Caribou Coffee Company Analysis BUS 497A Professor Bruton

EXECUTIVE SUMMARY Overview Caribou Coffee has come a long way from a coffee shop in Minnesota to a publicly traded company on the AS!A"# Based on the number of coffeehouses operated in $%%7&

Caribou Coffee was the second largest company'owned gourmet coffeehouse in the United States# (owe)er& the competiti)e mar*et& along with a potential class'action lawsuit in)ol)ing store managers has caused some serious issues& including increasingly high net losses and decreasing stoc* price# By pro)iding +an e,perience that will ma*e the day better- Caribou Coffee has created competiti)e ad)antage in their store operations& but the .uestion remains whether they can maintain this and use it to sustain their growth strategy# Caribou Coffee/s dedication to creating a uni.ue e,perience for customers by combining high .uality products& a distincti)e coffeehouse en)ironment& and e,cellent customer ser)ice& differentiates their place in the coffeehouse industry# Creating strong human capital is the foundation for this differentiation strategy# 0he issue that will be analy1ed in this case is whether or not Caribou Coffee/s efforts in de)eloping human capital will enable them to achie)e sustainable competiti)e ad)antage gi)en the competition and threats they are facing# Con lusions 2n order for Caribou Coffee to maintain competiti)e ad)antage it must continue to create differentiation in its coffeehouses through their human capital# 0hey ha)e de)eloped strong capabilities in recruiting& de)eloping& and retaining their employees but this can be easily copied by competitors and by itself its not enough to sustain their ad)antages# 0o continue to grow they

must maintain their strong focus on human capital& but must also de)elop their other strengths to create a bundle of resources as the basis of differentiation# A!A"YSIS E#$ernal Analysis Specialty coffee is a strong and growing industry in the United States# Specialty coffee consumption increased by more than 434 from $%%5 to $%%6 and the mar*et is estimated to be o)er 755 billion annually# 0he number of coffeehouses grew from only 8%% units in 5995 to $4&%%% units in $%%6& but the industry remains highly fragmented 9with the e,ception of mar*et leader Starbuc*s:# 0he reason for such growth is the consumer trend to specialty and traditional products such as micro brewed beer& single malt li.uor& and organic foods# Coffee is seen as a new .uality be)erage& there is an e,panding menu& and coffeehouses ha)e become the +third place- for social consumption# (owe)er& Caribou Coffee/s position is threatened by new and e,isting competitors that may pro)ide coffee in a more differentiated manner# 2n the strategic en)ironment& Caribou Coffee is in danger because the industry leader& Starbuc*s& increased their long'term store goals from ;%&%%% to a target of 4%&%%%# Starbuc*s is committed to dominating the industry they creating& which gi)es them an insurmountable first mo)er ad)antage that lea)es all the other stri)ing to become the recogni1ed second'place coffee house# 2t is apparent that in the coffee industry there is enormous ri)alry among competitors& which is why Caribou must maintain its differentiation to maintain their customer/s loyalty# 0he coffeehouse industry is characteri1ed by intense competition not only from the industry leader& but also from the threat of new entrants and substitutes attracted by such huge growth# 0he buyer power here is )ery high because there are many choices and the switching costs for going from one coffeehouse to another is so low# Creating a good .uality be)erage is based upon the

materials used to ma*e the product& but coffee beans are essentially and commodity so suppliers are unable to e,ert control o)er prices# All in all& loo*ing at the conditions and different forces in the industry& competing in the coffeehouse industry is fa)orable considering its o)erall growth o)er the years& but intense competition and buyer power limits profit potential# In$ernal Analysis Caribou Coffee has been able to achie)e a competiti)e ad)antage by satisfying customers through its efforts focusing on human and social capital& but it can be compromised gi)en recent e)ents# !e)eloping human capital is tied into one of Caribou Coffee/s strategic initiati)es implemented by Mr# Coles& C<= and President& to impro)e operations by impro)ing their selection and training of coffeehouse personnel# <stablishing human capital has enabled Caribou Coffee to create a strong hold between the indi)idual capabilities& s*ills& *nowledge& and e,periences of the company/s employees# At Caribou Coffee the human capital is built through the e,tensi)e training procedures that help create customer satisfaction# Social capital is created through the networ* of relationships that the employees ha)e throughout the organi1ation# 0hree main interdependent acti)ities of creating human capital > attracting& de)eloping& and retaining > are the organi1ations main focus# 0he company attracts human capital by implementing )ery selecti)e hiring practices# 0he most important part of Caribou Coffee/s human capital was their focus on creating operational e,cellence through e,tensi)e training procedures# 0he training at Caribou Coffee was )ery important and continuous& as they belie)ed it is the employees that created the great products or customer ser)ice that differentiated the company# 0he training of employees was belie)ed to be a *ey to fulfilling the mission of creating +an e,perience that ma*es the day better-# 0he company implemented this into all of

their training practices as one of the company/s core competencies that would create strong commitment in the employees# All new employees were gi)en instructions to become ?drin* certified/& in'store Certified 2nstructor 0rainers pro)ided on'going instruction in presentation and ser)ice& and courses were offered through Caribou College to impro)e career s*ills# 0he training at Caribou Coffee was )ery important and e,tensi)e& as they belie)ed it is the employees that created the great products and customer ser)ice that differentiated the company# 0he company also retained their human capital by implementing rewards that are both tangible and intangible# Caribou Coffee follows a pay'for'performance philosophy that allowed the company to identify and reward team members that met high performance standards# <mployees would wor* harder to ma*e their coffeehouse the best since the bonuses for managers and the coffeehouse was based on sales& profit& and customer ser)ice# 0he company had a belief that e,cellence was a product of hard wor*& and that life was too short for anything else# 0his sounds good to consumers because they will get the best& but may be a negati)e for the employees and will ma*e it harder to ha)e employees contributing to human capital# 0hese factors are what created effecti)e human capital for only a certain time& but other issues is not allowing them to sustain that ad)antage# Caribou Coffee maintained a sense of social capital that ga)e employees the chance to want the best for the company by contributing to human capital# Caribou Coffee had an organi1ational culture that allowed a place +@here <ntrepreneurial Spirit Aoams Bree-# 0he company was not o)erly structured& which is why employees were able to wor* on a )ariety of different proCects and ta*e on an e,tensi)e range of responsibility# Also& Caribou Coffee had a culture that included a strong belief in promoting from within the company& which created a future to wor* toward for employees# 0he company was more on the personal or rela,ed side

where they would communicate in person rather than through emails and they would ha)e a dress code that was business casual# 0hese different aspects of organi1ational culture created social capital that gained employee loyalty for Caribou Coffee# Caribou Coffee had a strong belief that customer ser)ice was led by their employees and that their selecti)e hiring practices& e,tensi)e training& and low turno)er created superior employees#

%IA&!OSIS Caribou Coffee has created differentiation by implementing a strategy dedicated to creating human capital as a way to better meet consumer needs& but in the changing and rapidly growing industry it will be )ery difficult to create a sustainable competiti)e ad)antage# 0his strategy has been successful in creating competiti)e ad)antage at the business le)el# 2t is uncertain& howe)er& whether this is a source of sustainable ad)antage# 0his ad)antage is based on resources and capabilities that can be too easily imitated by competitors# (a)ing dedicated employees creates a )alue for Caribou& which differentiates them from other coffeehouses since they try to create human capital to in turn gi)e great ser)ice# 0he organi1ation/s culture has created a )alue that creates a common purpose for the employees and the company& which creates an effecti)e outcome when presenting ser)ice or products to consumers# 0he challenges that Caribou is facing through the stoc* declines& company losses& or e)en the manager demands for o)ertime pay can possibly wea*en their human capital as a source of competiti)e ad)antage# Also& the effects of the e,ternal en)ironment can ta*e a great toll on the organi1ation if they remain on the same path# 0he changes that Caribou Coffee is facing will

send Caribou in a decline of their human capital as a source of competiti)e ad)antage& if they do not do anything to add to or change their strategy# Although their focus on human and social capital has created a t least a temporary competiti)e ad)antage for Caribou Coffee& in the current competiti)e en)ironment these are li*ely to become necessary success factors& not )aluable& rare& inimitable& and nonsubstitutable core competencies# 2t is more li*ely that their human and social capital& superior product .uality& and store design and atmosphere pro)ide a bundle of resources that can create sustainable competiti)e ad)antage#

CO!C"USIO! @ith the industry leader creating new goals that target to ma*e them almost a monopoly in the world of coffee& Caribou is in danger of losing its competiti)e ad)antage# 0his source of social and human capital is a *ey source of Caribou Coffee/s competiti)e ad)antage& but e)en that is starting to decline# 2n order to compete in the industry and e)en possibly surpass the industry leader Caribou Coffee must ha)e a sustainable competiti)e ad)antage# After conducting an internal analysis of the firm& it is clear that Caribou Coffee needs to maintain or better its human capital# Caribou Coffee needs to implement the same practices& but the company must also consider implementing a way to satisfy o)ertime pay because the fact that manager/s wor* o)ertime shows dedication li*e an owner& but maintaining that belief is important for the company# Caribou Coffee has created a coffeehouse that is seen as an escape for consumers that helps the company maintain its differentiation from other coffeehouses& but the organi1ation is in its stages of decline if no changes are implemented#