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.