its third leader in three years, including one who commuted from Atlanta, its stock was at all-time lows and years of opening stores too quickly were coming back to haunt them.

Tattersfield set to work rebuilding the company by closing underperforming stores, putting new store openings on hold, and moving coffee sales beyond the nearly 500 Caribou shops.

He began to focus more on quality, adding real chocolate to mocha products.

"It's not OK to have pumped chocolate that's not really chocolate," Tattersfield recently said, sitting at his desk, a working foosball table with a glass top.

He launched a rebranding strategy, designed to make the company less north-woods Minnesota and a little more irreverent.

And he's focused on food.

Caribou launched its oatmeal line in January 2010 and received rave reviews from customers for using real whole grain and fruit such as blueberries and bananas.

Tattersfield said that the sandwiches have met and exceeded company expectations.

"It was really important for us that we match the food quality with what we did in our coffee quality. We weren't doing that historically," Tattersfield said.

The company prefers to speak in so-called attachment rates: the percent of its customers who are buying other things along with their coffee. In 2010, that figure was 18 percent. Now it's at 24 percent, which surprised even Tattersfield and other top Caribou executives.

Tattersfield is hoping to bump that to 30 percent, particularly with more food on the way for Caribou.

Say cheese

"Grown-Up Grilled Cheese" sandwiches are being tested in 32 Caribou shops in the Rochester, Minneapolis and Chicago areas. The new sandwiches, which include Gouda Turkey Pesto and Italian Chicken Melt, are all under $4.

Within the test markets, Tattersfield said, the sandwiches have been well received by customers; the company plans to roll out nationally by the first quarter.

"Food has to play a multiple day part," Tattersfield said. "The challenge was that we were trying to sell blueberry muffins to someone as a treat at 4 o'clock in the afternoon. Not exactly what the guest is looking for."

The coffeehouse is capitalizing on "the hottest trend in food trucks" and the comeback of "comfort foods in everyday offerings," said Alfredo Martel, the company's senior vice president of marketing.

"It's better than the food trucks -- it's a reinterpretation of a classic but a little more grown-up," Martel said. "Grilled cheeses are a trend in nostalgia and coming back to the comforts of childhood."

Zackfia said it may prove difficult "for coffeehouses to have lunch be as successful as their breakfast," but it can help bring in customers during non-peak hours. She also said that with Caribou's breakfast sandwich success, any way to build business outside the morning is usually a positive thing and that new lunch products will most likely fare well.

Matching food and drinks has been the main strategy for Tattersfield and Caribou. It was about "being innovative," not "just ripping open a bag and we're in the oatmeal business."

To go with the grilled cheese, it now has four fruit smoothies, which landed on the menu in June.

Tattersfield said that Caribou already is thinking of new ideas for fall, winter and even next summer. Among the possibilities: quiche to stuffed croissants.

"You'll see us continue to evolve our concepts," Tattersfield said. "It's important because you don't want brands that stay stale or stagnant and assume success."

While Starbucks has nearly 15,000 stores nationwide, according to Tattersfield Caribou could very well expand from the more than 500 stores it currently has to nearly 2,000. But he said he has no desire to see the company grow that big. His top priorities are continuing to build brand awareness and keeping quality at the forefront.

"With that type of store growth you can't source the best coffee; it's just not feasibly possible," Tattersfield said. "You will make trade-offs on lower quality by making those types of decisions."