Alix Box joined The Second Cup Ltd. as president and CEO in February. A veteran retail exec whose CV includes senior positions at Holt Renfrew, Starbucks and Mmmuffins, she’s spent the first year on the job developing a strategic plan that she hopes will help the 40-year-old company compete in the increasingly ruthless battle for consumers’ latte money.
With a massive brand reinvention underway (including the launch of a “café of the future” store concept) and a growth plan that includes both expansion into new markets and increases to same-store sales, she’s confident Second Cup can reclaim its title as Canada’s favourite café.
You took over as CEO of Second Cup in February 2014. How would you characterize your first year on the job?
It’s been a year of huge change. It’s also been a year of learning and listening. There’s been a lot of activity—fixing the foundation so we can go forward in transforming what I believe is an iconic Canadian brand.
The store we’re sitting in has been totally renovated and doesn’t look anything like a typical Second Cup. There’s a “slow bar,” for instance, where people can talk to a barista working a fancy pour-over machine. How does this Toronto location—which is meant to demonstrate the concept you’ll roll out elsewhere—reflect your vision for the brand?
We’re really focusing on a high-end, individual experience. With things like the bar, we’re adding a bit of theatre to the store. People can come in and learn about coffee, and discover what they love.
You have lots of executive experience at companies like Holt Renfrew and Starbucks, but this is your first time in the position of CEO. What did you do to prepare for the top job?
I’ve always had an executive coach, and I recommend that to anyone. It’s so useful to have someone who’s objective, who will ask you the tough questions, give you tough feedback and hold you accountable. She really encouraged me to go for it.
I think I’ve been preparing to lead something like this all my career. I knew I’d be comfortable in the coffee space because I’d worked in it before. And I was so excited that it was a transformative position because I really like a challenge; I like not knowing everything going in.
I sat in a lot of Second Cups, and I spent a lot of time talking to [Second Cup chairman] Michael Bregman to make sure I could deliver what he needed. We talked about what we dreamed the business could be. I was very honest in saying I thought the chain was very outdated and asleep. I wanted to wake up and transform it, not just come in and make a few tweaks—I wanted to reinvent the brand and take it into a much more premium space. When I learned we were very aligned on that, I thought, Yeah, this will be a great opportunity for me.
You made some pretty big changes shortly after coming in, including cutting nearly a third of the workforce at corporate headquarters. That can’t have been an easy thing for a new CEO to do. How did you deliver the hard news without damaging morale and hope?
A reorganization is a tough thing to go through because everything gets examined. You have to ask, Do we really need this? What’s the value? It puts people on edge. But when a business isn’t doing well, you can’t pretend it is. What I’ve found works is telling people why things have to happen and involving them in the solution.
How do you do that?
For instance, we asked people at the director level to lead the reorganization instead of making it an executive, top-down process. They came to me and told me what they thought we should do. That included cutting my own executive team from seven people to five, which was the right thing to do. If you treat people like they’re partners, they’ll usually help come up with solutions. It’s when you don’t include them that they get disengaged.
Following the reorganization, you spent a lot of the past year creating a new three-year strategic plan. Can you walk me through that process?
One of the first things I did was travel to different markets—New York, San Francisco, Seattle, Montreal—to see what was most interesting in coffee. From that, we pulled together a trend report. Coffee is a wonderfully innovative industry; we wanted to know what was happening out there to help us validate, or possibly reformulate, our vision. For instance, I really liked some of the things we saw in independent coffee shops; that inspired us to bring what we call an “independent spirit” to the new Second Cup. I also travelled across the country to talk to franchisees about what they wanted to see.
From there, we put ourselves in a room and talked about what we needed to do next. We worked as a team on this over the summer and brought in an outside consultant for an independent, very objective perspective.
We knew Second Cup had some really strong foundational elements: excellent real estate, passionate franchisees and quality coffee. So our discussions became about how to take those foundational elements and turn them into a company that really stands for something. Ultimately, we came up with five key strategies.
And what are those strategies?
First, to reinvent the brand to reflect real conviction about what we stand for. Second, to really “stand” for coffee and to innovate in that world; we’re even changing our name on the outside of our stores to “Second Cup Coffee Co.” Third, to deliver an experience that creates a much more emotional attachment with the customer; we’ve added better and more training for our franchisees to deliver inspiring café experiences. Fourth, to change our real estate strategy by introducing the new concept, first to key markets—Toronto, Montreal and Alberta—and to spread it to secondary markets from there. And finally, we’re working to be a world-class franchisor. We need to treat our franchisees as customers. They work the line every day, and they’re responsible for some of our best ideas. So we’re introducing a much more collaborative way of doing business with them.
Some 95% of Second Cup stores are franchise-run, so happy franchisees are a pretty key part of the company’s success. What are you doing to make the relationship between franchisees and corporate more productive?
Early in my career, I worked at Michel’s Baguette and Mmmuffins, and those were franchised operations. I discovered at a really young age that you have to learn how to influence without authority. Franchisees are operating under your banner and under your brand standards, but they are running their own businesses. So it comes down to building collaborative relationships, which involves a lot of communication.
One of the first things I did after taking this job was to travel to all our markets and have town hall meetings with our franchisees to hear their concerns and figure out what we needed to address. They came forward, and there was a lot of angst and bitterness toward us as a franchisor. For instance, the franchisees were frustrated that they’d call us and then not hear anything. So we instituted a policy that states that any franchisee who calls will get a return call within 24 hours. And the franchisee no longer has to deal with 10 different people for 10 different issues—they now deal with one person from our customer care team, who acts as a filter for any issues they might have I had to show them there’s a new organization forming, one that is going to be responsive to their needs.
Can you give another example of how you did that?
Sure. The reorganization reduced our expenses and overhead. Instead of putting those savings onto the corporate balance sheet, we decided to pass them on to franchisees by changing the royalty structure from 9% to 7.5%. That demonstrated that I was listening, and I was prepared to take action. I think that helped build trust.
When Second Cup launched in 1975, few Canadians knew what a latte was. Now there’s a café on every corner, and everyone’s an amateur barista. How do you keep Second Cup relevant?
We’re on a mission to win people’s hearts and minds in Canada, and I think our history helps. I think Canadians are rooting for us. There was a Huffington Post article recently that questioned who still goes to Second Cup. We were thrilled by the response: There were more than 500 comments from people talking about how much they love us, about how they had their first coffee at a Second Cup, about how they want us to make the chain special again.
You spent 10 years, from 1997 to 2007, working for the competition. How did your time at Starbucks prepare you for your role, now that you’re on the other side?
You’re right, I cut my teeth competing against the No. 1 player, which was Second Cup at the time. I learned that you have to stay focused on the customer and win them one at a time. You do that by acting as if you have the big competition beside you every day. You should absolutely know what they’re doing, but I’ve learned that it’s better not to fear them. I believe if you focus on offering the best, the customer will decide where to go.
Much of the success of competitors like Tim Hortons and Starbucks comes from their ability to engender serious brand loyalty. What are you doing to make Second Cup a place people go because they love it, not because it’s in the lobby of their building?
These days, cleanliness, friendly service and consistency are table stakes. Where you can really make a difference is on personalized experience; it’s a movement from “mass” to “my.” Our revamped stores will have things like handles for handbags under the counter. It’s a small touch, but people don’t want to put their bags on the floor. Our food is of a much higher quality—it’s artisanal and handcrafted, which goes well with handcrafted beverages. And we’re bringing in different kinds of coffee and new equipment that not a lot of people in the industry are using—at least, not well.
In retail, you have to have a maniacal focus on those kinds of details. That ladders up to giving the customer the experience that keeps them coming back.
We’re playing to win. This is not about tweaking or creating a new logo. This is about a fundamental transformation. We might not be the biggest, but we want to be the best. I think that’s how we’re going to win.