Awkward Transition

[imonlyfamous]

Hi all,

I recently bought a coffee shop that had been going downhill since it opened a year ago. The gross was what caught me initially, and I found a lot of unnecessary costs once I looked further; what sold me was the idea that I could easily trim costs that the previous owners, who were new to running a business, weren't savvy enough to catch.

Fast forward a couple of months and we've closed escrow and taken ownership. Our gross sales have continued to decline, but I have reduced costs to the extent that I am now turning a small profit (the previous owner lost $30,000 last year).

Here are a few facts that you should know:

-We are currently a franchise location. I won't mention the name of the company we work with.
-We have three Starbucks, a Peet's, multiple smoothie places (Jamba Juice, two Orange Julius, and a couple of individually owned places) within a one-mile radius as well as a mall with a large food court, a gas station, and a grocery store.
-In order to get into our parking lot, which is branched off of a larger lot for big boxes, you need to turn in either before or after our store then drive in sort of a loop. In short, it's not convenient and there's nothing to be done about it.

I'm considering dropping the franchise name, which would eliminate a significant bill each month. We're seeing very little brand recognition from first-time customers and I have a very big problem with paying this company so that I can build their brand for them. The potential problem there is that we're now faced with the task of creating our own unique brand and finding new distributors with similar enough prices to what we're currently paying that I still save money from not paying franchise fees.

I'm in the process of redesigning our website and developing marketing plans to cater toward a younger demographic than our typical customer. My question to the forum is what I should do; should I get rid of the franchise name, and if so where should I go for my product? What type of marketing can I use to get a younger crowd into my shop? How can I compensate for having such an inconvenient location?

Thanks!

 

[Comfy Place]

Hmm, I certainly have many questions, but I'll try to stick to a few for now. First, do you know why or have any ideas as to why sales have been declining? How long have they been declining? What changes in traffic patterns, new stores opening/old stores leaving, or new competitors arriving/leaving could have impacted the business even before you purchased it?

I don't think that where you are is necessarily a bad location, but its how you can creatively use it to generate more traffic. Can you add any signs on your property that would be highly visible to those people entering/leaving the adjoining parking lot? Certainly something to consider is advertising the fact that the business is now under new management/ownership. Many people will at least be willing to give you a shot if they know its not the "same old, same old".

As for the franchise deal, that will require more legwork on your part. You will need to start looking around for replacement products for those that will not be available to you if/when you ditch the franchise. Some of the suppliers will still be available to you (I would imagine...) after you go independant, but some will not. You will need to speak with them individually to see what will happen. This also is a good time to start looking around to increase your product quality. I would bet that you could get similar products to offer your customers that are higher in quality but wouldn't necessarily mean higher costs or prices.

I prefer going independant (because that's what we are!), but it definitely means more work for you to find and keep solid suppliers. It couldn't hurt to do in-store surveys on your current customers to see what they would really like and what they don't like, then evaluate those responses against what you want for your business. This is just a little bit, but hopefully it will help you out. Cheers!

 

[Jackson]

Hi Imonlyfamous,

I am not really an authority on the coffee business, but I believe the key is, Location, Location, Location. If your shop lacks any of those three charactoristics, I recomend selling it! If you really want to own a coffee house, look for a great location, and build it from there.
As far as the franchise name is concerned, if the company was on top of their game, they would not have allowed the original owner to build in a location that was hard to get to.
If I were you, I would contact the franchise company, and see if they can sell your location for you. Or in the very least, they could buy your location from you, and run it till they could sell it. The bottom line is, your franchise company f&#$'ed up during the site work phase.

I wish you luck!!!! :evil:

 

[bllondy]

in transition

Imonlyfamous-

Just wondering.... what helped you make the decision to purchase? I find it interesting that the francisor didn't do a site evluation prior to partnering with the previous owner. Did something change from the time of construction to the present regarding the location?

I don't have my shop yet. I was supposed to sign a lease December 1st but things didn't work out so I'm back to location research - urrggghh!!

During my initial research, I found a franchise that had a site evaluation form. Points were assessed to every aspect of the location. The total needed to sum to 135 points in order for them to consider the deal.

Also there are four or five different business models under the umbrella of "coffee shop." Some lend themselves more to a younger crowd. You might consider changing your business model to the coffee "house" type which offers entertainment, typically stays open later at night, etc. and overall a young folks hang out. On the other hand, you might think of a bakery/cafe model and opening up your food menu so that you attract lunch and dinner business as well. I would submit that the choice would be partially determined by the results of the site evaluation. How close are you to a college or high school? If close go the coffee house route. If not do the bakery/cafe type.

If you do the site eval and the results are poor, sell that puppy yesterday!

I hope you do well.

bllondy

 

[CafeBlue]

Hey there onlyfamous;

Your franchisor should be yourfirst contact to improve your business and expand your marketing efforts. The franchisor should have resources and expertise available to you - it is part of the reason you pay them fees and royalties.

Get yourself training from your franchisor. Re-train all your staff, your franchisor may even help you do this. If they can't - hire training consultants. You bought a business with declining sales, so the experience is not 100% customer satisfaction. Fix it with training for skills and service.

After you give the concept a fair shake and put some effort into their tested format, then you may decide that their program is not right for you. Your alternatives may include exiting their system, but you may not have that option in your contract with them. They may even hold the rights to your site, along with the rights to their brand. That said, they may be willing to let a money losing unit exit the system. If you end up independent, you might find your current suppliers will still work with you on different branded goods. You will not have rights to the original branding. In a good franchise system the operators get some economies of scale (esp. on marketing materials, brand development, printed goods, cups, allied product like candies, etc) that an indie can replace, but with more effort than placing an order. Be prepared to spend the franchise fees you save on other branding expenses as you develop you indie brand.
You are building your business and expanding their brand now, but developing a new brand is an extra skill set and an extra job to do. You did not mention the product you need or you locale, but there are tons of food and goods distributors (like Sysco) and hundreds of coffee roasters of every quality you can imagine...so product availability is not a barrier to going independent.
Visi your municipality offices to see if you can get a new entrance from the road to your parking lot. It may require permits and your funds (your landlord may help pay for the costs - especially if you have percentage rent) to make the alteration.
You said the site is open one year and sales are declining - that is a big red flag since sales should increase steadily for 2 to 3 years for any new cafe site. Likely the customer experience has been sub-par (perhaps a "new management" banner is called for. Treat this as a new site with all the typical grand opening fluff. Give every customer a great productg and a first class experience.
See if you can rent a large sign (or at least a sandwich board) to install on the apron or easement between your cafe and the road. Find out if you can hang a large banner in front of or on top of your site - a large grand opening celebration banner is cheap and cheerful advertising.
Try some radio and print media ads that make a point of you are inconveniently located, but worth a visit. Try a radio station remote broadcast from your site. Make it a big party with give-away items, door prizes, free cake, beans at "buy one get one free".
?younger clientele? Whatever, dude.
Focus on return and repeat clients. Mine your regulars to bring a friend with two for one offers. Add on sales to increase your average ticket. Do drop mailings to the residences and businesses in your immediate (one mile radius) area - give them high value coupons with a short expiry date. Give every customer who redeems a coupon another (different) high value coupon for their next visit.
When you finish doing all that stuff, refresh all your staff training and start your next marketing, couponing mailer in your trading area.

 

[Kahvi]

My two cents:

My initial reaction is: get out. You have a lot of competition, your franchisor is siphoning money without returning value, and your "inconvenient" location is killing you. I'd get out.

That said, if you're bound and determined to stick it out: I don't think you can rely on walk-ups because your inconvenient location means people can't breeze through, buy a coffee and continue shopping. But you can make your place a 'destination' - a little oasis of sanity in the sea of big-box store craziness. You need to make your shop a place where people bring their friends, buy a coffee, and sit down to chat for a while.

I'd drop the franchise if it's not too punitive ($) to do so. If they're not helping you to make a profit and no one recognizes the franchise, then you've rightly figured out that you're paying for the privilege of marketing their brand for them. You just need to make sure that the loss of their economies of scale isn't too expensive.

The gurus here might say differently, but I'm not that sold on coffeeshop 'brands', anyway. If you're not Starbucks, then who are you, really? (Bear in mind that in Canada, we've got maybe 3 recognizable espresso-coffeeshop franchises: Starbucks, Timothy's, and Second Cup. So I may be underinformed on your market's need or tolerance for brands.) In fact, I'd think that a lot of people would prefer to patronize the little guy rather than Megabucks.

Are you sure you can't lobby to get the parking lot restructured a bit (I'm thinking about cutting into curbs to allow easier access to your part of the lot)? Can you find out how much it would cost? Who the approving authority is? It's worth the research if it improves traffic flow to your site.

As for attracting a younger crowd: be careful what you wish for. Are you talking younger as in "people without walkers and blue-hair rinse" or are you talking about younger as in "cool people with weird piercings and little spending money"? Assuming the latter, you could offer student discounts, "cool" piped-in music, and maybe wireless internet.

That's all I've got off the top of my head.

Cheers and good luck.

 

[imonlyfamous]

Thanks for the suggestions, everybody. Here's an update:

We did fairly well over the holiday season. However, this first week after New Year's we dropped to numbers so low I don't event want to think about them. Records from last year show that the same thing happened then under the old ownership.

We already offer free wi-fi, and most of the customers who get their drinks in the store take advantage of that. The problem that I'm seeing is that most of our customers aren't out for a coffee while shopping; we're in a suburban area with mostly families nearby, and the huge number of coffee shops in the area really kills our ability to get teens or college kids to travel ten minutes down the road to visit our store. We need something drastic to get that younger crowd in, because I think that they're the only people nearby willing to sit down an enjoy a conversation over coffee. Most of our customers are people who work nearby or live nearby and are on a break or on the way to or from work, and they order and leave.

I actually live about an hour away, and there's a no-name coffee shop here so wildly successful with the local coffee shop that they recently opened a second location that doesn't close until the wee hours of the morning, and this is in a very comparable city with only a few less Starbucks. The thing is, they don't offer anything great except for local college kids working behind the counter - and with my net where it is right now, I'm going to be keeping my shop family-operated for quite some time.

What can I do to attract a more leisurely crowd that's going to be willing to hang out in my shop? I have all the necessary eye-catchers (free wifi, cool decorations, radio pumped in), but I need a method of getting them in in the first place.