Second Cup's new owner has a vision: be the best at niceness

"I see myself as a brand steward, making sure the brand stays healthy and evolves in a truly unique, Canadian way," Mr. Tsampalieros said.

The Globe and Mail
June 15, 2006

Second Cup's new owner has a vision: be the best at niceness
Aims to be kinder, gentler than Starbucks
Andy Hoffman

As far as the new owner of Second Cup Ltd. is concerned, the more Canadian the specialty coffee chain becomes, the better.

Gabriel Tsampalieros' vision for success in the fight with global coffee behemoth Starbucks Corp. for the high-end java customer is to instill kinder, gentler Canadian values in the service experience at each of Second Cup's 360 locations.

"We want to be friendly but disciplined. Not militaristic. We don't want to be the big, cold machine that says 'it's our way or the highway,' " Mr. Tsampalieros said in an interview yesterday.

Take, for example, the atmosphere at a Second Cup in Ontario, Quebec or Alberta, he said, compared with that of its Seattle-based rival. "It's about being hospitable without being overbearing. It's about being caring without being paternalistic. It's about being confident without being arrogant."

The way Mr. Tsampalieros sees it, mainstream coffee giant Tim Hortons Inc. doesn't own the patent on Canada in a coffee cup.

On Tuesday, the 59-year-old, who is a former chief executive officer at Cara Operations Ltd. unveiled a deal to buy Second Cup, Canada's second largest specialty coffee chain (behind Starbucks), from Mississauga-based Cara.

Financial details of the transaction, which is expected to close by year-end, were not disclosed. But the deal involves Mr. Tsampalieros giving up some of the ownership stake he holds in Toronto-based Cara, which went private in February, 2004, during his CEO tenure

At the time, Mr. Tsampalieros contributed 500,000 shares to Cara Holdings Ltd., and joined three members of the Phelan family; sisters Gail and Rosemary and their niece Holiday Phelan-Johnson in a $343-million bid to take Cara Operations private.

"It wasn't cheap," Mr. Tsampalieros said of the Second Cup purchase. He is also now Cara's largest franchisee, with 31 Swiss Chalet and Harvey's restaurants. It is believed that will change, under the terms of the transaction.

Cara first acquired a stake in Second Cup in 1996, buying the remaining 57 per cent for $42.4-million from Michael Bregman and other investors in 2002. In 2004, Cara spun off the chain, with an $82-million initial public offering for the Second Cup Royalty Income Fund, which derives income from a 6.5-per-cent royalty on store sales.

Mr. Tsampalieros has bought the parent operating company, Toronto- based Second Cup Ltd., which sells franchises for about $275,000 each, as well as equipment and supplies to stores. He also bought the international Second Cup trademarks held by Cara that weren't transferred to the royalty fund.

Second Cup has expanded to the Middle East, with stores in Qatar, Jordan and Saudi Arabia as well as other countries in the region.

Mr. Tsampalieros believes the chain will benefit from an owner focused on a single brand. With Cara, Second Cup was under the same umbrella with several other restaurant operations, including Kelsey's, Milestones, Harvey's and Swiss Chalet. The majority of those restaurants are corporately owned.

"The Cara strategy is all about building a portfolio of highly recognized brands, increasingly so in the full-service sector of the restaurant industry," Mr. Tsampalieros said.

Last week, Cara sold its Airport Terminal Restaurant division for $62-million. Cara's senior vice-president and general counsel, Ian Wilke declined to comment yesterday.

Mr. Tsampalieros is also looking to new products to boost sales at Second Cup. Under the guidance of president Bruce Elliot, a former Labatt Brewing Co. Ltd. executive, Second Cup will introduce sandwiches to all of its stores within the next six to 12 months.

"I see myself as a brand steward, making sure the brand stays healthy and evolves in a truly unique, Canadian way," Mr. Tsampalieros said.

Second Cup is expected to add 15 to 20 new stores this year. In May, the royalty fund increased its monthly distributions by 4 per cent after reporting a 7-per-cent increase in first-quarter sales to $43.4-million.

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