The Coffee Club NZ franchisors plan to add two new brands to their mix

Tuesday 6th September 2016

The New Zealand franchisors of café chain The Coffee Club plan to become a “mini-Restaurant Brands” by bringing in two new Australian franchises early next year.

Brad Jacobs and Andy Lucas, then aged 25 and 24 years respectively, brought The Coffee Club to New Zealand a decade ago from Australia, opening their first store in the Queensgate Shopping Centre in Wellington in late 2005.

In New Zealand, it has grown to become the second-largest café brand, marginally behind Kiwi franchise Columbus Coffee, with its 60th store about to open. In Australia, it is the largest home-grown café chain with over 400 stores in eight countries.

Jacobs and Lucas are now investigating bringing in two other franchised brands held by The Coffee Club’s Australian owner, Minor DKL Food Group. The Groove Train is described as an “urban dining experience” (think gastro bar), while Coffee Hit is an upmarket roasted coffee café (think Mojo).

They’ve got an agreement in principle from the franchisor but are still assessing local franchisee demand for the more expensive The Groove Train which would have an upfront cost of about $1 million. They're also looking for suitable locations within shopping centres to get it started.

They’ve just signed another 10-year franchise with Minor DKL for The Coffee Club and plan to expand the chain to around 93 stores within the next seven to ten years, mainly in regions outside of Auckland where most of their stores are based. Franchises range in price from $350,000 to $450,000 with a franchise support fee of 6 percent of net sales and marketing fee of 3 percent of net sales.

Typically 60 franchised stores is seen as the limit in a country New Zealand’s size but the pair said there’s still room for growth in the provinces, particularly regional routes now serviced by Jetstar.

Jacobs, who is also chairman of the NZ Franchise Association, said it is more difficult to find franchisees outside of Auckland where higher-priced houses make it easier to offer security against any borrowings, which is why the chain’s expansion will be slower in the next decade.

The pair said the new brands could appeal to regional The Coffee Club franchisees who want to own more than one business in their neck of the woods, rather than them having to turn to other franchisors.

Establishing the franchise in New Zealand hasn’t been all plain-sailing for the pair, as the global financial crisis struck when they only had 20 stores and needed more than 30 to be profitable.

Sales stagnated so they sold their own property, doubled down on advertising, and lent money to struggling franchisees so the brand wasn’t sullied by any store closures. Profitability was achieved three years later than planned.

The chain has had low closure rates in the past decade compared to other café brands - one store has closed in Wellington due to rental issues, one in Christchurch due to the earthquakes, and one in the Sylvia Park shopping centre was relocated to a different area of the mall.

They want to build up multiple retail brands as has Restaurant Brands, which owns the local franchisor rights for KFC, Pizza Hut, Carl’s Jnr and Starbucks, though don't have a goal to become a public listed company.

Sales growth is about 8 percent per annum on a like for like basis despite the increase in the number of franchised stores. The chain’s biggest selling item in New Zealand is a flat white coffee and eggs benedict with bacon generates the highest margin.

BusinessDesk.co.nz

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