If you are considering investing in a franchise in the coffee industry, read this guide to become better informed on the process, as well as the pros and cons of coffee franchising.
The Pros of a Coffee Franchise
- Brand Name Recognition: Unlike a neighborhood coffee shop, coffee franchises offer you immediate visibility. It can also garner the trust of consumers, who will trust you have a quality product since it’s associated with a name they know. This can help you after the initial start-up of your business, as it will automatically give you a pool of customers to draw on. A perfect example of that is Starbucks, which has established its brand name worldwide and is recognized as a quality brand coffee shop.
- Training and Support: Starting a new business is often a learn-as-you-go process. However, starting a franchise means the franchisor will provide you with the requisite training on how to operate the coffee machines, what equipment is needed to be purchased, where the best location for your coffee shop is, how to create tasty coffee beverages and how to manage staff. Franchisors also often provide support, which is helpful if you have any questions during the start-up and early days of your business, as well as in the future when problems or hardships arise.
- Resale: When you start a business, you want an exit strategy as well. Franchises generally work out the exit strategy beforehand, so you are aware of when and how you can sell your coffee business. The Franchise Agreement is the document that will stipulate the resale options, including how long your franchise license is valid. Some franchises even have clauses in the Franchise Agreement that say the franchisor will buy back the business if the franchisee wishes to sell.
- Marketing and Advertising Campaigns: Not only is brand name recognition important to attracting customers, marketing and advertising campaigns are crucial to new businesses. Investing in a coffee franchise opportunity means you will have a national (or international) marketing plan already in place, and the franchisor usually provides you with marketing materials, including branded stationery products.
The Cons of a Coffee Franchise
- Must-Follow Business Plan: Although singular businesses often become franchises because of a tried, tested, and proven business plan, the downside of a coffee franchise can have to follow a specific plan set out by the franchisor. That often means ensuring you are using the corporate logo in a precise manner, picking a location that the Head Office agrees with, and adhering to the decor picked out by the franchisor. If you are sure you want to invest in a coffee franchise, make sure you are in agreement with the franchisor’s business plan. The price you pay for a business that works from day one is some of your creative licenses.
- Capital Intensive Investment: In general, opening a coffee business is a pricey investment. Initial set-up costs may include the cost of leasing a retail space (you may pay a premium for a space with a great location), purchasing necessary equipment (including espresso and coffee machines, refrigerators and freezers, sinks, chairs, tables, drink cups) and obtaining any governmental licensing for opening up a food-related business. The franchise fee may or may not include some of these components. Sometimes franchises will give you discounts on equipment, since they have bulk purchasing power, and help you negotiate a leasing agreement. However, they may also require you to pay royalties on your earnings, or charge a fairly hefty franchise fee in exchange for all the benefits of the franchise – training, support, marketing, etc.
Types of Coffee Franchises
Although coffee shops are the dominant type of coffee franchise, there are a variety of different types of franchises available, including:
- Coffee Shop Franchises: These franchises allow to you start a stand-alone shop or kiosk inside a busy shopping mall that sells specialty coffees and other products (e.g. smoothies, sandwiches, teas, cakes, etc). A coffee shop franchise often means you will need to lease a retail space of some sort and may cost more than other types of coffee franchises. A lot of planning goes into the start-up of these coffee shop businesses, as you will need to heavily consider location (you want to be in a visible place with lots of foot traffic) and the appearance of the coffee shop itself. Also, keep in mind you may need to hire employees to become baristas for your business, meaning your overhead costs will also go up.
- Mobile Coffee Franchises: A mobile coffee franchise is a van-based business that delivers coffee and other assorted goodies directly to people. Often, these mobile coffee vans travel to workplaces during lunchtime or high traffic events in your local area, or further away. That gives you the flexibility to work from home and set your own hours. It also means you won’t need to worry about leasing a space – only about the maintenance of your vehicle, which is often provided as part of the franchise fee.
- Coffee Distribution Franchises: With a coffee distribution franchise, you will be providing actual coffee products as well as machinery to coffee shops in your assigned territory. That usually involves working from home, and then traveling to coffee shops and restaurants to meet with potential clients. You won’t have to hire staff, as you’ll be the one drumming up business for yourself.
Starting A Coffee Franchise
If you have weighed the pros and cons of a coffee franchise, explored the types of coffee franchises available to you, and want to invest in a franchise, consider taking the following steps:
- Make sure you don’t have too much competition in your area. There’s nothing wrong with a little friendly competition, but if the area you are looking to set up your coffee franchise is completely saturated with coffee shops, you may want to look into an alternate location.
- Research several coffee franchises that pique your interest. You can find these through franchise web portals like Franchise Direct, franchise organizations like the International Franchise Association, or franchise-related publications like Franchise Times Magazine. These are all resources that specialize in giving you invaluable advice about franchising and also provide comprehensive lists of available franchise opportunities. Also, if you already have a favorite coffee shop, check and see if it is a franchise.
- Contact the franchises and schedule meetings with franchisors. One of the best things you can do is to contact the franchisors directly and find out more about their operation by setting up a meeting at their Head Office. That way, you will get a feel for what kind of franchise package they offer, and will actually get to meet the franchisor. This can be important as you grow your franchise and develop a relationship with the franchisor and the Head Office. You will find out how strictly you need to adhere to the franchise business plan and can figure out whether you fit in with the franchise’s culture. Make sure to get all of your questions answered and clarify with them what is included in the franchise fee, what additional ongoing royalties or fees will be assessed, and for current franchisees’ contact information.
- Talk to current franchisees. This is one of the most important steps you take in setting up a franchise. Call or meet a current franchisee of the coffee business you want to get involved with and ask them questions about their experience. Important considerations include:
- Did the franchisor deliver on all their initial promises?
- How is your relationship with the Head Office?
- Are you currently turning a profit?
- What is the most difficult part of running this coffee franchise?
From there, you can decide whether or not to pursue the coffee franchise opportunity any further. If you do, you will have to draw up a Franchise Agreement. This is a contract that tells exactly what the franchisor and franchisee’s obligations are, and should be reviewed by yourself, along with any legal or accounting counsel you retain.
Franchise Direct Coffee Section – Web portal for franchise and business opportunities related to coffee.
- Starting Your Own Coffee Franchise - November 1, 2008