Lessons of Product: The Second Chance Spinoff (Case – Coffee & Bagels)

 

BACKGROUND

According to Eric Schmidt, legendary Silicon Valley executive and the Chairman of Alphabet, Inc.: “enterprise was the hardest customer to satisfy, but we were wrong. It turns out, consumers are harder than the enterprise because the consumer will not give you a second chance”. It turns out one consumer brand is on a mission to revive itself and to seize the opportunity at a second chance at success. Caribou Coffee was, and still is in some respects, a coffee shop heavyweight that emerged alongside the success of Starbucks during the late 1990s into the 2000s. It was, like many other coffee chain rivals, a younger sibling when compared to the explosive growth of Starbucks.

9057424_gCaribou grew rapidly in regions across the Unites States, particularly in the Midwest, eventually reaching success to the point of IPO. However, the firm started reporting heavy losses in the years of 2010 and 2011, ultimately leading to the acquisition of company by European conglomerate Joh. A Benckiser Group (JAB) in 2012. The firm soon after rolled back many of its store expansion plans, closing dozens of locations and rebranding many others to Peet’s Coffee & Tea, a fellow coffee retailing subsidiary of JAB.

However, September 2015 sparked a new dawn in Caribou’s history. The firm partnered with fellow a fellow JAB company with also a track record of retail success: Einstein Bros. Bagels. The two retailing “shadow giants” came together to create co-branded chain called “Coffee & Bagels”, serving premium Caribou coffee alongside classic and well-loved Einstein bagels. Since opening their first co-branded location last year, the second chance launch for Caribou (and to a lesser extent Einstein) has produced 60+ locations and continue to rapidly grow.

 

The Strategy

As a longtime Caribou coffee customer, who grew up going to my local Caribou for their savory hot chocolates in my childhood, this was a pretty disheartening business development I witnessed from the perspective of a consumer. My hometown Caribou in Libertyville, IL closed in May, 2013. A resurgence of the Caribou brand is a tantalizing prospect, but it turns out there is a good product strategy behind this “second chance spinoff”. Caribou was indeed founded as a premium coffee brand, but directly competing with the likes of the more highly respected and more established Starbucks brand, there was great difficulty for the management team to create a well-known brand with an underlying business with strong margins.

This newly established co-branded chain has completely rethought the “product launch” of a coffee chain. The strategy of the new venture is to blend the relaxing and communal atmosphere of a Caribou coffee shop with the fresh baked goods and breakfast foods few coffee chains can compete with. The chain’s concept can be thought of as a diner built for the 21st century where consumer’s thirst for coffee and Wi-Fi can be satisfied alongside freshly made, simple, and light food items like bagels, small salads, and breakfast sandwiches.

The product strategy is to bring two well-known brands together and let them do what they do best, maximizing their strengths and creating efficiencies by operating between the Panera Bread’s and the Starbucks in the café chain landscape.

Their brief story pitch on their site is a compelling summary of their creative launch and market strategy: “The best coffee moved in with the best bagels. Imagine the power of the world’s greatest bagelry setting up shop with the most beloved coffeehouse. Now you can experience knock-your-socks-off coffee creations from Caribou Coffee right beside Einstein Bros. fresh baked bagels with got-to-have-it shmear. All under one epic roof. You’re welcome world!”

 

The Risk and Opportunity

Taco Bell + Pizza Hut, and KFC + Long John Silvers are two well-known examples of co-branded locations that have had moderate success. For Einstein and Caribou, they are venturing into new territory by creating a premium co-branded chain that surprisingly has a strategy and makes sense for the consumer. Only time will tell if this ne chain’s success will continue, but at the very least this is a compelling “second chance” endeavor for a coffee company that could have had much better product positioning against rivals like Starbucks in its earlier years.

Moving forward, the opportunity for the executive leaders at Einstein and Caribou is to make the case to the coffee enthusiasts of the nation of pick up a fresh bagel with their coffee, and to demand more than the bland granola bars and depressing food offerings from traditional coffee chains. The risk for the launch of the Coffee & and Bagels product is the potential discovery that consumers are set in their ways and that the first mover advantage in the “second wave coffee movement” will prevail.

I’m personally excited to see how this new “product” plays out in coming years as both a coffee enthusiast, product-focused professional, and a longtime Caribou customer. I’m optimistic for the venture’s future, and I dream of the day where Caribou returns to my hometown!

 

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