Alton McEwen of Second Cup: Summary of Coffee Talk Magazine Article

Coffee Talk Magazine featured an article about Alton McEwen, owner of what we know of as Second Cup in its ‘modern form’.

It’s important to read business biographies like these to gain a deeper insight and respect for brands or independent businesses we see on a daily basis.  One does not have to like or participate in the brand to appreciate the history and work that has gone into a well known enterprise.

In this article, there is a story of how Alton McEwen took 129 franchisees to the source of the coffee beans to help them understand the passion he shares for a cup of coffee.  This is truly a great story and perhaps part of why Second Cup has stood the test of time.  The old cliche “They won’t care what you know until you know that you care [or however that one goes]” is played out perfectly with this example.

Another highlight was how McEwen left the company and came back on more than one occasion.  This story seems almost like a rite of passage in the coffee industry when we think of the famous story of Howard Shultz coming back to Starbucks.

A final highlight from the article is how McEwen welcomes the rise of coffee prices.  Although it’s tough to bear to see any commodity jump in price, coffee is a complicated plant and process and must remain sustainable.  Cheap coffee on the back of slaves is doomed to failure.  It’s far better to suck up the increases now than risk losing coffee forever.

Korean Franchise Chain Cafe Bene Gets Large Fine for Treatment of Franchisees

This article published on the Daily Coffee News website speaks of another classic case of abuse of power by a franchisor.

The name of the chain, is Cafe Bene which has a whopping 760 locations in South Korea and is now expanding into North America.

The are being fined for forcing franchisees to buy interior materials and equipment which created another nice profit pool for the franchisor.

One piece of silver lining to be gleaned from the story is that the fine is coming from a government agency, not a private law suit.  Hopefully this will send a strong message to franchisors that financially abused franchisees may have other resources to fight abuse franchisors with other than money from their own pocket.

British Columbia does not currently have any legislation to protect franchisees as multiple other provinces do.

 

What Will Replace Blenz Coffee at Pacific Centre?

On May 24, 2014 the VCSFA published an article called ‘Yet Another Prestigious Blenz Closes: Pacific Centre on Granville’  about the sudden disappearance of the landmark Blenz Coffee at Pacific Centre at 609 Granville Street. At that point it was rumoured that another clothing retailer had won the prized retail location ousting Blenz in a similar leasing situation as what occurred at Robson and Burrard. Both of these locations were high volume, and high visibility locations for the Vancouver brand.

For the owners (Franchisees) of these locations, they witnessed the entire value of whatever amount of goodwill they paid for their respective locations, evaporate before their eyes, leaving them with nothing more than whatever street value their aged and depreciated equipment was worth at the moment of loss – Not a pretty picture for their ‘franchise partners’ as Blenz likes to call them.
Some assumed that the loss of these prime locations and subsequent appearance of a new retailer was a deal agreed upon between Blenz corporate, the Blenz Franchisee, and the new retailer. The assumption, namely because there weren’t any indications otherwise, was that perhaps all stakeholders in the deal agreed that these locations were not well suited for coffee. Our new reports reveal that they may have assumed incorrectly and the now-stranded Franchisees may not have been involved in the lease negotiations at all.  Now wouldn’t that be a tad unfair to their ‘partner’?

Blenz Coffee, as do other Vancouver franchises, sets itself up as direct tenant in their commercial leases.  In this common franchise-model arrangement, the Franchisee is then responsible, by means of a sub-lease agreement, for cutting rent cheques directly to the landlord.  The Franchisee assumes this agreement is in place so that the Franchisor (in this case Blenz) can wield their powerful branded sword forcing the landlord into obedient submission resulting in the acquisition of prime retail locations (in this case Robson/Burrard and Pacific Centre) at rates that allow for a profitable business.  A green Franchisee typically does not understand these complex commercial arrangements and therefore trusts their Franchisor to be looking out for their mutual best interest.  In law this is called ‘to act in good faith‘ or ‘responsibility of good faith’.  In the case of Blenz, failing to renew a lease, or failing to secure a lease rate that is competitive and/or reasonable in the marketplace would equate to the fast destruction of the investment.

All eyes are now on Pacific Centre. Will it become another Lulu Lemon situation like at Burrard and Robson where a retailer from a totally separate industry takes over?

If it becomes a clothing retailer, or something completely removed from the food and beverage sector, then Blenz Coffee might be able to explain to this former (and probably rather upset) Franchisee that this location is not well suited for a retail coffee business, or their coffee brand or that the person who won the space had higher profit margins than them and are therefore able to justify doing business in Pacific Centre. It would be difficult for the former franchisee to have enough know-how to fight that battle.

If something like a Tim Horton’s were to open at 609 Granville, the Franchisee would then be able to present a good argument that Blenz Coffee just ‘let’ another similar business come in and ‘take’ their space, leaving them with nothing. However, Blenz might then be able to say something like ‘Well, Tim Horton’s is different. It’s more of a food-based model with cheaper price points – much different from the ideal Blenz customer.’

But if something were to open in the same space like a Waves Coffee, Starbucks, Take Five, Caffe Artigiano, or any other similarly-branded Italian-style coffee shop (especially those our Francouver list) with the standard espresso-based offerings and a few pastries spattered on the side, then the question will quickly become: How hard did Blenz the Canadian Coffee Company negotiate with the Pacific Centre landlord to maintain their prized location and assure the longevity of the Franchisee’s investment?

How hard did Blenz the Canadian Coffee Company negotiate with the Pacific Centre landlord to maintain their prized location and assure the longevity of the Franchisees investment?

If the answer turns out to be ‘not very hard’, then the next logical question would be “why not?”.

But only time will tell as the lease-hold improvements take place behind the boarded up windows at 609 Granville Street.

Vancouver Franchise 1-800-Got-Junk? Celebrates 25 birthday

Anyone interested in the franchising business model, especially in the Vancouver area, should take keen interest in this article written about the history and success of the famous junk company 1-800-Got-Junk?, and not just because it was birthed here.

For the entrepreneurs, the most intriguing part of the article will be the David and Goliath aspect of how Brian Scudamore put his own challenges aside and courageously went the road less travelled.  For the person who tried this path and lost for whatever reason, there is a deep-rooted, heart-warming and tear-jerking sense of ‘way to go, kid’ – like how you feel when the underdog hits the home run in a movie.  It is usually followed by a kind of depressing feeling as we think about how much money we lost trying to travel a similar road (or even roads…).  One thing is certain and that this is one of the most inspiring entrepreneurial stories because of the perceived ‘simplicity’ of the business.  Anyone could start a business picking up garbage, couldn’t they?  How is this any more revolutionary than the guy who picks the cans out of my recycling bin (without my permission please note) every Wednesday evening?  For the student studying business, this should be their first chapter example.  They should pose this question in bold italics at the top of the opening page.  Then, they should have Brian Scudamore come in and blow their minds open with what it was really like building a large company.  It would not be surprising if ninety percent of the students in that class were to drop out and change majors while the other 10% went on to build similarly inspiring companies.

Anyone considering any kind of business, should pay special heed to the following extraction from the article:

“When the time came to franchise, well-meaning friends and colleagues said junk removal could never be franchised.”

This is the first lesson learned in every business.  Avoid well-meaning friends and family at all costs.  Thankfully Mr. Scudamore was able to block out their noise.

Another important part of this story is how Scudamore was quoted as feeling like he was getting more out of building his business than from attending school.  Our current education system is very much like our well-meaning friends and family.  It tries to do the best it can but it’s built by people who are incubated and hatched in school where they where they set goals to eventually teach in them and ultimately retire from them.  They do their best to teach the stuff they should but they fail quite notably to teach finances and business – especially in the arena of creativity and boldness.  At what point were any of us encouraged to be different from each other?  There are countless stories of getting penalized for such behaviour, though.

Franchising, as many have learned from reading our articles, is a very different business model compared to the corporate structure.  The successful franchise (over the long term) is able to create legitimate win-win relationships.  In a successful franchise, the Franchisee feels content when their Franchisor is making money because they are making money too.  Although we have not even begun to investigate the satisfaction level of 1-800-Got-Junk? Franchisees, we would not be surprised if we discovered just such a synergy.

We look forward to hearing stories of successful franchising as 1-800-Got-Junk? grows.

 

British Columbia Law Institute (BCLI) Releases Report on a Franchise Act in British Columbia

Members of the VCSFA had an opportunity to meet with Greg Blue of the British Columbia Law Institute (BCLI) approximately one year ago where we had the chance to hear more about the plans for a proposed Franchise Act for BC.  We created this post shortly after this meeting.

At this point, it was in the ‘consultation phase’ where feedback was being gathered by stakeholders in the franchise industry.  To read the original document, you can click this link and download it directly or go to the Franchise Act Project page at the BCLI.

We are pleased to announce that the conclusions from the consultation phase have now been compiled into this document: Report on a Franchise Act for British Columbia which can also be viewed/downloaded from the BCLI project page above.

In the near future, we will write a report with our feedback on the report.

The VCSFA would like to extend our most sincere thanks to Greg Blue and all the others who contributed to this worthwhile project as it has already contributed to the exposure of the oftentimes questionable nature of the Franchise-Franchisor relationship in general, but especially in BC, and will most certainly help any potential buyer (who does their due diligence) avoid some of the common pitfalls prevalent in the industry,

 

 

Why Quiznos is Going Bankrupt and What You Can Learn From It

Franchising is set on a pedestal in the minds of business minded people and customers alike as a dream model – a goal to reach as it were.  For some people, to franchise your business means you are validated by the business world.  To open hundreds of stores means you are awesome.  To open thousands?  Now you’re a rock star, baby.  But wait!  While your business groupies marvelled at your copying-and-pasting skills, your lovely, innocent, country bumpkin girlfriend who was always there for you got neglected on the way to your stardom.  That’s quite sad.

Some people believe that franchises are started by directors with abusive and even predatory business goals but most believe they start out innocently but are then corrupted by the sudden infusion of cash in their banks created by their army of burger flipping, latte steaming, foot-long wrapping worker bees.

You choose what you believe.

The Franchisees of Quiznos in the USA may now have to figure out how to walk on their own two feet while proceedings for the funeral of their corporate franchise mother ship get underway.  Will their Landlords extend expiring lease renewals now that their never-failing rent guarantor has failed?  Will the owners be able to sell their stores and recuperate the hundreds of thousands they spent to buy the business name and systems?  Will this bankruptcy ultimately mean the doom of Quiznos in Canada?  What buyer would purchase a franchise that may no longer be a franchise?  How much goodwill value is left in the brand?

This article in the Business in Vancouver publication summarizes the situation at Quiznos best as ‘…struggling with high debt, angry Franchisees, and increasing competition.”  Many of the angry Franchisees apparently sued the head office for failing to support them and for overcharging them for supplies.  Quiznos settled out of court for $95 million.  And just a few years later – good bye, sugar pie.

But it makes sense.  When a lawsuit is filed against a Franchisor, its roots didn’t magically grow like Jack’s beanstalk, especially if the lawsuit involves more than one Franchisee as it did in this case.  The Franchisees had to have been angry enough to fight against their own ‘fear of the Franchisor’ and start meeting privately to come up with a plan – a sort of revolution.  Money was taken from them unfairly so they went to get it back.  They paid for support that they didn’t get so they went for a court imposed refund – and they got it.  It would be interesting to ask the Franchisees who chose not to fight how they feel about their decision now.

One of the most interesting quotes from the BIV article on the topic is the following:

All except seven of its nearly 2,100 restaurants are independently owned and operated by franchisees and will not be affected by the bankruptcy, the company said in a statement.

How they will not be affected by the bankruptcy is nothing short of a very large mystery.  To remove a stigma of this size from a brand is a formidable task – regardless of where the bankruptcy is filed.  Think about Jack in the Box.  Stigmas are sticky.

So what can we learn from the woes that are sweeping over Quiznos?  Here are a few points to consider:

  • If Quiznos was focused on helping the Franchisees make money instead of finding ways to take it from them, none of this would have happened.  They would have had Ambassadors of the Brand instead of Assassins of the Brand.  Win + win = win  (Note: this formula still works in 2014)
  • If there are a bunch of Franchisees going after the Franchisor, you should probably be concerned.  Deeply concerned.
  •  ‘Too big to fall’ Franchises don’t exist (although McDonald’s might admittedly be trickier to topple).  The bigger they are the harder they fall – eventually.

Blenz Ranked as Lawsuit of the Week by Business in Vancouver (BIV)

Blenz Ranked as Lawsuit of the Week by Business in Vancouver (BIV)

Well respected and well read local business publication Business in Vancouver not only picked up on the court filing made by three former Blenz Franchisees against its former Franchisor, but ranked it as their ‘Lawsuit of the Week’ – and rightfully so.  Blenz has enjoyed for many years a natural windfall of sales produced by loyal customers who feel warm and fuzzy about the ‘local Canadian brand’. No doubt the very presence of this filing surprised the author.

Although the BIV article covers fairly well the claims of hindered store sales and lease renewal problems common to the three plaintiffs, a $6.00 download of the very large filing reveals that it didn’t even touch upon one of the most devastating claims against the Franchisor – Kormi’s doomed, mandatory, and very expensive renovation and surrounding events.  This part of the claim alone covers pages and pages and, if these claims are proven in a court of law and picked up by local media (ie. Steele on your Side), they will certainly have the potential to evaporate a good percentage of the ‘warm & fuzzy’ mentioned above.

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It is also noteworthy that there was no mention of the first court filing of 2014 against Blenz by Elizabeth Jacobo.  Reports from those who have read this filing indicate that it is on par or even more potentially devastating to the Vancouver brand than the claims found within the Taylor, Sahdra, Kormi suit.

Read our March 14th report of the growing number of lawsuits Blenz is facing in 2014.

Check back regularly for updates on this and other similar stories.

 

 

Quiznos Files for Bankruptcy

Most people reading this CBC article about Quiznos filing for bankruptcy will probably be thinking ‘where am I going to get my upscale sub?”  Franchisees, however, are probably asking “What will happen to the franchisees in this case?”

And what a great question that is.  There are lots of stakeholders in a franchise system, including, but not limited to:

  • the Franchisee
  • the vendors
  • the customers (better spend your gift card money asap!)
  • the landlord (who are you going to go after for late rent?)

One would hope that they have already formed an association that could immediately meet and start taking measures to protect their investments.  One would hope that the Franchisees are not relying on their head office to provide accurate, timely, or beneficial information at this point.  One would hope that they have their legal team lined up and ready to start work.

It will be most interesting to follow the results this event will have on the Franchisees and we hope that some of them will be able to write to us with their insight.

As always, send your comments and stories to info@vcsfa.ca.  We are here to help.

Franchising, Suffering, and Stockholm Syndrome

Franchising, Suffering, and Stockholm Syndrome

Over the last couple of months, we have been involved in painful conversations with several coffee shop Franchisees which was not unlike the dialogue a parent might have with their children about the dangers of drinking and driving or getting involved with gangs.  The older, wiser parent explains – from their own experience – the death and pain surrounding these important life decisions and why it’s important to avoid bad decisions at all costs.

In the first dialogue, the Franchisee had already been abused by their Franchisor when asked to cough up a large amount of money that was clearly for the unilateral gain of the Franchisee and the unilateral pain of the Franchisee.  Yet the Franchisee paid.  The Franchise also told us that the business was for sale and has been for a long time.  We explained that the commercial agent the Franchisee was using was highly questionable and may have other motives than the sale of the shop.  Yet, the Franchisee continued to use this agent.  This person even went so far as to explain that there was no happiness surrounding the business and it is not making much if any money.  Yet this person remains the Franchisee on record for that location today.

In the second dialogue, a Franchisee who has watched several other owners in the same chain get raked over the coals by exorbitantly priced – and forced -renovations (which lead to their eventual demise) reached out to us for our advice.  Can you guess what our advice was?  You guessed it.  We said, “Run for the hills and do not look back.”  Yet, it is rumoured that this Franchisee is about to hand over the money!

These two dialogues have resulted not only in the hurt of the Franchisee while they operate but also in the hurt of the people who advised them – much like the parents who watch their children drink and drive against their advice.  One can understand the teenager making life decisions like this but it does not explain very well the adults because they are… well…  adults.

One former business owner presented the idea that these people are suffering from Stockholm Syndrome.  Don’t worry, I didn’t know what it was either so here is a pretty good video link that will bring you up to speed.  I believe this person has hit the nail right on the head.

Franchisors (and the courts of law know this) are in a position of power over the Franchisees.  There are no two ways about it and even before signing the Franchise Agreements, everyone knows it.  If the Franchisor turns out to be highly ethical and wants a win-win business relationship you have done well and have obviously been an avid reader of VCSFA articles.  However, if the opposite happens, you are now a captive for the duration of your lease term unless the franchise allows you to take back your retail space and go independent.

We have witnessed, first hand, Franchisees begin to defend their Franchisors even though they had previously acknowledged them as abusive dictators.  Their mental condition began to change as the pressure was put on them by the Franchisor.  They began to think about their seemingly powerless situation and feel hopeless against their new Goliath.  They began to have thoughts that perhaps if they tried to work with the Franchisor amicably that their hostile environment would somehow turn out less hostile and they would have a better chance of coming out unscathed – both legally and financially.

From the non-business owner and former Franchisee’s perspective, this kind of behaviour is akin to the nice girl who insists on staying in the abusive relationship.  No matter what counsellor or agency you refer her to, she insists that she will be able to change this abusive man and that somehow things will get better and one day she won’t wake up with black and blue eyes.  In both situations, what they haven’t considered is that a man cannot change another man’s heart.  Whether it’s a corporation or an individual, a change must occur in the heart for outward change to manifest.

So how do you know which chain is oppressive and captor-like?  You will know them by their fruit. No good seed from a good tree will produce bad fruit and conversely no bad seed from a bad tree can produce good fruit. In a franchise environment, the individual Franchisees and their locations are the fruit.

No good seed from a good tree will produce bad fruit and conversely no bad seed from a bad tree can produce good fruit. In a franchise environment, the individual Franchisees and their locations are the fruit.

 

Need some advice? Considering signing up with a franchise?  We are here to help.  Shoot us an email at info@vcsfa.ca