Here is just a little bit of what you missed at our first Talent Network event at 767 Seymour Street.
Blenz the Canadian Coffee Company LTD announced at their National Sales Seminar on October 4th, 2012 Mark West as their new General Manager to replace previous CEO George Moen.
Mark West, who is also the current owner of My Cup Coffee and Tea franchise with several locations around Vancouver that compete directly with several Blenz locations, gave his first speech to the franchisees. In this speech he informed them that he ‘is not actively involved’ in his My Cup operation and that he is dedicated to helping grow the sales of Blenz franchisees.
Mark West was the CEO of Blenz until 2007, just prior to the announcement of George Moen as CEO who has since gone on to start a pay-for-referral business called RapidTimes Networks.
THURSDAY, OCTOBER 25TH, 7:00PM
767 SEYMOUR STREET, VANCOUVER
Come grab a drink and enjoy this live music event in the VCSFA Talent Network series. Catch Vancouver’s up-and-coming in their raw and nearly-unplugged state all over the city. Be on the cutting edge of you city’s talent while supporting local.
For more details email email@example.com
Got a venue and want to join the VCSFA Talent Network? Email firstname.lastname@example.org for more details.
This article about a coffee chain called Tully’s (they aren’t small) should make any coffee shop franchisee or potential buyer stand up and take notice.
Most people make their decision to purchase a franchise assuming that the brand is here to stay. As one of our members once confessed, “I saw the financials and they weren’t good, but I looked around the city and thought to myself that surely 60 other franchisees can’t be wrong!”
But they were wrong. All of them.
It turns out that the chain that they had bought into had more internal leadership problems than China has tea. It turns out that the financials he read were not only as bad as they presented themselves but even worse. He also discovered through membership in the VCSFA that he was not alone.
What is painful to read in the article above is this:
There are also 83 franchised or licensed Tully’s locations in the U.S. as well as locations in Asia.
Here is a chain with a mixture of both corporate and franchise stores. Those franchisees who paid a good sum to get involved must accept what is happening, hope things get better, or take dramatic action with a group.
Here were learn to not think that the glories of yesterday are enough to carry a coffee shop franchise into tomorrow.
Check the leadership, check the numbers and always reach out for advice.
As always, do not hesitate to email us with your comments or questions.
Franchising is a business model developed by entrepreneurs for entrepreneurs. To be successful in the long run, the model must offer both the franchisor and franchisee the ability to make more money than if the franchisee was to go it alone.
For a franchisor, the sources of income are typically derived through a franchise fee, management fee, royalties, rebates and advertising fees. For this article, we will be discussing the question of confidential rebates and cost of goods sold to a franchisee.
“Approved Vendors.” Consistent quality goods, volume purchasing power, adherence to contractual agreements and conformance to industry standards and regulations. All good reasons to have approved vendors.
Suppliers will offer franchisors financial incentives (rebates) based on franchisee purchases. And often, franchisors include a clause that states a ”franchisee may only purchase supplies from the approved vendor list” and that “the franchisee agrees to give up any benefits of the volume buying power of the chain to the franchisor”.
A good franchisor understands their responsibility to their franchisees with respect to approved vendors. A good franchisor will disclose confidential rebates received and explain how they intend to apply them. A good franchisor also would not compel a franchisee to deal with approved vendors if they cannot show that this is absolutely necessary to protect the brand or delivers other benefits.
But what happens in real life? Here is a true story. Bill (not his real name) buys an existing coffee shop franchise. In the second month, he realizes he needs a new coffee brewer, so he gets a quote from the approved vendor. He is amazed at the very high price and decides to comparison shop, but there is no competition, since the approved vendor is also the sole distributor. So, he informs his franchisor that he would like to buy a different less expensive and superior machine. The franchisor flatly rejects his request and points him back to the approved vendor; no explanations. The sad franchisee accepts his fate and buys the approved machine. A few months go by, and the valves need to be changed and the other equipment needs to be checked. A service technician does ‘some work’ on the machines resulting in a fried circuit board. The angry franchisee asks the technician to fix it, but the technician blames the franchisee’s staff. To make things worse, the technician not only forced the owner to sign to authorize the work and make payment immediately. A few months later, the franchisee he needs basic maintenance on his expensive espresso machine so he calls Vendor B to fix it. Vendor B sadly informs him that they are not able to help him because the part they need can only be obtained from Vendor A, the approved vendor of the franchise! The moral of the story – don’t deal with a poor franchisor? Why does a franchisor approve and force upon the franchisees a vendor that provides poor service and overcharges? Why couldn’t the franchisor provide any justification for using that supplier? What financial arrangements were in place that caused the prices to be inflated? Did the franchisor receive rebates, or free servicing, or free machines?
A great franchisor would share the confidential rebates with their franchisees or allocate those payments received to mutually agreed projects. Sadly, in B.C., we have no such legislation that compels franchisors to do the right thing for their franchisees. It is no wonder so many coffee shop franchisees have pained looks on their faces when you mention “approved vendors”.
The VCSFA recommends all potential buyers steer clear from a franchisor that promotes business practices that force the franchisees to accept approved vendors that do not supply clear demonstrated benefits: better/faster service for the same price as the competition, lower pricing, superior products, etc. Ask what existing franchisees pay for their core supplies (milk, coffee, bottled drinks, sandwiches, etc) against an independent cafe. If the franchisor avoids talking about this, or even acknowledging that they receive rebates, then run away. The franchisor is receiving a financial benefit, and they don’t want you to know. And if you cannot trust the franchisor on the most basic questions, how can you trust them with the more complicated questions?
And a last thought: what happens when a franchisor decides to make money on approved vendors that do not relate to supplies? What if a franchisor wants to be the SOLE supplier of EVERYTHING related to the franchisee operation: renovations, equipment, supplies. And naturally, make money on each of those aspects?
As always, do not hesitate to email us with any questions or comments.
This list was published by Business in Vancouver not that long ago and deserves some attention. First of all, we commend Business in Vancouver for putting together lists like these and for gathering data as it’s very useful for the public, especially the potential buyer of a coffee shop franchise.
Here are some pieces of information that we pulled out of this related to coffee, but first, please familiarize yourself with the VCSFA’s exhaustive Francouver. (Franchises in Vancouver) page.
1. Out of 80 franchises, only 6 are coffee. That’s only 7.5% of all franchises in the list – pretty low numbers, I thought, actually. And is Tim Horton’s really a ‘coffee franchise’ or is it a ‘food franchise’? That discussion is up for debate. We will give them the benefit of the doubt as well as add McDonalds to our Francouver list since it’s not there at the time of writing this article.
Here is the list with our running commentary:
#2 Tim Horton’s: Not much to say here except I’d be carefully watching the golden arches if I were them
#3 McDonalds: They are definitely into coffee now and much better in fact, than many of their competitors – they are in a new game now and I would not be surprised to see them start to seriously eat away at #2’s coffee share.
#13 Blenz: Sheer numbers. They were cranking out new locations until about two years ago when everything seemed to come to a grinding halt. Economy? Other?
#39 Waves Coffee: Very similar situation to Blenz the way they were cranking out new stores. In fact, they may have out-cranked Blenz this year… I’d like to see those stats. Waves may be heading into other provinces to crank further whereas Blenz doesn’t seem to be doing much with North America. Let’s see where these numbers sit between Blenz and Waves next year. They are, if you didn’t know, rivals to say the least. We will hopefully publish that story one day but feel free to dig in yourself. It’s very interesting! We’ll leave that for a rainy day which will likely be soon. And, apparently another Vancouver coffee franchise will be joining this story in based on some new announcements from one of these chains.
#62 Esquires: They are huge elsewhere but I was actually impressed with their footprint here (respectable numbers!)
#65 Second Cup: Still hanging in there with their Ontario fanclub. Not much expansion in BC but apparently heading quickly into the states.
Notes for Potential Buyers
From our experience in the coffee shop franchise arena, there is a small guage that is worth looking at on this list that would likely go unnoticed. You’ll note that there is a column for ‘number of locations’ and then ‘number of franchises’. Typically speaking you would be looking for the number to be the same and that would indicate a better health. You should not see the gap between the number growing and if you do, you would want to ask why. Typcially what is happening is the owner of the store is going bankrupt, or, they have been forced out by the head office and they are running it. We would very much welcome our readers to email us your comments as I think this would make a good discussion. For now, however, we would recommend considering a fluctuating number here to be an indication that you should ask more questions about the health of the chain. Here is how those numbers look:
#2 Tim Horton’s: 289/289
#3 McDonalds: 166/207
#13 Blenz: 62/64
#39 Waves Coffee: 24/24
#62 Esquires: NP (Not Provided!)/12
#65 Second Cup: NP (Not Provided!) / 9
We would be concerned about a ‘not provided’ answer.
We would recommend monitoring the number of locations from one year the next and especially keep an eye on that gap mentioned above from one year to the next. If you see an increase in the gap you know that head office has taken over another store and you would want to investigate why from both sides.
We hope this coffee shop franchise perspective on this famous list was useful and don’t forget that we always welcome you to email us with your feedback.
We apologize for the low image quality but it was taken by someone in the public who thought we’d be interested in covering it. Here is what the text on the sign reads:
DEAR VALUED CUSTOMERS
In recent weeks we have received many “Customer Comments” regarding “Waves” never having seats available and some customers staying for long periods of time without purchasing anything.
To ensure more customers have a chance to enjoy our facility, there is now a $2.50 per hour, per seat minimum charge
Thank you for your continuous support!
No one understands this Waves Coffee location franchisee (owner) more than the members of the VCSFA do. It’s the message behind the sign that most people out there will never understand. Within the lines of the text of this sign is found the foundation of the VCSFA.
If this sign were found at an independent cafe, it would be understandable. The customer would think “Mario is having a hard time with cheap, abusive college students in his cafe so he’s going to get rid of these freeloaders with a butt-cheek penalty – ingenious!” In fact, he’d probably get a lot of positive press for that.
But this isn’t an independent. It’s a franchise – And a big one in Vancouver.
Customers of this location will look at the sign and say to themselves “That’s weird. I’ve been to many other Waves and I haven’t seen this rule before.” Or, “McDonalds is a franchise and they don’t do this.” And they will leave thinking somewhat less about the brand because of this inconsistency, even if it’s subconscious. They will start thinking of this location more of an independent than a chain.
But what drives this inconsistency? Why would this franchisee feel strongly enough to put this kind of sign up? You can be sure the franchisor does not know about this yet. It would not be there if they did.
Profit. They aren’t making enough. It’s that simple.
This franchisee of this location isn’t making as much money as he or she feels they ought. If the money was flowing in, they wouldn’t be too worried about the freeloaders. If you don’t believe us, go and test us it for yourself and ask.
So, from the street the cafe looks full – so full that there aren’t enough seats. Yet the franchisee had to put this sign up?
Waves Coffee has a particularly punishing business model which you will soon see more and more franchisees rebelling against. They would like all their stores to be open 24/7 and have unlimited and free WIFI for their ‘customers’. Does anyone see the flaw in this business model yet? Maybe the sign above in the photo might shine some light on it. At least with Blenz they ask their franchisees to use a non-free but fairly innovative system of marketing that’s attached to the WIFI system which gives the franchisee some control over the length of connection.
But Blenz has its own questionable ‘programs’ for their franchisees. One such example is their ‘Free Birthday Drink’ that they desperately try to get their new franchisees to adopt. It sounds great from the customers side but… oops! They forgot to force a minimum order with this free drink (and this ain’t just a regular drip coffee – it’s ANY drink!) so the franchisee soon learns that if they participate they are buying free drinks for every Tom, Dick and Harry around town. You read that right! Just walk in, say ‘it’s my birthday’ and walk out with a drink paid for by the owner of that Blenz because head office doesn’t offer any compensation to the franchisee when they do this for the sake of the brand – straight loss of goods out the door. Needless to say that participation in this program has not had great success across the chain. If you want to try this out for yourself, we recommend the Library Square location – the operators of this location always give it away for free with a smile.
So then what can a franchisee do? The franchisor should have been there to help this franchisee address their issues and support them to come up with a system to overcome these challenges so that it doesn’t appear to the customer as a brand inconsistency. Since this franchisee is not a member of the VCSFA, they wouldn’t have access to our vast resources and may not even know that a WIFI system exists out there that could help them overcome this. WIFI and freeloaders is a commonly discussed topic amongst our members and innovative idea sharing has lead to improvement in this area.
Where is the franchisor? Why is the franchisee forced to seek outside of their chain to stop the bleeding? Where are the ears to hear and the hands to help? Why are they spending over 7% of their revenue on royalties only to end up running their shop like an independent and having the public look at it that way? Franchisees expect a certain amount of support for this royalty yet in many cases they are left to figure it out on their own.
We hope that this Waves owner has great success with their butt-cheek-penalty program. I’m sure every VCSFA member would love to institute it themselves! We hope the freeloaders go abuse someone else, as well. But more importantly, we hope that this franchisee will join the VCSFA and dozens of others who also had nowhere else to turn and need that edge of support to better their future.
Until then, I think I just used $5 worth of butt-space writing this so I better sign off.
Download the Printable PDF version of this page HERE
The Vancouver Coffee Shop Franchisees Association
For the Betterment of Coffee Shop Franchisees
*Lack of support and feeling alone?
*Stressed out, sleep deprived or even depressed?
YOU ARE NOT ALONE. WE ARE HERE TO HELP.
www.vcsfa.ca | email@example.com | text/phone 604-367-0875
Join many other franchisees as we diligently work towards a brighter future.
Why Join the VCSFA?
- Increase bottom line profit
- Increase sales with creative VCSFA initiatives
- Gain access to pooled information before it negatively affects you
- Gain access to our VCSFA Group Benefit Plan to create more security for your family
- Gain access to special pricing from VCSFA approved vendors (ie. zero-commission agent to sell your store!)
- Become proactive instead of reactive
- Learn basic things about running a coffee shop that you have not been taught (bookkeeping, technology, cost-of-goods control, hiring and firing, etc)
- Gain access to our priceless prospective employee database
- Learn about the latest scams and criminal activity before they hit your store
- Have your voice heard without fear of personal attack
- Gain access to priceless legal advice (ie. Lease agreements, franchisee agreements, etc) for free
- Gain access to world class franchise lawyers at discounted rates
- Gain access to our approved appraisers who can help you before, during and after your mandatory renovation
Awareness and Lobbying
- Raise awareness to the public about coffee shop franchising
- Lobby the BC government to introduce franchise legislation
- Have fun while you build deep and meaningful relationships with fellow franchisees at fun social events, gatherings and association meetings
The VCSFA completely agrees with these 5 measurements of excellence and we are excited that a reputable organization has published this. It is backed with actual research as well, which is a great bonus.
After hearing horror stories in coffee shop franchising in Vancouver, we ran a quick check amongst our members and the ones who are suffering agree that their franchisor failed at least half of these measurements. In fact, one chain has failed all of them. Here is the list of five points from the article with some concrete examples of how some of our members were failed by their franchisor:
Five behaviours of credible franchisor leadership
1. The franchisor demonstrates a clear strategy and direction for the brand (including awareness of competitive threats with a plan to deal with them).
One Vancouver franchisor has not acknowledged the sudden emergence of a competing brand, nor attempted to match their radio advertising on a local news channel. Customers are asking the franchisees why the competing chain is advertising and they are not. The same brand has completely different standards of ‘branding’ applied to different stores. This is interpreted as ‘favouritism’ by the franchisees creating a poor business environment.
2. The franchisor is fair and consistent in dealings with all franchisees (this means having clear policies and sticking to them).
This same local Vancouver coffee chain has also failed this. Some stores are making their own sandwiches while other stores were told they would be ‘in violation’ if they did and that the stores making them are ‘special cases’. Some stores were told they must do certain things while others were not.
3. The franchisor shows respect by listening to franchisee ideas and concerns before making important decisions. However listening does not mean agreeing.
In the case of this same failing chain, several franchisees requested urgent meetings with the directors to discuss very important issues that affect the whole brand. One franchisee was told to wait 3-4 weeks because ‘it was summertime’. The franchisor never got back to them and when the franchisee pointed this out, they immediately tried to remedy it but needless to say putting off an urgent meeting for 1.5 months make this person feel loved. Many of the franchisees have asked the same franchisor to address issues related to their business and the franchisor has remained silent – completely ignoring the questions. Needless to say this entire chain is quickly approaching a crisis.
4. The franchisor embodies the values of the brand in their own behaviour. Hypocrisy kills brand passion like nothing else.
When confronted by franchisees about expensive vendors that they were forced to use, the franchisor replied “The vendors must make money, too.” However, when the franchisees themselves were going bankrupt, there was no support or help was given. The chain continues to force on their franchisees the same vendors. This chain talked endlessly about ‘the importance of brand’ yet in the same city they opened a location in a hotel lobby in prominent location with a ‘similar’ but not ‘same’ name. The sleeves are from the chain but the cups are branded to the hotel. Some of the drinks are the same but the entire concept is muddy and unclear. Customers around the city have asked the franchisees ‘what is this thing?” to which they have no reply. Hypocrisy kills the brand. A franchisor must practice what they preach or risk losing the trust of their entire front line.
5. The franchisor reminds franchisees that he/she and the entire support team care about franchisee profitability as much as their own.
As mentioned in some of the examples above, this same offending chain has demonstrated to their franchisees that they don’t care about their profitability as much as their own. No offer of reduced royalty payments to struggling stores. No offer of reduced marketing fund payments for the obvious absence of advertising.
Thankfully for the franchisees, times have changed quite a bit recently. If you read this article we published about the Dunkin’ Donuts situation you will learn that a franchisor cannot simply continue to fail.
In addition to this 5 point health check you can now perform on your franchise or your prospective franchise, we strongly recommend you also read this article we published about Five Things You Should Know Before You Buy a Coffee Shop Franchise as well as our Checklist to Evaluate a Prospective Coffee Shop Franchise (with bonus commentary)
Don’t forget that the VCSFA is always here to help. You are not alone and your questions are important.
In case you have not see our most up-to-date list of coffee shop franchises in Vancouver, here is a list in alphabetical order. Let us know if we’ve missed any:
Bean Around the World, Blenz, BG Urban Cafe (formerly Bread Garden), Cultured Coffee and Tea, Esquires, Moka House Coffee, My Cup, Second Cup, Serious Coffee (Vancouver Island), Take Five Cafe, Tim Horton’s, Wave’s Coffee, Wired Monk