A coffee shop franchisor found a new profit centre when it solved a quality control problem among its coffee bean suppliers.
|
Entrepreneur: James Fitzgerald, Managing Director
Company: Foodco
Business type: Specialty Food and Beverage Retailer
Founded: 1989
Employees: 55 Head Office staff in Sydney; 260 Outlets in Australia, New Zealand, Britain and Kuwait; One pilot outlet in the United States
Turnover: (2003 - 2004) $120 million
Head office: Sydney, New South Wales
Contact details: +61 2 9302 2200
The Foodco Story
In the highly competitive world of retailing, businesses must respond quickly and effectively to threats to their brand or core product. For a Sydney-based retailer, Foodco, that core product is coffee, which it sells through its two branded outlets: Muffin Break and Jamaica Blue. Muffin Break is a specialty bakery/coffee shop chain that earns up to 40% of its turnover from coffee sales. Jamaica Blue is a coffee bar chain that makes about 50% of its turnover from coffee. In 2001, the chains faced persistent quality control problems as successive suppliers failed to meet the company’s stringent coffee specifications. Foodco knew it had to act - and some astute lateral thinking provided a solution.
|
Key learning points:
- Brand threats - Quickly deal with any threats to the quality of your brand or core product. Look for ‘win-win’ situations. A business challenge provides opportunities to improve the company.
- Customer focus - Retailers should never become complacent. Keep your business concept relevant. Never forget your customers by becoming too preoccupied with competitors.
- Location, location - Retailers must understand real estate. The right sites have complementary retailers and good shopper traffic at reasonable rents.
|
|
Foodco’s Managing Director, James Fitzgerald, says: “Our coffee blend is very specific and is made up of beans from about eight different origins. The problem was that our specification was being run down over time.”
To help fix its quality problems, in 2001, Foodco set up a company, Jahnus, headed by a coffee industry veteran, Fred Vains. Jahnus now acts as an agent for Foodco’s contracted roaster, Bean Alliance, and buys the green coffee beans. Foodco purchases the roasted beans and packaged product from Bean Alliance and distributes the product to its outlets. A key element of the new structure was that Bean Alliance, on the basis of Foodco’s contract, would establish a state-of-the-art roasting plant. This was completed in 2003 and is located in Melbourne.
Fitzgerald says: “There is an assumption sometimes in business that if someone gains, someone else loses. This was a situation where everyone gained. People who buy our coffee ended up with a better product. Our franchisees ended up with a better product at the same price. We got control over the consistency of our core product. Bean Alliance got a contract from us, so they have security of supply. And we now get a margin in purchasing the beans from Bean Alliance and selling them to our franchisees; previously we didn’t.”
Foodco has relied on franchising to expand in Australasia. Fitzgerald says franchising is the only way that a retail chain can operate profitably in the fiercely competitive Australasian market. He says that franchisees typically operate much more efficiently than corporate managers because the franchisees own their businesses.
But Fitzgerald says franchising has its difficulties. “Often, franchisors are not in the business of selling a service or a product; they are in the business of franchising. I believe that this is shortsighted. You only last that way as long as you are selling franchises. Instead, you have to be focused on your actual business. First and foremost we see ourselves as retailers. We just happen to trade through a franchise format.
“Successful retail is a combination of things. It’s having a concept that makes good sense and is relevant to the market and a sound operational basis. But you also have to have property skills and access to good property. Retail is as much about real estate as it is about conceptual acumen.”
Foodco mainly locates its outlets at managed retail venues such as suburban or regional shopping centres and central business district retail complexes. It looks for high-traffic areas with a good mix of tenants and complementary retailers. It works hard to track the changing needs of its customers.
Fitzgerald says: “Many retailers look at their competitors rather than at their customers. You’ve got to keep your concept relevant to your customers. Some of it is intuition, although we keep up to date with health trends overseas. But if you rely solely on market research, you’re going to be a bit late.
“Also, beware of faddism. As a food retailer, we focus on a healthy, sensible balance in our offerings. If you focus on the fad, you’re going to be out of date very quickly.”