Franchise Coffee Shop Versus Independent – Which one to buy?

Why does one person decide to purchase a franchise coffee shop versus opening their own independent shop?  From my own experience as a franchise coffee shop owner (a.k.a. ‘franchisee’) and after having spoken with several other franchisees, the list looks something like this:

  • It’s perceived to be safer (there’s no WAY fifty other owners could make a mistake!)
  • It’s perceived to be easier (yay! I don’t have to think.  I just just turn the key and it will run)
  • etc
  • etc
  • the rest are all really just ‘etcs’ because it’s the first two points above where it all falls apart or comes together

Let me first start by debunking the idea that a coffee shop franchise is safer.  It’s simply not true.  Franchisor’s interests are not always the same as the individual franchisee’s.  In order to keep a nice looking store at a prime downtown location open, for example, they may sign a bad deal on the franchisee’s behalf.  Say what, Willis? Why would they do that?  The benefit of having their brand (emphasis on ‘theirs’, not yours because you can’t take it with you) sitting there in the midst of heavy foot traffic may hinder their ability to notice that the sales in that shop don’t give the franchisee the ability to pay for the rent each month!  I wish it were true that the franchisor truly looked out for the well being of all their franchisee’s but regrettably this is not the case.  Anyone outside looking in could probably sympathize with both parties so for the purposes of this article, let’s just say that the goals of the franchisor can and do conflict oftentimes conflict with the goals of the franchisee (which is usually to make money).

On the topic of a coffee shop franchise being easier, allow me to completely shut that down.  If it were so that the franchisee could bring a manager in and train them and let them run the business while he/she collects their paycheque while lying on the sunny beaches of Hawaii, that would indeed be attractive.  In fact, that’s the mythical dream that is sold to the franchise buyer.  The reality is, however, that some modern coffee shop franchisee agreements actually forbid the franchisee from leaving their business for set amounts of time!  Did you read that correctly?  If you did, this should finalize your decision about whether you proceed with a coffee shop franchise.  Let me write it in a more simple way: Actually written in some franchisee agreements is a clause that states that you’re not allowed to leave your store in the hands of your manager, except in strict accordance with the franchisor’s rules.  Ouch. Cancel the plain ticket to Hawaii, honey.

After having looked a little at these two franchising myths and hopefully debunking them, let me now state my position:

I believe that there is a way to create a win-win environment between a franchisor, franchisee, and the customers, as long as there is a healthy dialogue between them, and a lot of give and take, and the shared goal of seeing the franchisee make a lot of money.

Regrettably I am yet to encounter a franchise where all of those are present at the same time.

That said, there are articles published out there on the topic of the much needed FAC (Franchisee Advisory Council). The VCSFA is dedicated to helping member franchisees to set up their own FAC in complete privacy.  Contact the VCSFA for more information.

Sampling and other Marketing Initiatives?

As a coffee shop franchisee, this article about Timothy’s sampling campaign raises some questions that should be asked by any franchisee or prospective purchaser of a coffee shop franchise.  Here are the questions you should ask your franchisor:

1.  Will you provide the sampling team or do I have to train and hire my own?

2. If you will train and set up this sampling team, is that coming out of my marketing pool?

3. If the marketing pool is being used to fund this sampling team, can you guarantee that my little store will have an equal share of the exposure or will you only focus on the ‘high profile’ locations?

Believe it or not, but there is at least one coffee shop franchise chain in the Vancouver area that not only expects their franchisees to pay for such sampling on the streets (labour and COGS) in addition to their marketing pool, but also insists on handing out 2 for 1 coupons while doing so.  When the customer comes to the till to pay (usually with a happy face which is always nice) for their one drink, the franchisee hands them two drinks and, get this, pays a royalty on the losing transaction! It’s one thing to have to take a loss in the name of marketing (standard business) but it’s something quite different to have to pay a royalty on that transaction.  For non-math students out there, this equates to a bad deal for the franchisee.

If this is your situation, why not ask your franchisor to train, send out, and provide the product for your sampling program from the marketing pool?  If they are not interested in this discussion, at least ask them to assure you that you will not be paying at 8-10% royalty fee right off the bottom line of the transaction!

This raises a more important discussion topic – How do you pull together a group of fellow franchisees to discuss such things?  This is where your FAC (Franchisee Advisory Council) comes into play.  Search this website with ‘FAC’ for more information on this important topic.  The VCSFA is dedicated to helping you start your own FAC so that these kind of discussions can start to take place.

Comprehensive List of Coffee Shop Franchises

Here is a fairly comprehensive list of Coffee Shop Franchises!  I was impressed with some of the names in there like “Bad Ass Coffee”.  Yeah!  Anyways, a nice resource to help us with our recruiting efforts or just to amuse yourself.

Click here for link

It would be very interesting to get some feedback from some franchisees about how these chaps actually weigh up to their claims posted here.  I’m feeling a survey coming on!

 

http://www.justcoffeefranchises.com/

Does your franchisor hang out in the BC Supreme court?

Usually a franchise is sold to someone based on the brand and/or the wow-factor.  I know several current franchisees who purchased their franchise just because, ‘There’s no way fifty other owners could be wrong!’  In fact, it’s very possible that fifty other owners could be wrong.  But the question is how do you get accurate information about your current franchisor, or a prospective franchisor?

You would think that you could get this information by simply asking a current franchisee the famous question “So how do you like ___ [insert franchisor name here]?”

I originally thought this question would suffice if you go around and ask a few owners.  In fact, some coffee shop franchisors even require this step of their prospective buyers to make it appear that everyone is gung-ho. However, this method is not sufficient because what most people don’t know is that a good number of franchisees are living under fear of hypothetical retribution from the franchisor.  They think that if they say the truth about their bad experience that the franchisor will just show up and take their investment away from them like a dirty dish at a restaurant…and…without involvement in an organization like the VCSFA, I suppose this could happen in an indirect way.

One surprisingly unknown way of doing a bit of free background work on your franchisor is the BC Supreme court of all places.  With this great online tool, you can just pop your franchisor’s (or their suppliers) company names into the ‘keywords’ field and badda-bing-badda-bang – you can see their cases.  Granted you can’t see all the details but it will certainly show you if they have a tendency of getting sued.  You can also dig deeper later if you want.

In defence of the franchisor, very nice and beautiful people and companies are getting sued every day.  This doesn’t by any means give conclusive evidence of nefarious deeds, but it does give an ‘indication’ of whether you should do further research on these folks. And hey!  You can also look up your friends, family and coworkers to see if they’ve been hanging out there as well.

NOTE: You may have to try a few variations on their name in the keywordds field as they have a tendency of having multiple names or name changes.

Here’s your link

There is another Supreme Court link somewhere else that is useful but I can’t find that right now.  Stay tuned for part 2.

 

Foreign Investors Scoop up North American Franchise

For those of you franchisees out there, don’t put limitations on your possibilities.  This franchisee really took his thinking outside of the box.

——

“Standard Chartered Private Equity Ltd. and a consortium including South Korea’s national pension fund will invest $46 million in Smoothies Korea Inc. to fund its acquisition of its franchisor, U.S. beverage chain Smoothie King, according to a statement Monday.

SCPE, the private-equity arm of Standard Chartered PLC, said Smoothies Korea will use funds to buy New Orleans-based Smoothie King. Smoothies Korea currently has more than 100 company-owned and franchise stores in the country, while Smoothie King operates 529 stores in the U.S., according to the statement.

Smoothies Korea is Smoothie King’s first overseas franchise. Charles Huh, head of SCPE’s Korea unit, said Smoothie King plans to expand overseas, riding the wave of interest in Korean pop culture globally. It has plans to open stores in major cities in China, like Shanghai, and use Singapore as a testing ground before launching elsewhere in Southeast Asia. Smoothies Korea also has plans to open more Smoothie King outlets in the U.S. as cafes–rather than pure take-out outlets.

Given limited domestic growth, Mr. Huh said future investments in Korea would focus on companies that are able to expand overseas.

In June 2011, SCPE acquired a 49% stake in Korea’s largest forklift maker, Doosan Industrial Vehicle, for $228 million, according to Dealogic data. SCPE invested $61 million in Korea’s Daelim Motor Co. in October, a motorcycle and auto parts maker.”

http://blogs.wsj.com/deals/2012/07/08/standard-chartered-private-equity-invests-in-smoothies-korea/

 

Find your Non-Compete Zone sooner than later with this tool

 

Here’s the tool now read the article.

A discussion with some coffee shop franchisees came up the other day talking about the effect of an increased non-compete zone.  The franchisor could increase the size of the non-compete zone from your store and/or change the non-compete zone to include ALL stores of that franchise.

At a glance it seems like no big deal.  Just a couple of kilometers.  But a lawyer pointed out something crucial. He said ‘Take a map, plot out every store in the chain, and then draw a circle around your store.  That’s where you cannot do any similar business for the non-compete period.’ 

However, consider this.  If you are downtown, a 1km non-compete zone from YOUR store enables you to open another establishment in the downtown core.  A 4km non-compete zone from your store basically excludes you from the downtown core.  If the franchisor were to include a non-compete zone that encompassed a given distance from ALL their stores, it may effectively exclude you from the populated areas of the Lower Mainland.  Naturally, the bigger the franchise chain, the more likely a larger non-compete zone will affect YOU!

It wasn’t until I found this excellent web tool that I realized the potential severity of this contract clause.  There is literally no piece of earth in the entire city limits that is not covered by this nasty clause.

Try it for yourself here.  For a single location, it’s a little wonky in functionality so I found doing these steps repeatedly worked best:

  • 1. refresh the page
  • 2. enter the radius in the first box (kilometres)
  • 3. enter the store location around which I would like to plot my circle in the search field above the map
  • 4. move the little target icon cross-hair thing and drop it right where the store is.

For multiple locations, I found it best to geocode the locations using Geocode Visualizer.  Then enter in the coordinates into the tool under the CSV Upload section.  Once uploaded it shows you the map of all locations. 

The green circle area(s) is where you cannot do a similar business.  Use the zoom tool to see just how nasty a contract can be :(

Hope this helps someone

 

This is Coffee – Entertaining and Educational

I couldn’t decide if this video should be classified as education or entertainment so I chose both.

Here are some awesome quotes:

-“Time – carefully measured.”

-“Perfect coffee sending it’s glow into our lives around the clock.”

-“It helps us start our day with warmth and vigor”

-“In the romance of evening when young dreams glow softly, coffee is always the perfect companion”

Here’s the video again if you didn’t already click and watch it

 

The History of Coffee

The National Coffee Association (USA) (www.ncausa.org) published this rock-solid, everything-you-need-to-learn-about-coffee stuff.  Check it out here.

Important to note is that this website of theirs is an awesome wealth of information.

Don’t just be a Coffee Shop Franchisee – be an artisan and a master.  Show the world your value as you amp up your game because you’ll never know where it will take you.

Please contribute by sending us articles, links and anything else to help.

Just Gimme the FAC! Starting your own Franchise Advisory Council

Something that most franchisees probably don’t ever think they’d need is a FAC – a Franchisee Advisory Council.  Though it sounds vaguely like  a dirty word, the smartest thing you could do is get yours going before it’s too late.

In a sense, the FAC operates like a restaurant health inspector and a union at the same time.  In the former role, it holds the franchisor accountable to do business in an fashion that considers the well being of the customers of the restaurant (in this analogy the franchisees) while in the latter role it makes sure that the ‘voices of the people’ are heard and not suppressed.

Without a formal body to hold the franchisor accountable, there are no limits to the abuses that could occur towards the franchisee, especially considering that many purchase their franchise without any former business experience.  Many franchisors know this and will simply have a lawyer write a letter to scare any franchisee that might get a little too ‘noisy’.

Without the FAC it is very easy for a franchisor to intimidate a franchisee knowing that they likely are not having quality dialogue with their fellow franchisees.

This article published by Canadian Business Franchise Magazine covers this topic and more and is definitely worth the read.

By joining as a member of the VCSFA, you will gain access to the people and tools to help form your FAC within your franchise.