Two coffee franchises are celebrating a decade in business. Following a similar trajectory of serving a cup of coffee in a non-traditional cafe venue, both mobile truck system Cafe2U and the office-based self-serve model at Xpresso Delight have expanded internationally, most recently into the US market.

Cafe2U

Ten years ago Cafe2U started life as a one-van operation on the North Shore of Sydney. Managing director Derek Black says the brand has continued to remain relevant in the market place.

“The Australian coffee drinker has changed a lot in the last 10 years and to survive we have had to change our product right alongside them,” he says. “We have invested a lot into research and development of our equipment and also our coffee offering. We developed our own blends – they have proven extremely popular.

“Ten years ago cappuccinos were the go-to beverage but there is a lot more variation now in consumer tastes, and consequently our menu,” he adds.

Black says the relatively low cost, low risk investment opportunity has helped boost growth of the network.

“There is limited competition; you have your own territory, franchise support in growing that territory, and excellent marketing support.  It is a low investment franchise model which offers a high return on investment.”

The company chose to take the model to international markets before addressing the challenge of moving into regional Australia – that’s coming up next. 

Overseas there are 60 franchises in the UK, 12 in New Zealand and five in the US; the first South African franchise is set to open soon.

While expansion into New Zealand saw a very similar customer to the Australian consumer, with a high coffee IQ, the American market has proven quite different, Black says.

“It is far harder in the States. It’s very expensive, there are legal documents for each state. We have a softly, softly approach to our mission.  We’re taking it very slowly and working very hard and have engaged consultants for our five franchisees. They are neatly clustered all over the place,” Black adds.

The products are managed from a distribution centre in Dallas and some costs are absorbed by the franchisor.

“Franchisees get a good product for a good price. But there are low costs and wages are low. The entry cost in the US is less than in Australia but the relationship between the investment and the return is similar.”

What about the costs of goods – the price of coffee? 

“Coffee is always an issue, we tend to purchase forward. We’ve had an increase in the last six months and before that is was two years, and two years before that. It comes down to astute buying from our roasting partner.

“We can’t control it, we can only respond and work through efficiencies. The franchise development manager helps franchisees analyse their business, we look at things like product range and average ticket spend. We charge franchisees a fixed fee per week, so success is in the hands of the individual.

“It’s up to the franchisee how much they want to work, some do full time, some part time, some only three or four hours a week. We’ll try to support them without dictating to them.

“As part of our business we sell coffee cups, syrups and so on as well as our franchisor services. It’s all about support. I believe the biggest challenge is maintaining relevance with franchise partners and continuing to service them without going to work for them. Communication is hardest to manage and we work very hard at it.”

Xpresso Delight

Stephen Spitz and Paul Crabtree established a model that brought cafe-quality coffee to the workplace and opened up business opportunities for those not looking for a traditional franchise.

It’s a system that has now been launched in the North American market headed up on the ground by former franchisee and now regional franchisor for the US North East, Nigel Lee.

It’s early days for Xpresso Delight in the US and Crabtree has taken on the development role while Spitz retains a strong focus on the domestic market.

Spitz explains, “For us always the challenge is not identifying suitable franchisees but making sure they have the finance. Particularly because of the type of business, it’s not 24/7, six days a week, the challenge is once the machines are in locations, sometimes franchisees are lulled into a false sense of security that they don’t need to do anything else.”

He says it is important that the behavioural patterns of someone who has never been in business before are understood and harnessed. At Xpresso Delight the challenge is getting franchisees to focus on their sales reports and purchasing and understanding how the business is functioning on a daily basis.

“If someone is only operating one or two days a week, they have a different sense of priority. We’re constantly trying to improve our systems around these behavioural patterns.

“Fifty percent of our franchisees are women who lead extremely busy lives in their own rights; typically running the family, doing the shopping, after school sports, all of which are crucial to the household.

“This business might give them a sense of identity. What’s needed is the ability to prioritise their schedules and time management. We have to provide a very easy reporting system, we give them an iPad app and the data goes straight into the back end portal.

“If you’ve not been in business before, we provide the systems but you can’t be the passenger, you’ve got to drive the car. We can teach you how to drive, give you the rules of the road and the code but you’ve got to buckle up your seatbelt, start the car and drive.”

Buying at future prices for green beans gives the company some immunity from day to day price fluctuation, says Spitz. “But if there was a massive frost in Brazil and that led to a radical change in supply of green beans we would be affected. But it affects all of us [in the coffee industry]. But our proposition is roughly a third of the cost of a coffee from a cafe and we’re always going to be relative to what cafes sell.

“There is no price erosion in the gross profit margin for franchisees.”