The unstoppable bean

You could call it the unstoppable bean. Just when you thought there could not possibly be any more cafes existing side by side on busy high streets, the market mutates into new, hot areas of demand and service delivery.

Fast coffee from mobile cafes is a burgeoning segment of the market, along with other business models such as specialist coffee machines placed into workplaces. Then there is the hottest category of all, the coffee and cake segment being so successfully serviced by chains including Gloria Jean's , Michel's Patisseries and McCafe [McDondald’s ].

Better educated and fussier consumers, it seems, expect coffee of a higher quality and for coffee service to be ubiquitous, whether they want a cuppa at the sports ground or in the office canteen. And they like savoury and sweet baked items to go with their daily fix of the bean.

The evolving taste of consumers has ramifications for franchises and, oddly enough, even for corporations paying attention to employee welfare and productivity.

The coffee and cake segment is becoming so large and distinctive in its own right that it may well deserve to be classed as a separate category in the food industry, according to Jan Roach, a food industry expert and senior project manager at industry analysts BIS Shrapnel. This year the firm released its report, Coffee in Australia 2006-2010.

"We're still loving this whole concept," says Roach. "You can see by the growth in the bakeries with cafe type of business that they are taking on components of the food service sector. In any suburb, if there's not one there now, there will be in another week!"

She says Gloria Jean's, which has 309 outlets, is the fastest growing franchise. Growth in the past four years has averaged 47.7 per cent a year. Michel's remains the biggest player, and Starbucks is a distant third. McCafes are proliferating too, but then they already have existing sites within the McDonald's chain.

Roach puts Gloria Jean's impressive growth down to choice of location.

In the mobile coffee segment there are four main players: Cafe2U , Espresso To Go, Espresso Mobile , and Xpresso. Cafe2U and Espresso Mobile are mainly concentrated in NSW and Victoria, while Xpresso and Espresso To Go are Queensland based.

Roach says the mobility concept serves consumer demand for what the Italians call fast coffee - that is, good coffee that can be obtained quickly without the consumer having to be seated or join long queues. It's well suited to industrial and commercial parks and sporting fixtures, concerts and other big events.

Alan Biddle, general manager of the Cafe2U mobile coffee chain based in Manly Vale on Sydney's northern beaches, says the core of the business is to service companies that have 6 to 50 employees.

"This middle ground is largely overlooked by many food providers," says Biddle. The Cafe2U franchise has about 55 outlets on Australia's east coast, and 15 more in the UK - using Mercedes-Benz commercial vehicles with stainless steel fittings and a specialist coffee machine. As well as Belaroma coffee, they serve items such as ice blended frappes and a range of savoury and sweet bakes.

Usually operated by the owner driver who has had barista training, the vans do a regular run of business sites starting about 7am, usually packing up by early afternoon when the coffee hit market dries up.

Each Cafe2U franchisee has an exclusive territory identified by independent business analysts, based on business demographics and other data. A complete Cafe2U franchise costs $95,450, which includes the vehicle, territory, on-road support, marketing, training etc, on a five-year contract with the option of another five years.

"The business is doing very well," says Biddle. "There's certainly a lot of growth in the mobile coffee sector. Many former cafe owners approach us because they want to escape many of the stresses of operating a fixed location cafe, such as landlords and staffing. But we have franchisees join us from all types of backgrounds."

The business often suits retirees or others who have accepted a redundancy package. They tend to be content to turn over $500 a day (return on turnover is 45 to 55 per cent). But Biddle says some of the younger franchisees find they can drive the business harder. "One of our operators in Penrith turns over $950 plus a day without an assistant. He's finished by 1pm to spend time with his family. He's amazing."

The business model is based on Monday to Friday trading. If franchisees want to work the big events at the weekend they can generally make $1000 or more, and they are free to do that. But these events, like concerts or sporting fixtures, can be irregular, and Biddle says each Cafe2U franchise has been structured to operate profitably on a Monday to Friday basis.

Biddle, who formerly owned a franchise cafe, says he has noticed a phenomenon across the coffee franchise sector. At the 21/2 year mark franchisees reach a decision point: to get out or to expand. Some operators decide to sell their exclusive territory - which after 21/2 years can be worth anywhere between $40,000 to $60,000 because of its established sales base - but keep the van and establish a new territory.

He points out that many employers like the mobile cafe concept because it boosts employee efficiency; and they know where employees are at the break.

Stephen Spitz, who founded Sydney-based Xpresso Delight with Paul Crabtree three years ago, makes the same point about the coffee walk. His system - totalling 37 across the nation - puts specialist coffee machines in offices. He says employers like the machines - they pay a flat price per cup to the franchisee, who services the machine once a week - because it means the staff can get a good coffee without leaving the building.

"Once, there used to be the smoko provided by the employer," says Spitz. "That's now become the coffee walk, as staff go out in search of a coffee. Xpresso Delight has taken care of that."

Spitz is pleased with the growth of the business. It sources coffee machines from Switzerland and uses Arabica beans. Franchisees pay $55,000 plus GST to get set up with five machines. They need to produce 100 to 150 coffees a week to be viable. And five machines will turn over $500 a week, and use about 25 to 30 per cent of this on consumables.

"The reason our franchisees love this business is because of its fantastic return on time," says Spitz. "Even with 10 machines you only have to put in 10 to 12 hours per week. Our systems are working while the franchisees are doing something else, so the leveraging of their time is phenomenal."

Since they only pay a flat fee per cup to the franchisees, some of the sites with a machine - sports clubs and the like - sell the coffee and make money for themselves.

Spitz is looking for a master agent in New Zealand and hopes to expand into Asia.

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The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.