The coffee industry in Australia is booming. According to Datamonitor's Hot Drinks in Australia to 2013 report, the biggest growth in coffee sales is expected to come from out-of-home consumption. Sales in hot drink products are expected to reach $1.47 billion in 2013, up from 2008's $1.35 billion, with coffee accounting for the largest share of this figure.
In terms of business, the downside to this opportunity for growth comes with more and more competitors entering the market. Every new coffee store opening up in the neighbourhood makes it harder for the existing establishments, regardless of whether they are franchises or company-owned, to stand out from the crowd.
In such a competitive market it is important for franchises to keep costs down for their franchisees, allowing them to offer a competitive price to their consumers. According to Gareth Pike, general manager of Gloria Jean's, the secret to maintaining low costs for franchisees is to maintain strong and close relationships with suppliers. "We're constantly working with them to deliver the best possible quality of product at the most competitive price. It's less about bulk buying and more about having that ongoing working relationship, and then having that under constant review," he says.
"But then obviously through size you get the benefit of purchasing more products so you're able to work with suppliers. It's a real balance between the highest possible quality and the right pricing so that our guests are receiving the very best quality products and the franchise partners are able to still deliver a profit."
One of the key benefits of being part of the franchising business model in the coffee and chocolate industry is that franchisees should be able to rely on the franchisor to source the best quality products at a competitive rate. Jim Richardson, franchisor of Chocolate Room, a chocolate-based cafe with 10 franchises in Australia and another 15 in India, agrees that a lot of pressure is taken off franchisees by having the franchisor source their supplies.
"The only thing we can do to keep costs down for them is use our buying power," he says. "So when we go and purchase some of the Italian products or chocolates or even things like milk and coffee, we're acting as their buying office if you like. We buy on their behalf. Eighty or 90 per cent of the products they buy come through us, and one of our jobs is to make sure that we can supply it at a red-hot price to give them an advantage."
The quality of Australian coffee is among the best in the world, so it is important that franchises focus on delivering a consistently great product at every store. Using specified suppliers is one way to provide Australia's increasingly discerning coffee drinkers with the same experience day-in-day-out, because if they don't like what they get, they can easily walk down the street to find an alternative.
At Gloria Jean's, says Pike, consistency and quality are high priorities to ensure all the coffee franchises have the best opportunity to provide the best quality. It's all about maintaining standards, across quality and consistency, he adds.
Marketing the brand and the product in an effective way is invaluable in this industry. Not only is it important to establish a point of difference but to ensure that consumers think of the franchised brand when they're in search of their daily caffeine hit, and this can only be achieved by knowing your target audience and communicating with them.
Xpresso Delight, which was named the fifth fastest growing franchise by revenue in BRW's Fast Franchises list in 2008, has made a name for itself by transplanting the cafe experience from the outside world into the corporate
sphere. The company targets businesses keen to reward their workers with a cup of coffee, and to discourage them leaving their desk for what has become the modern day 'smoko'.
Co-founder Stephen Spitz says: "Obviously we're not in a retail environment, so we market business-to-business rather than to the end-user or the retail customer. So we have a very specific marketing strategy to do that. We're not like a well known brand in the retail market ... however, among the corporate marketplace, where we've got franchisees operating, they know exactly who Xpresso Delight is."
The same story can be told for Latte Cartelle, a Melbourne-based coffee chain in its infancy providing cafe-style roasted coffee in a drive-through setting. Director Linda Tsiokas encourages franchisees to do letterbox drops, car windscreen drops, to talk to the media, and use simple word of mouth - whatever it takes to emphasise that this franchise is different to the plethora of other coffee houses around the country offering the same product.
One of the hardest things about her line of work, however, is highlighting the difference between Latte Cartelle and other drive-through venues where coffee is available, like McDonald's. "They [McDonald's] still give you your sugar in a sachet. So you try to drive out in your work clothes, take the lid off, spill it in your car, put the sugar in - I don't believe that they have the same commitment to quality. They do a fantastic burger and fries deal, but let us do the sensational coffee," she suggests.
The personal touch is a point of difference. "We can make your coffee with one and a half sugars, to a warm temperature or to 80 degrees. We make your order absolutely specific to how you want it."
With about half of its outlets located in hospitals, Hudsons Coffee also has to pay special attention to how the brand is marketed. With limited exposure to the outside world the company needs to ensure that it impresses hospital workers and visitors with a consistently great product, yet still has to build a profile beyond this market.
Providing coffee for visitors and staff gives hospital-based Hudsons franchisees a pretty consistent and regular customer-base, but it has a down-side to it as well. Alison Were, national franchise manager at Hudsons, says that not being in public view can make it difficult for franchisees to stand out in the coffee crowd. "The negative effect is that you only have that group. So how do you reach outside that? And can you gain additional revenue outside of the hospital? And that's very difficult."
In order to achieve this, Hudsons focuses on marketing at every level. It has a national campaign, state-based promotions, segment-based campaigns and local area marketing initiatives which focus on specific customer groups. "That's one of the requirements of our franchisees," she says. "They have to be continually looking with their franchise consultant into the various local area marketing opportunities for their store in particular."
Getting back to basics and marketing on a local level is essential even for massive franchises like Gloria Jean's Coffees, which now has 500 stores in Australia alone, and promotes its brand through their various community
initiatives. Gloria Jean's has introduced a community program where the marketing managers and franchisee work closely to identify local activities with which the franchise can become involved. Some recent examples of this are sponsoring a Castle Hill Australia Day citizenship ceremony and sponsoring fundraising for Adelaide Zoo by promoting its new panda exhibit.
The Coffee Club franchise has a similar approach. In addition to its involvement with charity and community initiatives, the company has also sponsored a number of television programs such as Australia's Funniest Home Videos and My Kitchen Rules, as well as various sporting events, in order to maximise the brand's exposure.
John Lazarou, public relations director at Coffee Club explains: "As a result of an increasingly competitive industry, it is certainly a challenge to achieve breakthrough. However, by aligning ourselves with quality organisations through sponsorships such as the WOW Brisbane Broncos, Brisbane Roar and the Melbourne Marathon, just to name a few, we are able to increase brand awareness and customer engagement substantially."
But while such far reaching marketing programs build national presence, serving a great product consistently and combining it with great service are at the heart of a coffee business. And even if coffee isn't the specialty, it is still something that needs to be mastered, says The Chocolate Room's Jim Richardson. "In our own cafe, coffee would be second to chocolate," he admits. "It might be 30 per cent of our business but coffee seems to be the barometer that a lot of cafes are judged by. So what I say to a lot of our franchisees is that you've got to serve beautiful coffee. You serve one lousy coffee and the rest of your chocolate products get tarnished. You could serve the best hot chocolate and the best fondues and all the chocolate paraphernalia, but your reputation seems to be judged by coffee."
While maintaining a competitive price is important, the average Australian's high expectation of a coffee serve means they don't necessarily want to buy the cheapest they can find, and so top quality coffee retailers want to communicate their superior product to customers.
"Our franchisees always watch their competition and are always mindful of where they sit in the market, but they're not necessarily trying to be the cheapest because there's no point in having a race to the bottom of the price line," Richardson believes. "I'd rather our stores remain competitive and slightly above average because we serve seriously above average products and our customers recognise that."
Instead of relying on people searching for its coffee, mobile coffee franchise, Cafe2u, comes directly to the customer. This business model offers obvious cost savings for franchisees: they don't have to pay rent or other associated expenses like a fixed bond or electricity, nor wages.
Apart from their initial set-up fee and a weekly flat-fee, Cafe2u franchisees only have to pay for the maintenance of their vehicle, the products they use and a contribution to a marketing fund. This then allows them to keep their prices steady when others raise the costs. "The coffee culture in Australia is maturing from the point that the consumer wants a better tasting coffee every year," says managing director, Derek Black.
"When you walk into a small business, the traditional small business attitude is to cut costs, and one way for our competitors to cut costs is to do one of two things: either put less coffee into the basket or get as much
water over the coffee so they can make more coffees. What we've done in the last 12 months is recognise what's happened in the industry, and we've increased the amount of coffee we put in the basket by 20 per cent. So we've maintained credibility with our customers because we've kept pace with their taste profile and we haven't charged them anymore for that," he reveals.
One of the quickest and easiest ways to add to the turnover in this industry used to be to up-sell, and while coffee and chocolate, or other such sweets, go hand-in-hand, there is a valid argument that up-selling can transform a business's reputation from being well respected to being just another take-away joint.
Having previously worked in the service station industry, Black knows how impersonal and frustrating up-selling can be for consumers, and how quickly it can cheapen a brand's reputation. This is why he encourages Cafe2u's franchisees to give away samples of their new products, whether it is a new frappé flavour or a muffin, rather than pushing to add them onto a sale. According to Black, the vast majority of Cafe2u customers are regulars, so trying to add on products would put a strain on the relationship.
"Our guys probably could do more [up-selling] if they chose to, but they have a rapport with their customers and it's very difficult to up-sell to somebody that you know. That's why we talk about sampling. It's a way where you don't have to offend anybody. And that sort of selling to people you see every day is less offensive than every time you go into a service station and they ask if you want two chocolates to go with that," he said. "You can't treat your regular customers as if you don't know them."
Latte Cartelle, which already pays attention to distinguishing itself from the mass market drive-through industry, also tries to steer clear of selling add-on products. While the business does offer snacks and small meals like wraps and paninis, director Linda Tsiokas is adamant that the focus be on coffee. "We're not prepared to compromise on that. If there's a food product that comes in that might sell but it compromises the service time or it compromises the quality of the coffee, then we won't do it," she advises.
"And we're reluctant to be saying to every customer 'would you like fries with that?' ... we really want our focus to be on coffee and we understand that that's perhaps the only reason that some of our customers are there - purely for coffee."