COFFEE REPUBLIC - about to boil in 2006?

pjetr - Caffe Nero and Costa are not moving towards franchising because of lack of cashflow. They are choosing that route, imo, as in fact it does give you more control when a business like this expands. Maintaining and keeping control of individual stores becomes more difficult with staff turnover. As new staff are employed they lack experience, the structure starts to slip without a great deal of staff training and re-education. Caffe Nero know they can't maintain the earnings growth expanding as 'own stores', they need the franchise effect to motivate and leverage imo.

They are the sole reasons for franchising, motivation and leverage. Ideally you would be franchising when you have developed the brand fully, so that you can command the highest franchise fees. Sadly CFE are not in an ideal world. The franchise route is being taken because it's the best route, better than a rights issue or placing which look like the only other routes. That doesn't make it a bad thing. Perhaps it was a reluctant option initially but embraced it my be that the company actullay fully sees the benefits.

The leveraging of the the cash that comes in is the big plus for the company - huge sudden cash inflow frees up the management to expand and to stop penny pinching imo. It allows the company to grow in a way you just could not achieve withouit access to a huge amount of cash.

Just look at some of the big food franchise success stories Dominos Pizza, McDonalds, Subway, Starbucks, Pizza Hut, Wimpy etc, probably all far more successful than 'company owned' chains.


Worth looking at the Costa Coffee franchise frorm too - you need to have £250K to get on the road with one of these anda further access to another £500K liquid capital and the ability/desire to open and run 5 or more franchises in a cluster. I'd bet there's a lot that don't want that much committment and would prefer the Coffee Republic franchise offer.



CR