BRIMMING WITH PERSONALITY
A great coffee is about more than a cupfull of brilliant beans, roasted to excellence, and served with a smile. The cafe culture is changing and franchised chains are lining up to meet the challenges, writes Sarah Stowe.
The cafe culture is changing and franchised chains are lining up to meet the challenges.
Franchise brands lead the way in the cafe and coffee shop arena. A report on the coffee shop sector has shown a highly fragmented industry, with most cafes employing fewer than 20 people, but the number of franchised outlets has grown over the last five years.
And it’s headed up by Retail Food Group, a publicly listed Queensland-based franchisor with a coffee division which operates bb’s cafe, Esquires Coffee, Gloria Jean’s and Michel’s Patisserie, as well as mobile businesses Cafe2U and The Coffee Guy, and roasting businesses Caffe Coffee and Di Bella Coffee.
But even with these brands, market share in coffee is in single figures: RFG has an estimated 4.8 per cent market share.
The Minor DKL Food Group, a local subsidiary of Thailand-based Minor International PCI, is the franchisor for The Coffee Club and Coffee Hit chains. Combined the brands account for an estimated market share of 1.6 per cent, according to IBISWorld.
The third largest business in terms of market share is Emirates Leisure Retail which operates the Hudsons Coffee chain. The hospitality division of the Emirates Group acquired the Australian coffee business in 2009.
Despite the prominence of the franchise brands in the marketplace, the report found there’s a perception that independent coffee shops and cafes deliver not just a more personal experience but better quality coffee.
The fragmentation of the industry also serves to reinforce the low barriers to entry and the highly competitive nature of the business.
Food retail continues to face trading pressures and the report Cafes and Coffee Shops in Australia, October 2017, indicates the industry is lining up for a much lower growth trajectory over the next five years, after 4.8 per cent annual growth expected in the five years to 2018.
Report author Bao Vuong writes “High industry fragmentation will fuel intense competition, which is expected to cause profitability to decline further over the next five years. Industry revenue is forecast to increase at an annualised 1.0% over the five years through 2022-23, to reach $8.6 billion.”
To achieve profits, business owners will need to focus on premium ingredients and gourmet cafe-style meals, Vuong says. “Strengthening economic conditions and ongoing interest in health and ethical consumerism should also provide some support for profit margins.”
While the blending of coffee operations into artisan bakeries and patisseries, for instance, has added to the competition there are some clear steps to fighting off the competition, suggests Vuong.
“An establishment’s success is largely determined by its customer service, the price and quality of its products, and the overall cafe experience. Coffee quality is crucial, with the coffee brand, texture, temperature, milk, and even crema in an espresso becoming increasingly important to customers.”
One notable element of the coffee market is the broad split between consumer age groups - under 34s make up 36.8 percent, 35-54 year olds account for 36.5 percent market share, and those aged over 55 are 26.7 per cent of the market.
Australians remain coffee fans, right across the age groups.
IBISWorld has highlighted the following as influential trends in the coffee and cafe market: • Time-constrained consumers • Organic and Fairtrade focused
consumers
• Health-consciousness
• Declining profits
• Increased competition with restaurants and other outlets introducing coffee
• Preference for premium product • Rising costs
So what do franchisors in the coffee sector make of the trends, and how are they ensuring their brands steam ahead?
Shingle inn
Louise Bellchambers, national brand manager Shingle Inn, says even in a full service cafe environment coffee is still a major driver for business but customers can be fickle.
“People are generally habitual about their coffee experience. If they like what they get, they come back but there’s no room for error.
“We spend a lot of time training on customer service and coffee – each
An establishment’s success is largely determined by its customer service, the price and quality of its products, and the overall
cafe experience.
store has to have four fully trained baristas at all times.”
Customers place more value on the bespoke, says Bellchambers.
However the desire for better quality merchandise is not necessarily matched to consumer willingness to pay the price for a handmade item.
“It’s not just the food industry, some homeware brands produce offshore and people have got used to paying small amounts for very nice looking items.
“People don’t appreciate what it takes to make good quality products and we still make a lot of our products by hand,” says Bellchambers.
Chatting about the brand at the start of the festive season, she points out, “It’s a wonderful thing to offer a handmade piece. Christmas is the only time we have a large takeaway and gift offer, and this is the first year (2017) that Shingle Inn has introduced Christmas packaging for its gift offers.”
But with a small marketing budget, there’s a challenge to convey to the consumer that Shingle Inn’s Christmas cake fruit ingredients, for instance, are soaked in brandy, then hand mixed, or that the reindeer tarts are hand-filled and piped.
A short behind-the-scenes video uploaded on Facebook is one step in communicating the handmade approach to the Shingle Inn menu, and showcasing the value the brand places on premium product.
“We have to work out what quality means to people,” she says.
Rent is the other big challenge. Shingle Inn is heavily represented in shopping centres with just nine of its outlets high street stores.
In 2017 the café chain trialled a new burger concept; the small footprint store sits alongside a Shingle Inn café and lends itself to a high street setting. Bellchambers says the branding needs some more work, but the trials have led to successful operations in Caloundra and Toowoomba, and across all the Victorian stores.
Down the track the Saint Burger operations may be standalone stores in
high street settings.
Introducing the band has also allowed Shingle Inn to muscle in on the Uber Eats and Deliveroo services. The burger menu has been available and the café chain will now be introducing select products for delivery.
The move is as much about creating brand awareness among a new cache of potential customers as it is about delivering food.
Mrs Fields
Peter Elligett, CEO at Mrs Fields, doesn’t agree that consumers view independents as offering a better coffee and more personalised experience, he says.
“I realise that the press has pushed this thought process but I think that the reverse is actually true. We are not only a franchisor but are vertically integrated and roast our own coffee. Therefore, we are intimately involved in the quality process, the up front and ongoing training of baristas in our stores, the purchasing and maintenance of equipment and even ensuring that our cups and packaging are the best available.
“The key is to ensure a high quality, consistently great coffee in every store, every time.
“Our coffee sales are still increasing year on year and our focus is on quality from the farm to the consumer. We will continue to enhance our barista training and evolve our business to meet the expectations of the consumer - so I am confident of our future in the coffee space.”
There are of course challenges, and Elligett believes the approach taken by landlords in terms of competition and rent represents the biggest obstacle to café growth.
“I think that for shopping centre based cafes such as ourselves, the biggest threat is the landlords replacing almost any vacancy with a food or coffee operator. We have seen this trend increasing over the past five years and the result is more coffee operators competing for the same number of consumers.
“The problem is compounded by the unrealistic rents being charged, the continual increase in labour rates and the cost of power.”
The blending of café models is already happening with supermarkets, Bunnings, men’s hairdressing and women’s fashion chains such as Lorna Jane including a coffee offer in their stores, says Elligett.
Coffee is definitely becoming a cluttered market but the advantage that franchised brands have over individual stores is that they are constantly evolving to meet new
challenges.
Franchised brands lead the coffee market, but how much potential is there across Australia?
“Coffee is definitely becoming a cluttered market but the advantage that franchised brands have over individual stores is that they are constantly evolving to meet new challenges. In most cases, franchisors have sophisticated POS systems, rewards/loyalty programs, orderings apps, ongoing R&D and active promotional programs so I do see further potential to expand in the future.
“What I do know is that the number of sites you have is not as important as the quality of the sites you have, and we are constantly striving to ensure that the franchisees are as profitable as they can be.”
There are 46 franchised outlets around Australia, and Mrs Fields has budgeted for eight new stores in 2018.
Stellarossa Cafes
Franchisor Darren Schultz recognises the decline of demand for branded coffee – but only in certain areas. “The city is not interested in brands, in the corporate look, so we are concentrating on regional areas and outlying suburbs, including the Northern Territory and northern New South Wales.”
There is plenty of growth to pursue in the brand’s home state of Queensland in the raft of new suburbs developing around population growth.
“There is brand awareness for us being a city based brand - it got us established in the market when we were really cool,” Schultz says.
Stellarossa has spread its network north to Townsville, Mackay and Rockhampton with Bundaberg set to open soon, and expansion across the Sunshine Coast.
“Consumers in the new suburbs have a high discretionary spend, an aspirational spend, but they want the safety of a brand.”
Schultz is observing cafes opening and closing with equal measure in Brisbane – “you have to make a lot of money in five days in the city to make it work,’ he points out.
In 2017 he opened, and shut, five stores. It’s been part of a process to redefine the brand, and ensure the franchisees investing in the brand are best-placed to take advantage of the opportunities.
The business has employed a marketing agency to review the brand and its place in the market. “We are rediscovering who we are,” says Schultz. “It’s the quality of the product that counts. Coffee is extremely important to us. It’s such a simple thing and how we can differentiate ourselves.
“Our focus is not looking like a brand. We’re going through a brand review. We launched a new menu in spring, we’re warming up the look of the stores A lot of our shops are quite clinical. We’re totally revamping, even going through a logo review.”
The goal is to create a branded environment where the brand is less obvious – still identifiable but in a subtle way. Each store will have a common theme. When the business began every café outlet had its own look, with the backlit big red star the commonality. But Schultz admits it’s harder to deliver a unique profile as the network grows and multiple openings in a short period of time are a logistical challenge.
“When you open them quickly, you do need more of a cookie cutter approach. The new stores will have a similar feel but we’ll mix up the mediums and materials used.”
The goal is to get franchisees who can welcome customers as if they were in their home, and teach their staff to do the same.
Look out for the new look this year, drawing on a traditional European café feel with modern twists. “It will be a bit earthier, there will be greenery to make it more inviting,” he says.
The goal is to get franchisees who can welcome customers as if they were in their home, and teach their staff to do the same, he says.
Stellarossa will help with staff training. “Good staff trained well if serving at tables, can triple the turnover by upselling,” he reveals.
There will be more of a table-service element to the new stores too.
“My goal is 50 stores by the end of
2018. And we’re going into drive-throughs. We’ll have one outlet at Beenleigh, set to open in April, that will include a full café onsite, and a second outlet opening in May/ June at Sydney Downs that will be purely drive-through.”
Heading into a market dominated in Queensland by fellow-Queensland brand Zarraffas, Schultz believes the timing is now right for entry into the drivethrough arena.
The Coffee Emporium
Delivering outstanding guest experiences in the coffee houses comes down to providing premium quality coffee and food offerings, says Tania Minchella, head of marketing. Over the next five years the business plans to continue its rapid growth.
“In 2017 we opened 11 new coffee houses. This was a new record for the brand and one we hope to break again in 2018. Last year also saw us enter the Queensland market. Over the next five years we hope to expand further across the country into the South Australian and Western Australian markets.”
Further expansion is also in the company’s sights with a focus on the Asia Pacific region.
At the heart of the brand is an award winning coffee blend, a secret family recipe that has been developed and perfected in Australia by one of the founders and owners, John Ayoub. He’s a coffee aficionado and continues to oversee the quality control of the coffee at the roasting facility in Liverpool, New South Wales.
“This stringent quality control of our award-winning coffee, which includes eight variety of beans blended to produce the premium coffee, is integral our success,” says Minchella, who is confident the high standard cannot be matched by any other coffee retailer within the Australian market.
There’s a continual strong focus on quality control backed up by training to ensure franchisees can meet the brand’s high standards.
The Coffee Emporium has been operating for more than 25 years. This gives the business a long term perspective, Minchella points out. “We are no stranger to the impact of trends and competition on our business; we have had to adapt, to evolve, to ensure we continue to meet the needs of our consumer base.”
Minchella points out that brand personality also counts. “There will always be replicas. It is critical to show not just the personality of the brand in the look and feel as well as ambience of the coffee house, but just as importantly the quality in all aspects of the business model and functionality.”
There are plenty of opportunities for the brand to evolve, she adds - whether that is to improve customer convenience or adapt the menu to meet the needs of health conscious consumers and those demanding organic or Fairtrade products.
“Some of The Coffee Emporium’s responses to change include the release of new innovative products on a quarterly basis. We use in depth trend analysis to understand the change in the market including changes in flavour preferences. With the implementation of these quarterly campaigns the sales of the hot and cold
Café customers today are becoming more and more sophisticated and discerning with very high expectations; they know what they want
and they have plenty of choice.
beverages category in excess of 37 per cent as well as the drive around the food category, have led to a 22 per cent increase in sales.”
Jamaica Blue
General manager, Drew Eide, agrees the café industry is extremely fragmented and is witnessing an explosion of strong new independent cafés.
“Café customers today are becoming more and more sophisticated and discerning with very high expectations; they know what they want and they have plenty of choice. If we are not the best in our niche in every area we operate in, potential customers will simply choose to go elsewhere.”
The changes are not just independent operations versus chains; the cafe mood is developing, he says.
“Independent funky cafés are opening up in non-traditional spaces, cafés are becoming social meeting hubs more than ever before; under 25s are meeting at cafés far more now instead of alternative meeting places. Baristas are upskilling, turning their passion for coffee into flourishing careers. Cafés are also conducting more workshops, new blend tasting sessions, roasting on-site and using different brewing methods. The game has changed, as have customer expectations.”
The challenge is to tap into the trends without losing sight of the brand’s ethos. “For Jamaica Blue, I have to say that we remain wholeheartedly committed to our original guiding principles while evolving when necessary to remain relevant. This guiding philosophy has allowed us to be flexible and creative with different café formats, from fully licensed caférestaurants and in-line cafés, to kiosks and hole-in-the-wall espresso bars.
“And while great coffee is critical, ultimately we’re finding that our guests are buying a little bit of ‘time-out’.
They want authenticity, fresh produce, the best coffee, freshly prepared food in-store, and a fabulous ambience in a comfortable space.”
Jamaica Blue has been recently awarded for the quality of its coffee and Eide agrees that coffee is critical to the overall Jamaica Blue experience.
“Coffee drives loyalty, and the experience our guests receive in-store brings them back as returning customers. We work very closely with our franchise partners to reinforce the importance of this.
ith so much choice available to customers an average cup of coffee is just not good enough, he adds. “Perfectly prepared, premium espresso coffee is critical; it can make or break somebody’s experience in our cafés.”
Jamaica Bluie invests in a barista development program to achieve this.
The chain has three daily coffee options on the menu and an exclusive seasonal single origin coffee with each menu rotation, for which the brand has recently been recognised in the prestigious Golden Bean Awards.
The challenge of rising costs affects Jamaica Blue, as it does any other coffee chain and there’s a dedicated team which focuses on managing costs and the overall brand supply chain. However, the capacity to deliver exceptional value and customer experience to some degree takes price out of the equation, says
Eide.
“We recognise very clearly that we compete with the best cafés in the world and as such, we have set the bar very high in order to deliver an exceptional customer experience and differentiate Jamaica Blue.
“While we sell great coffee and fresh food, what we’re really selling is an escape and a little bit of time out from the rush of daily” life.”
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