Amazing Story about Ginger Goodwin – A Local Story of Perseverance Against the Powers That Be

As I was reading this amazing article I found linked to the BC Federation of Labour mailout I thought for sure this must be a story from another land.  I found myself completely stuck to my screen (I wish I was reading it in a real newspaper with an americano, though) and I realized that much of this adventure happened right here in BC!  All the more exciting.

So what does this have to do with coffee shop franchises?

Everything.

Sometimes Franchisees find themselves like the employees in this story:

  • working 10, 12, 16, 20 hours a day with no break. 
  • fierce resistence to reducing store hours, even though sales don’t warrant being open
  • being forced into bankruptcy because of well-crafted legal documents (akin to the blacklists in this story)
  • fear of losing one’s livlihood if they don’t comply with every demand of the Franchisor
  • watching their Franchisor profit while they suffer
  • and more

The VCSFA believes that it is possible for a meaningful dialogue to occur between the Franchisees and the Franchisor.  A democratically created and sincere Franchisee Advisory Council whereall the voices of thewhole chain are encouraged to bring their opinions, and where the Franchisor takes a humble look in the mirror and accepts that they need the help of their Franchisees is the key to a successful coffee shop franchise.  If this organization does not exist at all, or if the FAC was not created democratically, or if the Franchisor just pretends to listen to the issues yet takes no swift action, one should use extreme caution when entering into any business relationship whether as a Franchisee or as a vendor. 

We always appreciate your feedback so don’t hesitate to write us at info@vcsfa.ca

 

Profitability of a Coffee Shop Franchise

There has been a spike recently in the number of people asking the VCSFA whether they can make money with a Blenz or a Waves coffee shop franchise, or any other coffee shop franchise.  The former two brand names have the largest presence in the ‘speciality coffee’ market in Vancouver – hence more people asking about them.   This article will apply to any coffee shop franchise, not just the big ones.  This topic has always been the elephant in the room but it’s time to drag that beast into the spotlight and talk about it.

The short answer to the question is: ask the franchisee’s accountant

First, let’s clear up the business basics.  This article about the profitability of a Quiznos franchise is very similar to a coffee shop franchise in regards to the breakdown of numbers  – so much so that we don’t have much to add or alter. Take a minute to read the shocking truth

So we’ve established that it’s tough on a good day to make money as a coffee shop franchisee.  Just to be balanced we will present this interesting article about how a franchisor is not necessarily making money, even though they may have over 50 locations.  There is one Vancouver coffee shop franchise with well over 50 locations and it’s next competitor approaching 30.  Many of their franchisees just assume head office is making money while they are suffering, but that may not be the case.  The big problem is that no matter what, the franchisor in their precarious position cannot be expected to open their books to anyone. If the books show heavy profit, the suffering franchisees will revolt.  If they open the books and show bad numbers, the confidence level in the brand will be eroded inside but especially outside the chain.  Perfect secrecy seems to be the name of the game for all non-public coffee shop companies – especially when discussing the allocation of the marketing/advertising pool.  Although we will soon dedicate an entire article to properly assessing the health of a franchise, let’s just say that some warning signs of non-health to look out for are as follows:

  • the head office moves from a high rent but convenient location to a far more inconvenient low rent location,
  • the sudden disappearance of head office employees (especially the talented ones),
  • abnormally high use of part time and intern (free) staff with an increasing trend,
  • the reduction of money towards the support of the franchisees,
  • marketing that involves almost exclusively contra (ie. you find the newspaper rack in all the locations and an advertisement in the same newspaper) or sponsorship relationships with media – in essence very little actual money spent promoting the brand.

One coffee shop franchisor told its franchisees ‘bus ads don’t work for our brand’ yet just a few months later they proudly announced to the same franchisees how they had received bus stop ads for free in a co-branding initiative with Visa.

Profitability should be properly examined – independently of what the franchisor claims to the potential buyer – before purchasing a franchise of any kind.  Poor Quiznos (they have some tasty stuff) has been the poster child of some bad deals, so for convenience we’ll continue using them.  This article clearly shows that profitability is not the primary concern of the franchisor. Sometimes they just want to open locations (or keep unprofitable ones going) just for the sake of showcasing their many logos around town and collecting some beefy fees when they start and turn over locations.  We are gathering conclusive evidence that Vancouver is not exempt from such practices in the coffee shop franchise world, unfortunately.

It’s important for the potential buyer to understand that the Franchisor is a salesperson – and they are very good at their job. They sell cookie cutter ‘turn-key’ businesses.  In sales, it is rare that a big focus will be put on the incredible risk involved with such a purchase – that is unless the Franchisor doesn’t want that person to buy that store for some reason.  Many franchises are far more than $100,000 to start and many of those buyers will lose most or all of that investment.  We have never heard of those stories told to any potential buyers.  This article involving our poster child shows that Franchisors can be downright abusive with their hand-crafted franchisee agreements.  Does this affect your profitability?  Yes.  If you lose your initial investment because of a crafty legal document, what did that just do to any profits you may have eked out?

Profitability is directly related to something called ‘capture rates’.  If you don’t know what that is, take a moment to read this article.  The last paragraph doesn’t use the term ‘capture rate’ but very well explains the concept.  One of our members asked their Franchisor repeatedly for the capture rates of their chain and his prospective location and these numbers were never provided him.  Unfortunately, he learned the hard way why. Thankfully, he has contributed that loss towards learning why it happened and helping educate others so they don’t make the same mistake he did.

Another practice by some Franchisors is ‘churning’.  We wrote a dedicated article a while back.  This topic should be of high importance to the potential buyer when considering profitability.  If you simply follow the history of ownership of certain locations and you find this happening, you will have to consider what kind of people you will be partnering with and whether you are alright with that.  Here is a story about churning and it happens all around the world, unfortunately.

We hope this article helped address many of the questions related to profitability in a general way.  We hope to publish more articles in the near future that focus on very targeted areas of profitability of a coffee shop business model.

As always, we look forward to your comments by emailing info@vcsfa.ca

Do You Take This Franchise to Be Your Lawfully Wedded Spouse?

I was sitting there at 4:30am drinking a large drip coffee and thinking about my life’s direction – that’s what coffee shop franchisees do, by the way.  I started thinking to myself about how this Franchisor-Franchisee thing is way more like a marriage than any other kind of business relationship on the planet.  I thought surely someone else has written an article with this analogy so I went to a search engine and found a real gem that I wanted to share by Marilyn Sinclair of BMO in her article entitled ‘A good business partnership resembles a good marriage’.  Please take three minutes (that’s how long it took me) to read this article because it’s awesome in every way when considering any kind of business partnership.  A three minutes of your time that will save you years of possible suffering is what we like to call a good investment.

What I will do here is take Marilyn’s points of the article, use them as a structure and then angle them specifically on the Franchisor-Franchisee ‘union’ as it is a unique relationship.

The Dangers of Passion

Almost every franchisee I have spoken to our in coffee shop franchise had the same story to report – they put all logic aside during the hopeful and exciting discussions with the franchisor about ‘how good things should go when you take over your store’.  We signed franchise agreements that no sober person would ever sign because of the ‘surely-these-50-other-franchisees-can’t-possibly-be-wrong’ delusion.  Now, we are all facing the fact that we may have rushed into a ‘bad marriage’.  Make sure you have a balance of wisdom with your passion.

Pros of Taking on a Partner

1. Complimentary Skills

Do not assume that the franchisor has world class talent working at head office. Every organization will showcase their top talent but crucial areas such as marketing, accounting, vendor relations, etc, may be run by unqualified or even unethical people.  Do your homework.  Never assume just because there is a nice shiny logo on many stores than everything is kosher.

2. Sharing the Risk

It is true that the franchisor shares some risk.  If the Franchisee goes bankrupt and locks and walks, they are liable to the landlord for the lease and trying to keep the store open to look good to the public.  If the whole chain goes badly, I suppose they might suffer the risk of not being able to fund their head office operations, but that’s really about it.  The rest of the risk is yours, newlywed.  Suck it up, buttercup because you signed the marriage certificate and it’s highly weighted in favour of your new Mr. Wonderful.  Hopefully he’ll be kind after the honeymoon.

3. Shared Responsibility

We’ve learned a lot about this one over the years.  Most folks buy a franchise because they assume that their hefty royalty fee includes some kind of guarantee.  Thanks to the recent Dunkin’ Donuts case in Quebec there may now actually be some hope of providing some kind of value to the franchisee for the hard-earned royalty fee they pay.  However, at the end of the day, your franchisee agreement (the legal stuff) can probably be summed up as “We’ll give you a logo and tell you what to do, but if things don’t work out, don’t come crying to me because we didn’t promise you anything.” In this marriage most people are signing in hopes of benefiting without truly knowing with whom you will be united.  Just understand that the Franchisor may not be taking much responsibility for the success of the relationship.

Cons of Taking on a Partner

1. Accountability

Let’s keep this simple: When you enter into a Franchisor-Franchisee marriage, your spouse will be watching your every step. If you don’t like that, run the other way.

2. Compatibility

Do you even know the directors and the people with whom you’ll be dealing on a daily basis?  Likely not and it’s admittedly hard to expect to wine and dine with your Franchisor before signing.  However, you have a bunch of currently-marriage spouses (and divorced ones) all over the city.  Find them, treat them well, get to know them and milk them for every detail they have.  You will be very surprised what you will learn about your future spouse.  You may postpone the vows.

3. Sharing the Wealth

It’s true that if you are becoming wealthy with as a franchisee so is your franchisor.  What they don’t tell you in marriage counselling is that if you are losing money at your job every month your Franchisor will still be there asking for 10% of your line of credit to keep his car running.  Will he give you a break next month because of your hard times?  We haven’t seen it yet in Vancouver but we wouldn’t expect them to publish it if it has happened. What we have seen repeatedly, though, is the Franchisor roughly blaming/accusing the Franchisee for not working long enough hours or working hard enough or spending enough of their own money on local marketing initiatives –  all the while not offering any of their own resources to help.  This can create a rough marriage environment, by the way. You would also expect the Franchisor to share the wealth by means of marketing but we have also seen this offering to be quite lacking.

4. The right ‘fit’

I think we’ve beat this dead horse.  Be careful who you marry.

Have the difficult conversations before you tie the knot

We concur.  Open the franchisee agreement and take the notes and discuss them with Franchisor.  If you need a good lawyer in Vancouver with expertise in Franchises, by all means let us know and we’ll send you some contacts.

Go Slow – Don’t Rush

I’m admittedly a little envious of you, reader.  There was no VCSFA when I bought my coffee shop franchise.  There was no one to turn to except the active franchisees, lawyers and a few franchise websites.  I’m not blaming anyone and it has been a great learning experience and now you can benefit greatly.  Don’t rush is right.  Ask the right questions before you sign because once you are married, you don’t want to know how hard it is to get divorced.  In some cases, stores that have been for sale for years are not selling or their buyers have not been approved.   At least with a marriage you can move to another city and get another job while you await your divorce papers but with a coffee shop franchise, you better make sure that store stays open!  Be wise.  Seek wise counsel.

We are here to help and don’t hesitate to contact us.

Great Educational Document about Franchisee Advisory Council (FAC)

We were very excited when one of our members came across this absolutely top-notch document produced by the International Franchise Association

If you are a franchisee and are part of a franchise system that has not yet started such an important legal entity, or, if you are in the process of starting one, it is absolutely crucial that you read through this document and understand how the organization should be setup, what it’s for and much more.

Here is a direct link to their PDF:  Direct Download to Franchise.org’s Franchise Advisory Council document

Download it.  Save it. Read it.  Don’t lose it!

Another huge thank you to the International Franchise Association for publishing this.

And for the road, here is another link we immensely benefited from and hope you will, too