The Russian coffee market, despite all the economic vicissitudes of recent years, is growing steadily. So, if in 2016 there were slightly less than 1.4 thousand coffee houses in Moscow, then already in 2020 - more than 3.6 thousand! Experts believe that this niche has not yet reached the ceiling of its development, and therefore these establishments number will continue to increase further.
Not surprisingly, aspiring entrepreneurs are increasingly turning their attention to the coffee business. And almost immediately they are faced with what to prefer the problem: developing a coffee shop from scratch or using a franchise ?! Both paths have their pros and cons, and both have supporters and opponents.
Controversial points
In this chapter, we will look at the points where both your own business and the franchise have advantages.
Self-realization possibility
If an entrepreneur starts his own business from scratch, without using the franchisee's business consultants' advice, he can do whatever he wants. And in this case, a clear advantage is in their business.
Opening a franchise coffee shop, the same entrepreneur will not be able to change anything in design terms: serious companies prescribe all the conditions, including the sign size and location, the napkins number on the table and the hall decoration general style.
Disadvantages in this case smoothly flow from the advantages: it is good if the owner has some taste and style sense, but if not ... You need to understand that the requirements for registration for a franchise are not taken from the ceiling - they are backed by marketing research and observation years. With a franchise coffee shop launch, there are usually no problems either, since the preparatory work most is performed by the franchisor.
Equipment purchase
As in the previous case, when opening a coffee shop, only the owner decides what to buy or rent. If there is at least some practical experience and knowledge, this can be attributed to the benefits.
In a franchise case (more precisely, with its normal quality), the parent company is in purchases charge. It is from it that the entrepreneur will receive instructions - what equipment to buy, where and how to maintain it. Many franchisors rent out equipment at a favourable rate, sometimes with the buying it out option.
Again, a private business owner has the opportunity to purchase "used" equipment at any trading platform. When running a franchise business, the entrepreneur will not have such an opportunity – either renting or buying new equipment of the brand that will be specified by the franchise itself owner.
Startup errors
In this case, the franchise wins. Surveys of novice "coffee" entrepreneurs show that in the first two years, most of them reaped their own initial mistakes. And many, by the way, it was because of their consequences that they were forced to close, or the first years to balance on the loss brink.
Trying to avoid mistakes by reading articles and interviewing competitors is a time waste. It is almost impossible to take into account all of them without personal experience and taking into account a particular city or settlement characteristics. And the potential competitors' advice, in general, should be approached with a caution' certain degree - they certainly do not need a new player on a fairly "hot" market.
Profitability rate
Newcomers with no experience in the coffee business almost certainly think that their business profitability will be higher than that of a franchised coffee shop. This is a very common mistake!
Experienced coffee shop owners often say in their interviews that they began to receive real profits from the business only after the second opening, or even the third, coffee shop. Only in this case is it possible to diversify the costs of marketing, advertising and, possibly, logistics. Franchises have no problems with this initially, and therefore such coffee houses profitability degree is much higher. It is difficult to have a good profit from one point since for this several factors must coincide at once:
- High-quality products, for which sake customers are ready to refuse the competitors services, whose coffee shops can be located in more passable places;
- a well-thought-out, working marketing strategy (which a newbie probably won't have);
- the selling related products possibility of (burgers, cookies, etc.), which requires additional space and special storage conditions;
- the equipment profitable lease possibility - again, a novice entrepreneur is unlikely to have the funds to buy a high-quality coffee machine.
Selecting a location for a coffee shop
Choosing a location is one of the most difficult tasks that any entrepreneur immediately faces. And the problem here lies not only in choosing a successful walk-through location - in this case, the landlord from the future owner of his coffee shop and the person opening the same coffee shop under a franchise will prefer the second option. There are several reasons to do this:'
- Franchise owners have more money, and it is much easier to conclude a "long-term" lease with them - in the current financial instability, the landlord is vitally interested in regular, solvent clients, to which the beginning owner of his own business cannot be attributed in principle;
- in most cases, large tenants, such as the franchise owner, are given good discounts on rent
- It is most beneficial for the business real estate owner that his point becomes associated with a successful business among consumers - in the future, it will be much easier to find solvent clients while justifying the increase in rent (i.e., the franchise is the anchor tenant).
Finally, large and successful franchise owners always have a better understanding of which place to open a point will be profitable, and which, with all its external attractiveness, will bring only losses.
But still, you should not assume that the franchise has only advantages in this case. So, when opening a coffee shop in a quiet and medium-aisle place, the landlord simply may not have a choice, which is why you can bargain with him at the rental price. However, a businessman should understand that when opening in such a place, his success will entirely depend on the product quality and the marketing strategy quality.
Raw materials purchase
In a franchise case, the entrepreneur is severely limited in the coffee varieties and suppliers - he will have to use what the franchise owner specifies. This is not a bad thing - the franchise representatives are not interested in poor customer flow. But the entrepreneur will not be able to show off his creative approach in this case.
His business owner is here on a "free flight": if he knows where and from which supplier you can buy cheaper for the future, no one will forbid him to do this. Here, however, you need to understand that without appropriate experience, even from good raw materials, you can brew extremely tasteless coffee...
A Franchise business benefits
In this chapter, we will look at the undeniable benefits of working with franchisors for an entrepreneur
A well-formed and working business model and less work
You need to understand that when buying a franchise, an entrepreneur, acquires a ready-made business, which is profitable from the starting work' very first days. Most of the preparatory work has already been done, and a recognizable brand name presence guarantees a buyers flow. Additionally:
- There are standard template solutions for the coffee houses design;
- there are working models for HR professionals engaged in hiring staff;
- there are ready-made menus, recipes, raw materials suppliers.
From all this, it logically follows another plus - starting a franchise business many times faster, and it starts to give profit much earlier.
The entrepreneur knows exactly the required investment amount
Unlike your own business from scratch, where the preliminary estimate during the project implementation can grow by 2.5-3 times, opening a franchise business is completely devoid of such a drawback. The entrepreneur knows with an accuracy of 90% the amount of compulsory costs. In this case, opening a business is much safer from a financial viewpoint.
Business support
But this is the franchise main advantage. An inexperienced businessman who opens a coffee shop from scratch faces problems and pitfalls dozens. There is no one to consult, or they ask for unaffordable sums for business consultations.
In a franchise case, a separate manager is assigned to each newly opened outlet. The entrepreneur can call him at any time and advise on any business issues. In addition, a good franchisor also provides legal support
Running your business advantages versus a franchise
Despite all the franchise advantages, it has disadvantages, sometimes very significant.
The franchise quality concerning Russian realities
We draw the reader attention - all the above is true only for high-quality and responsible franchises that lead their customers through organizing a new business in all stages. But in domestic realities, it is easy to "get" into a franchise, where an entrepreneur who has paid for the services of the franchisor is left alone with his problems. A person without experience cannot check the proposed business model performance.
Rules and restrictions
When running your business, there are no rules and restrictions other than statutory norms. An entrepreneur can do business the way he wants. This is his right (but also his risks). In a franchise case, everything is different.
There are a lot of restrictions and rules, but ... This situation cannot be unambiguously considered as a minus. We have already written above that all these prescriptions are not taken from the ceiling. By following them, the entrepreneur will avoid many starting mistakes. But the restrictions are not a plus either - large franchises have up to 20% restrictions - the usual "atavisms" or the management whim.
At the start, you will have to invest less in your business
It is paradoxical but true - despite the average estimate extreme approximation, as mentioned above, your business at the start will require noticeably less investment. High-quality and expensive franchises with guaranteed profits from the start can ask for 1.5-2 million just for the right to use their "sign" (do not forget that other payments are made separately). Such costs will not cover everyone, and these expenses are not always economically justified.
Mandatory payments
Running his business, an entrepreneur pays taxes and salary to staff (if any). In a franchise case, he will also pay royalties. Moreover, as the business grows and profits increase, the latter amount tends to grow too
Franchise also implies responsibility!
Some start-up entrepreneurs believe that by buying a franchise, they will receive a "passive income" kind, opposing this to their own business, where all responsibility rests solely with the businessman. But it’s not. Moreover, in a franchise case, the parties' responsibility is sometimes blurred so that a person loses interest in business development.
Which one to prefer?
Generally speaking, to make a final decision, you need to take three main steps
- The entrepreneur must understand what is more important to him - growth prospects or guaranteed (relatively), stable profit;
- a businessman needs to analyse the franchisors offers that suit him at a cost;
- a decision is made based on the data received.
The short conclusion is that if an entrepreneur has the experience, is ready to take risks, and he has in mind reliable suppliers and landlords, there is little sense in contacting a franchise. If the business takes place in a city with a population of over one million with expensive rentals and numerous competitors, a high-quality franchise with large initial investments can provide a stable profit.
Among the many well-known coffee producers, the site www.kofebird.com this is what you are looking for!