Coffee Chain's Recipe For Franchise Success

Friday, January 11, 2008

When Nan Eskenzi moved from the coffee mecca of Seattle to Calgary with her Alberta-born husband, Michael Going, the entrepreneur saw an opportunity in a market not yet dominated by the likes of Starbucks and other coffee giants. In 1990, Calgary was ripe for an original, community-focused coffeehouse in a trendy, downtown neighbourhood.

With the success of their single Good Earth Cafe location, the pair spent the next 15 years expanding at the rate of about one coffeehouse a year as finances and market conditions permitted.

But as the coffee trend grew, so did the competition: Starbucks, Tim Horton's and other chains popped up around every corner. Ms. Eskenzi and Mr. Going decided a new growth strategy was in order.

"The way to compete with the bigger operators is to gain market share and you do that through opening caf�s," says Mr. Going, who is a former real estate management professional, as is his wife. "We had the choice of staying small and local or ... putting the systems in place that would allow us to expand through the franchise model." They ended up doing both. The formula that worked so well for their first and subsequent corporately run stores -- organic coffee beans, fair trade practices, fresh-cooked food with an ambience resembling old-fashioned coffeehouses -- has translated into an aggressive expansion that relies heavily on the expertise of each in-house owner-operator.

About a year ago, they franchised two of their locations after spending several years preparing for the switch to a franchise model. Now, they are on track to open one location a month in British Columbia, Alberta and Saskatchewan using a model that, unlike much of their competition, relies on flexibility and adaptability.

"One of the reasons our operators have more room to manoeuvre is that our business is very much a community-based business, where you're developing and participating in a community as a coffeehouse," Ms. Eskenazi says. "We don't set out to create new caf�s that are exact, cookie-cutter multiples of the same design and floor plan. There's a little bit of flexibility." Granted, there are some hard-and-fast franchise rules that must be adhered to strictly. But when it comes to overall design, look and feel of each caf�, Ms. Eskenazi and Mr. Going say more power in the hands of the franchisee is good for business.

"Franchising gets you that owner-operator in the caf� on a daily basis and that's so important in the coffee business," Mr. Going says. "Our franchised caf�s are being better-run than our corporate caf�s and, it pains me to say, but that's because this is such a tight labour market." In fact, it's so hard to find good retail staff in labour-starved Calgary, as well as British Columbia and Saskatchewan, that having a franchisee control the hiring creates better, longer-lasting relationships with both employees and customers.

Good Earth Cafes Ltd. now employs about 250 people in 13 locations in Calgary, Edmonton, Red Deer and the company plans to open in Kelowna, B.C., in 2008, while adding to existing markets. The company boasts a 500% growth rate and its quaint head office, where all the raw ingredients are prepared before being cooked at each location, is bursting at the seams. The entrepreneurs and their office staff will soon move into a larger space where all aspects of their franchise model will be co-ordinated.

There are still seven corporately run stores, but another four will be converted this year. Eventually, all the caf�s will be franchised under this model. Part of the reason it took almost 15 years to make the move to a franchise model is preparation and planning.

"We mapped out from a technology and information handling perspective how we could take a small business server and link everybody together in a way that would share information and be able to act on it as an organization, rather than leaving revenue trends and product trends up to the individual operator," Ms. Eskenazi says.

It's a lesson the pair learned in the retail and shopping centre business, watching entrepreneurs come and go. Stuart Crawford, director of business development for small business consulting firm IT Matters, says owners often overlook such basic needs.

"Small business owners have to leverage technology to compete against [large corporations]," he says. "They have to wear a lot of hats, so they need a technology tool that gives them an instant snapshot of where the business is at any given point." Mr. Going and Ms. Eskenazi see their expansion strategy as being more akin to having a network of small business owners rather than a franchisee accepting orders from the mothership.

In a world where margins are thin, competition is everywhere and operating a business where living your values can sometimes carry a hefty pricetag, Mr. Going contends that Good Earth's formula taps into the intangible elements that elude the heavy hitters.

"Good Earth is really an extension of how Nan and I lead our lives and our competition -- the big corporations -- are so big they've lost touch with that," he says.

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Good Earth Cafes Ltd.
4020 7th ST SE
Calgary, AB

Phone: (403) 294-9330
Toll Free: 1-888-294-9330
Fax: (403) 294-9329

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