Specialty coffee shops: When is the right time to franchise?
Scaling is the goal of many coffee shop owners – but is there an opportune moment to start franchising? Matt Haw discusses the question with Biggby Coffee co-founder Bob Fish.
Growing a business in any industry is never easy. It requires time, money, determination and entrepreneurial skill, as well as a little bit of luck, among other things.
In the fiercely competitive specialty coffee shop sector, this is even more challenging, particularly as consumers become increasingly discerning. Now, they not only expect high-quality coffee, but also excellent customer service and a memorable experience to boot.
A highly effective way to expand a coffee shop business, however, is franchising.
Broadly defined as the licensing of a brand to a second party, franchising as a business model has boomed since the mid-20th century. Today, many of the most recognisable names across a range of industries operate as franchise concepts, from McDonald’s to Dunkin Donuts to Domino’s Pizza.
The model is simple: a franchisor offers a brand’s trademarks and procedures to a franchisee who pays royalties and an initial fee for the right to do business. Importantly, it is the franchisee’s obligation to deliver the product and services to consumers in line with the brand standards.
“Franchising is a method of distributing a product or service,” explains Bob Fish, the co-founder of Biggby Coffee, a franchised coffee shop chain with more than 300 stores across the United States. “Most are founded by individuals who build some units, figure some things out and then say, ‘Hey, I could expand this a little faster by franchising’.”
In the coffee sector, franchising carries a number of benefits, from spreading brand awareness to fostering quick expansion without risky investment. But is there a right time for coffee shop owners to take the dive?
Franchising in specialty coffee
A few years ago, the idea of a specialty coffee shop franchise may have seemed odd. Specialty coffee, by its very nature, was characterised by being exclusive and premium, while a chain was often associated with the mass consumer market.
However, as the sector has developed, specialty coffee has become increasingly widespread and accessible. This, according to Bob, means it goes “hand in glove” with franchising.
“I love the romance of specialty coffee as part art, part science, part manufacturing, and part consumer retailing,” he explains. “This sometimes-complicated mix works well with the franchising model as an open system that seeks to share learning and relies on cooperation to make it work. I think that slides right into a lot of the gestalt of specialty coffee.”
Since launching in 1995, Biggby Coffee has expanded rapidly thanks to the successful rollout of its franchise model. By the end of this year, it predicts revenues of $250 million, with an annual growth rate of 20-25%.
“We have 302 locations, we’re 100% franchised, and coming into that the likelihood of surviving compared to an independent venture is astronomically higher,” Bob explains.
Indeed, data from the British Franchise Association indicates that, in 2018, 93% of franchisees claimed profitability, and 60% of franchised units turned over more than £250,000. Less than 1% of franchises closed citing commercial failure.
For the franchisor, one of the principal benefits concerns equity. Rather than giving up a share of the business, franchisors retain full control of their brand.
It also tends to be less capital intensive because the franchisees put up the cost for the unit and opens up the door to innovation.
For example, two of the popular and most widely sold McDonald’s products – the Big Mac and quarter pounder – were both created by franchisees.
The risk, however, arises when the franchisor and franchisee aren’t aligned on their core values. To overcome this, Bob says Biggby Coffee wears its brand on its sleeve.
“We’re pretty hippy-dippy,” Bob says. “We want to make the word ‘love’ as ubiquitous as the word ‘profit’.” As a brand they lean on this, seeking to support their franchisees in “building a life they love”, while promoting a positive workplace culture.
Is it the right time to franchise?
Despite the benefits of franchising, it’s admittedly not for everyone.
Bob explains that one of the easiest ways to determine whether it will be successful or not is to consider how you feel about your customers.
“If you don’t like people, then it’s certainly not for you,” he says. “One might assume that if you’re in the coffee business you already like people. But as a franchisor, you have to like people enough to teach them how to successfully own and operate a café.”
He points out that when you franchise, your customer base shifts from “people who like to drink coffee” to franchisees who “have customers who like to drink coffee.”
“If you have a concept that you think improves the consumer’s life on a daily basis and your goal is to propagate this as far as you can because you think you might be able to change the world, franchising is for you,” he adds.
Bob also advocates passionately for franchising as a way to decentralise thinking, while continuing to adhere to a high set of standards.
“Although it involves following standards and procedures, we have so many other minds working on our business model constantly,” he says.
He recalls how powerful this was during the Covid-19 pandemic in terms of keeping staff and customers safe. Specifically, they could have a conversation with all of their franchisees at the same time about how to solve problems together.
For coffee shops, Bob recommends starting small and with people who not only know what trying to achieve, but share your values as a brand. If you are turning a profit, then franchising makes perfect sense.
“Our first two franchisees were an employee and a regular customer,” he says. “They were people who came in, saw what we were doing and said, ‘This is cool as hell, how can I engage with this? We’ve never looked back.”