Coffee firm brews expansion plans
The founders of Coffee Culture in Christchurch are about to take on the North Island with their expanding franchise chain.
They say they have good reason to be devoted to the franchise model, given it motivates business owners and leads to less head-office-style corporate work for them.
Coffee Culture was started next to the Sumner movie theatre in 1996 by Chris Houston while he was in his late 20s, his wife, Sacha Coburn, says. She met him at the shop and has used her background as a lawyer to keeping the venture bubbling along.
The company was started when there were few other specialty coffee shops, but has grown to having 11 outlets in Christchurch, and two more in Timaru and Newcastle, Australia.
While there is a point when a city like Christchurch gets to saturation point in terms of coffee shops, there are always points where people and businesses are leaving or entering the industry making a dynamic backdrop for a venture like Coffee Culture, Coburn says.
The Sumner store is still in business. In the past year the couple, who have three children, moved to establish a significant beachhead in the North Island from Hamilton where she and Houston have secured a freehold site.
There have been some store closures and struggles as a result of the earthquakes, and also Christchurch and Australian franchisees have left the chain, mainly because of different business ideas, Coburn says.
But the couple had chosen the franchise model because business owners with "skin in the game" are more likely to be better performers in terms of running the cafes and looking after customers.
That customer focus has been rewarded.
Canstar NZ general manager Derek Bonnar says Coffee Culture has come out on top in a recent survey of Kiwis on their favourite coffee shop chains. Canstar usually rates banking and financial institutions in terms of products offered but has more recently started surveying consumers on brand satisfaction.
Coburn says coffee is also a focus as it had been from day one. "What we offer has developed over time, but essentially it's the same recipe: make great coffee, make it fast and give great service."
As owners they sell franchises to new operators for $35,000 plus a 5 per cent share of the store's annual revenues. Store owners generally pay between $350,000 and $450,000 for a store fitout on a leasehold site.
"That money goes into designing a beautiful store . . . we want it to stack up, we will only go into sites we would be prepared to own ourselves, because why would you take someone else's money and risk it for them," she says.
Shops generally open between 7am and 9am and run till 10pm seven days a week, and while Lincoln franchise owner Kris Partridge says they had been tiring hours to begin with he now has a strong team to share the work.
Coburn sticks up for the franchise model.
"One of my bugbears if you like is when [people] talk about a franchise company. You never hear people talk about the fact they are a limited liability company or a sole proprietary company.
"So we are in coffee and we happen to have chosen franchising as a model . . . one [reason] is we think it's much better to have people with skin in the game. We're all about creating an awesome experience as if you invite someone into your home."
The business has always been profitable, but in the early days of investment there had been tight times, Coburn says.
"When you are a young couple starting out, the banks don't want to know you because they want to secure everything against property, and you don't have property because you've put money into the business. [Though] I'm not complaining because we're richly blessed now."
STUDY WILL FOCUS ON FRAGILITY OF FRANCHISE STARTUPS
The survival rates of franchise businesses in their formative period will be part of a three-year university study into the popular New Zealand business model.
A University of Canterbury researcher is aiming to provide work this year looking in detail at how business franchises start up, and why some franchisors struggle early on.
Postgraduate student Faith Jeremiah said little was understood about early-stage franchise development.
New Zealand is the most franchised nation in the world per capita, and she wanted to find out why they formed part of the fabric of the country as part of a three-year PhD study at the university.
New Zealand has 423 active franchise systems, and despite the economic downturn, the total number of franchises increased 5.3 percent in 2010, according to the university.
The franchise sector employs over 80,000 people, mostly full-time.
Franchising was one of the most rapidly developing business models in New Zealand and internationally, which made the study significant, Jeremiah said.
As part of her Bachelor of Commerce degree with first-class honours, completed last year, she had examined in some detail mobile franchise systems, such as mowing services and ice-cream vans that made up around 42 per cent of total franchises in New Zealand.
Jeremiah said she was still at the stage of forming the upcoming PhD study. But she wanted to look at the franchisors' business development processes across New Zealand in order to better understand the relationship between the start-up stage and business longevity.
A franchisor owns the overarching company, trademarks, and products - then sells individual units to franchisees.
"The study will look at franchises across the business sector and explore issues relating to franchise development . . ." Jeremiah said.
"It is an area that hasn't been researched very well. Because there can be a high failure rate in the initial stages of franchising in the first few years . . . I'm looking at it from the franchisors' perspective. From what I've read from the literature, franchisors when they start franchising they end up in the first few years stopping and they'll just do chain stores."
The work over three years will also focus on franchise development practices and identities. The owners' motivations, aspirations, business history and social network development will also be examined.
Jeremiah said research suggested franchises failed because of inappropriate groundwork and lack of suitable planning. She would eventually develop a conceptual model for a franchise start-up.
The findings would probably be of interest to those wanting to enter the industry, existing franchisors and franchisees. Financial , tertiary and economic development institutions were also likely to take an interest.
Jeremiah graduated top of her management class last year. She will do her postgraduate research under supervising lecturer Associate Professor Colleen Mills, starting from March 1.