To Franchise or not?

DJC

Hi All,
I am in the process of looking at various franchise options in the coffee / sandwich business. I have a few issues in trying to come to a decision. Firstly, given the average royalty costs (approx. 6-8%) it would make me wonder if I should go ahead and just start my own place. The flip side to that is obviously you don't have a recognised brand to offer and I would imagine if you were part of a franchise your buying power would be better from suppliers etc. Also, I assume in the same respect the costs for equipment, architects, property, furniture etc would all be cheaper as the franchise would have agreements with companies in all of these trades? Then of course if you do it yourself you don't have the initial franchise fee or the ongoing royalties so it may balance out in start up costs. Another side to why I would ideally like to set up myself is that I do have a lot of ideas for my own concept that I believe would be a success (my head is bursting with them!). Having asked friends and family for their thoughts on my own concept I have had very positive feedback. These are all people who regularly visit coffee / sandwich bars and I know give their honest opinions.
This is something I have chewed over now for about six years and I want to make a move on something soon. The costs for setting up a coffee / sandwich franchise with a decent amount of floor space seem to be in the region of 200 - 250k and with that amount of money I obviously want to make the right decision. It would be my dream to set up my own concept but the relative security of a franchise makes it hard to come to a decision.
I would appreciate any thoughts or if anyone has any experience in franchising or independent coffee related businesses I would love to hear how it’s worked for you.
Thanks in advance.

vector

DJC wrote:

Hi All,
I am in the process of looking at various franchise options in the coffee / sandwich business. I have a few issues in trying to come to a decision. Firstly, given the average royalty costs (approx. 6-8%) it would make me wonder if I should go ahead and just start my own place. The flip side to that is obviously you don't have a recognised brand to offer and I would imagine if you were part of a franchise your buying power would be better from suppliers etc. Also, I assume in the same respect the costs for equipment, architects, property, furniture etc would all be cheaper as the franchise would have agreements with companies in all of these trades? Then of course if you do it yourself you don't have the initial franchise fee or the ongoing royalties so it may balance out in start up costs. Another side to why I would ideally like to set up myself is that I do have a lot of ideas for my own concept that I believe would be a success (my head is bursting with them!). Having asked friends and family for their thoughts on my own concept I have had very positive feedback. These are all people who regularly visit coffee / sandwich bars and I know give their honest opinions.
This is something I have chewed over now for about six years and I want to make a move on something soon. The costs for setting up a coffee / sandwich franchise with a decent amount of floor space seem to be in the region of 200 - 250k and with that amount of money I obviously want to make the right decision. It would be my dream to set up my own concept but the relative security of a franchise makes it hard to come to a decision.
I would appreciate any thoughts or if anyone has any experience in franchising or independent coffee related businesses I would love to hear how it’s worked for you.
Thanks in advance.

Well, as a last resort, you cold have the decision made for you
ask the bank for 250k as an independent
ask the bank for 250k as a franchise

See which the bank considers less risky, doubtless such consideation will rest on your business plan but whoever is bankrolling you knows about risk

Nuttzz

We arent that big brands for coffee over here compared to the UK. O'Briens is obviously the biggest (yet everyone i talk to hates their stuff) there are plenty of local coffee shops that do quite well without the franchise however the franchise does give you access to suppliers that you might not know about but they also tie you to those same suppliers, you cant replace your muffin brand to something cheaper from a non franchise supplier.

I dont think that many Irish people when looking for coffee/rolls would automatcially leave their office to by an "x brand". I think the success of what your looking to do will be down to location of the premises (footfall) and quality of the product and service offered. Most people will try out a new coffee shop in their area the once to see if it is any good.

eamon234

To be honest I don't think branding is a huge issue for a small to medium sized coffee shop. Customers tend to gravitate towards the one with the best quality food and service. A good case in point would be Galway city where a lot of independent coffee shops are operating - some so successful they are now bulding their own franchise business models - best case in point being Mocha Beans and Arabica Coffee Co. - If it were me (and I'm seriously considering this also) - I would go ahead without franchising - this would also give you much better margins - then all you have to worry about is getting bums on seats!

is_that_so

I can't really comment on franchising although I have just embarked on one myself in a different area. I agree with you about the security of a franchise, however I will add a health warning.
You need to make sure you get right location and therefore the people for your outlay. The margins downside already pointed out will hit you then.

Whilst I only have limited experience of the area you are looking at I do know that it is littered with corpses and failed businesses. Go look at any McDonalds and work out why they set up there.

When I myself was evaluating the prospect I discovered how expensive some franchises are in relation to the initial outlay and ROI. IMHO that is the biggest decision of all. Ultimately the success is about the work you put in.

As regards finance my own experience is that banks are "there to help" (suprisingly) simply because they make money out of you. Once you can sell the idea to them they will make an effort to accommodate you.

All I will say is that if it all looks right to you and the numbers add up

carpe diem

Banjo013

Wouldn't touch a franchise of any description.

They are set up in a very clever way. As the franchisee, they will keep you in a narrow band whereby you'll make a comfortable living from what you're doing while working like a horse to get it to that stage. However being in that band also means you'll find it next to impossible to ever break away from it on your own or try to make even more of a success of it, because franchises are designed to trap you in that band - it's attractive enough to draw you into it, yet sticky enough to ever be able to easily get out of it.

Captain Trips

DJC wrote:

Hi All,
I am in the process of looking at various franchise options in the coffee / sandwich business. I have a few issues in trying to come to a decision. Firstly, given the average royalty costs (approx. 6-8%) it would make me wonder if I should go ahead and just start my own place. The flip side to that is obviously you don't have a recognised brand to offer and I would imagine if you were part of a franchise your buying power would be better from suppliers etc. Also, I assume in the same respect the costs for equipment, architects, property, furniture etc would all be cheaper as the franchise would have agreements with companies in all of these trades? Then of course if you do it yourself you don't have the initial franchise fee or the ongoing royalties so it may balance out in start up costs. Another side to why I would ideally like to set up myself is that I do have a lot of ideas for my own concept that I believe would be a success (my head is bursting with them!). Having asked friends and family for their thoughts on my own concept I have had very positive feedback. These are all people who regularly visit coffee / sandwich bars and I know give their honest opinions.
This is something I have chewed over now for about six years and I want to make a move on something soon. The costs for setting up a coffee / sandwich franchise with a decent amount of floor space seem to be in the region of 200 - 250k and with that amount of money I obviously want to make the right decision. It would be my dream to set up my own concept but the relative security of a franchise makes it hard to come to a decision.
I would appreciate any thoughts or if anyone has any experience in franchising or independent coffee related businesses I would love to hear how it’s worked for you.
Thanks in advance.

1. Get on the phone to Starbucks
2. Explain to them the lack of competition to O'Briens, Butler's and Cafe Sol.
3. Look at good locations around Dublin - South WIlliam St (could get a place for 5-10 grand a month there) and IFSC being prime locations.
4. Open up the first Starbucks. It's evil corporate filth with badly described containers, BUT you will get every schmuck to buy it over O'Briens who's coffee is like tar and sandwich content shipped over from Latvia since before the Soviet Union collapsed
5. ???????
6. Profit!!!

IFSC is asking for it. Only a few bars and it's becoming more politically correct to not get ****faced, etc., . O'Briens are simply **** and overroasted (way more than Starbucks).

You might be better off starting yourself if you can get the funding BUT make sure you make it seem like a chain coffee shop. Have lots of stuff branded, etc., even if it's throwing money away, sell mugs with the name of oyur shop, etc., . Brand brand brand. People are schmucks, otherwise O'Brien's would be long gone.

jetsonx

have to agree....O'Briens is overated. .overpriced sambos that have the texture of cardboard, but don't taste as good. Last time in there I got a piece of ham in my roll so thin it could have been scraped off a pig's back without even waking it.

Captain Trips

jetsonx wrote:

have to agree....O'Briens is overated. .overpriced sambos that have the texture of cardboard, but don't taste as good. Last time in there I got a piece of ham in my roll so thin it could have been scraped off a pig's back without even waking it.

YEah but they do give you nice big "O'Brien's Special Thick Bread" so you are fooled into thinking you actually had some food for lunch by getting processed carbohydrates loaded into you.

boa-constrictor

vector wrote:

Well, as a last resort, you cold have the decision made for you
ask the bank for 250k as an independent
ask the bank for 250k as a franchise

See which the bank considers less risky, doubtless such consideation will rest on your business plan but whoever is bankrolling you knows about risk

That will be a quick exercise - they'll decline you on both counts. When they do give you money it will have more to do with the fact that you'll be putting in 50% of the startup costs (ie taking as much risk as them), offering tangible security for the money you do borrow and they're happy with your character and capabilities.

Franchises are good for some businesses but in something like a coffee shop I'd do it alone.

Jim Kernsey

DJC wrote:

Hi All,
I am in the process of looking at various franchise options in the coffee / sandwich business. I have a few issues in trying to come to a decision. Firstly, given the average royalty costs (approx. 6-8%) it would make me wonder if I should go ahead and just start my own place. The flip side to that is obviously you don't have a recognised brand to offer and I would imagine if you were part of a franchise your buying power would be better from suppliers etc. Also, I assume in the same respect the costs for equipment, architects, property, furniture etc would all be cheaper as the franchise would have agreements with companies in all of these trades? Then of course if you do it yourself you don't have the initial franchise fee or the ongoing royalties so it may balance out in start up costs. Another side to why I would ideally like to set up myself is that I do have a lot of ideas for my own concept that I believe would be a success (my head is bursting with them!). Having asked friends and family for their thoughts on my own concept I have had very positive feedback. These are all people who regularly visit coffee / sandwich bars and I know give their honest opinions.
This is something I have chewed over now for about six years and I want to make a move on something soon. The costs for setting up a coffee / sandwich franchise with a decent amount of floor space seem to be in the region of 200 - 250k and with that amount of money I obviously want to make the right decision. It would be my dream to set up my own concept but the relative security of a franchise makes it hard to come to a decision.
I would appreciate any thoughts or if anyone has any experience in franchising or independent coffee related businesses I would love to hear how it’s worked for you.
Thanks in advance.

I've thought about this myself for quite a while now, although I was looking at subway, the reason I didn't sign up is just as banjo013 said

banjo013 wrote:

They are set up in a very clever way. As the franchisee, they will keep you in a narrow band whereby you'll make a comfortable living from what you're doing while working like a horse to get it to that stage. However being in that band also means you'll find it next to impossible to ever break away from it on your own or try to make even more of a success of it, because franchises are designed to trap you in that band - it's attractive enough to draw you into it, yet sticky enough to ever be able to easily get out of it.

I also looked at Obriens, I had a great location picked out, but someone beat me to it(thank god), I see the two guys runing it now, they must do 80+ hours a week, I'm sure they're making great mony, but If you stacked shelves in Tesco for 80 hours a week you'd probably earn just as much!!!

StarBucks is sure to make a killing, but AFAIK its not a franchise, also there is one starbucks in Ireland already its in Microsofts European HQ in Sandyford!

If you choose a good area and market to the right clientele, there is plenty of scope for an indepedent coffee shop

good luck

djk1000

Starbucks is a chain owned by a company, not a franchise. For what it's worth though, I think you're nuts to go into that business at the moment with Starbucks looking to expand into Ireland, they have killed off thousands of independant coffee shops around the world. A recent franchise association survey came up with this, in their first five years 50% of businesses fail while 5% off franchises fail. I like those odds(of course in a lot of situations, the franchisor will take over the operation if it's failing to avoid bad publicity).

I own a franchise, it's very reasuring to have some knowledgeable people helping me along the way, although it can be a little restricive, I've had some of my own ideas but I can't do them because it's not part of the franchise.

The banks love franchises, I used Bank of Ireland who have a specialist franchise unit and the help I got there was excellent.

I think the number one most important point of all with a franchise is to talk to existing franchisees, not from the list the franchise company gives you, look in the golden pages, ring them all up and ask them if it's what they expected, if they are getting the support they need and have they hit their projected targets since opening. Most important questions, would they recommend it to their best friend and would they do it again.

Jim Kernsey

djk1000 wrote:

I own a franchise, it's very reasuring to have some knowledgeable people helping me along the way, although it can be a little restricive, I've had some of my own ideas but I can't do them because it's not part of the franchise.

The banks love franchises, I used Bank of Ireland who have a specialist franchise unit and the help I got there was excellent.

I think the number one most important point of all with a franchise is to talk to existing franchisees, not from the list the franchise company gives you, look in the golden pages, ring them all up and ask them if it's what they expected, if they are getting the support they need and have they hit their projected targets since opening. Most important questions, would they recommend it to their best friend and would they do it again.

Its good to hear from someone who has had the experience of a franchise.

I was just wondering what was your experience with the bank like, how much did much (%) did you have to stump up yourself, what kind of security you offered etc...

If I can raise the money without too much of my own capital being used as security I'd be tempted to start talking to a few franchisees

djk1000

Banks don't really speculate, if it's your first business they will ask for 30-50% equity from you and security for the rest, they don't like using the family home as security and they won't use pension investments. On the bright side, if it is an established franchise, some of the banks have franchise borrowing interest rates which are well below normal loan rates.

RainyDay

Do you know much about the coffee-shop/sandwich business? Would you think about working in one for a few months to get a hands-on feel for the business.

S+

DJK - What sector is your franchise in ?

I am meeting with my bank manager next week for a 'chat' about franchise opportunities I am looking at.
I have approx 30% of the set up fee for the franchise I am seriously looking at and would appreciate the benefit of your experience in dealing with the banks on franchises. -- Or anybody's for that matter.

djk1000

Good luck with your meeting! My franchise is in design&print. i went into it with about 30% equity but I had to offer security for the borrowing. PM me if you want to talk further, I'm not at it that long though. I will say that I had several meetings with people from several banks and I found that it is worth going with a bank that has a dedicated franchise person. Branch business managers don't know much and what they do know, they usually read right before the meeting. This is also a test for the franchisor, if you take it further insist that someone from the franchise company comes with you to one of the meetings. I had an MBA type come over from the UK with a slick presentation for the bank, after that meeting the bank started chasing me to give me the loan!

iMax

Starbucks is already set up in Ireland, they have outlets in MicroSoft in Sandyford.

They'll be opening up their first public store in the next three months. Location is Grafton Street/Stephen's Green. My guess is the old Bewleys (although I doubt they'd like the glass frontage), or Bendini & Shaw's premises (speculation owing to the fact they seem to be less active in sandwich production in recent weeks). Realistically it doesn't matter where they open as they'll get the business anyway.

Can't wait, love Starbucks White chocolace mocha please (650 calories per mug)