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.

What do Burger’s and Coffee Have in Common?

The answer to the title of this article is, “They are poster-boys for the franchise business for better or for worse.”

A CBC story about Marufa Ahmed and her husband Mohammed Hashen, caught the eye of a VCSFA reader who forwarded the article to us. Marufa and Mohammed purchased a Lick’s burger franchise (they operate in Ontario), gave up 18 months of their lives, day in and day out, only to have the store taken from them.  Here in Vancouver, the VCSFA has received reports of ex-coffee Franchisees who spent well over half a million dollars (CND$) on their investment and over 60 months of their lives only to lose it in an even worse way than this couple.

What the reader needs to understand is that Franchising is not your ‘own’ business.  In fact, if one were to take a few steps back he or she would realize it is perhaps the furthest thing possible from having ‘your own business’, other than the fact it requires a capital investment and the financial business model is similar.  The time when the Franchisee sooner or later comes to realize this, is when they encounter the triangular relationship between the Landlord, the Franchisor, and the Franchisee.

The ‘relationship’ is held together by hand-crafted and very clever legal documents.  In some reputable franchises, the Franchisor actually works side-by-side with the Franchisee to establish the best possible rent rates.  They are transparent and they work diligently to make sure their front line soldiers (the Franchisees) are comfortable with the decisions. Conversely, in other franchises,  the Franchisor will sign lease documents with the Landlord with ‘unknown motives’ and will keep the Franchisee completely in the dark throughout the experience.

We have a current member who asked his Franchisor for lease details over 36 months ago (he was trying to sell) and the Franchisor refused to provide the information he needed claiming ‘we don’t know what the future holds’.  Then, when the very last legal deadline to begin lease negotiations with the Landlord was upon them, they slowly started the process, but still keeping the Franchisee completely in the dark throughout.  The Franchisee today still has no idea what will happen to his store in the fall because nothing has been provided him on paper and there are less than three months remaining in his lease term.  This is definitely not ‘owning your own business’.

We have just become aware of another location where the Franchisor may have paid above market rents in comparison to other similar businesses in the area, and the Franchisee will now be paying for that decision each month.

Before purchasing a Franchise, it is extremely important that you investigate – in great depth – this relationship between the Franchisor, Franchisee and Landlord.  If something seems fishy, or there is any lack of transparency, run and do not look back.  On the contrary, if you find that all the books are open and all the relationships where you stand to lose or gain are open, then you may have found a good Franchisor.

As always, do not hesitate to contact the VCSFA if you have any questions.  We are always happy to help.