Fourteen percent revenue growth is impressive enough, much less when other businesses are treading water.
The Coffee Club, Australia’s largest local café group, reported total sales growth of 14.2% in 2011, including like-for-like growth of 8.1%, taking its annual turnover to $344 million.
Emmanual Drivas, the company’s founding director and chairman, says the Queensland-based café and restaurant chain is expanding even further overseas and into the untapped New South Wales and Victorian markets.
The business was founded in 1989, and has operations across China, New Caledonia and Thailand, with plans for Egypt and Papua New Guinea.
With the majority of its stores owner operated, Drivas also reveals the secrets of dealing with franchisees.
Last time I spoke with you, you said you were planning to open 100 new Ribs and Rumps stores after buying the Sydney steakhouse for just over $10 million. How’s that acquisition going?
We bought the company late last year, and we’ve opened up two: one in the Valley in Brisbane and one in Mackay. Probably eight a year is our target because they’re pretty big units. They’re about $1.5 million to build each and you need a fairly large footprint as well, plus finding the sites isn’t the easiest either.
Do you have any others on your radar?
No, at the moment we are just concentrating on Ribs and Rumps. We are always on the lookout to sort of buy other brands out but I think you’ve got to establish one before you consider the other ones. So our main focus I think for the next couple of years will be getting a few more Ribs on the ground and then we may look for another brand.
And anything in the future would be in food?
Yes, definitely. Stick to what you know. We’re comfortable with food. One complements the other so I think it’s the ideal thing for us.
Your revenue was $344 million. How much of that was driven by store openings and how much was organic?
Well, I think we posted 8.1% [growth] store to store and we had an overall growth of about 15%.
In these retail conditions I thought we did extremely well, especially store to store.
What is driving that growth, in your opinion?
I think what we did last year is concentrated on giving the customer what they wanted. It was all about the service last year because when the retail industry gets tough out there we believe that the customer always wants added value, whether it’s price-related or that extra service.
Rather than going through a price war we elected to go the other way and try to give that extra service. And I think that’s what kept on bringing the people back.
How are coffee margins these days?
Look, the margins in the actual product itself, it’s good, it’s excellent, but where the challenge is probably keeping your wages under control and your rental under control. Costs of occupancy and costs of employment is really what the challenges are these days.
Costs of goods we seem to sort of monitor quite well and keep that under control but the other two factors are a challenge.
You’ve got around 280 stores across Australia and New Zealand, and then stores in Thailand, China, New Caledonia? How many do you want?
Is there any final figure? The world keeps on growing, the buildings keep on growing so they all need tenants so there is no real final figure.
Australia we believe we can comfortably grow to 500 in Australia, we’ve got about 250 at the moment in Australia and we haven’t really touched the Victorian and New South Wales markets.
Over 60% of our business is in Queensland so we’ve still got some huge growth in the southern states. So we can comfortably see 250 Coffee Clubs in Australia alone comfortably.
And you’re comfortable in predicting continued strong growth?
Look, we definitely hope so. This year coming, we’ve come from a fairly high base with an 8% comp growth last year, so to try to grow on that is going to be a challenge.
But we believe that we can do it because we’ve still got a small portion of our stores that are a challenge and if we can sort of move those over to being good stores, well we’ve increased our 8% growth.
But again we’re focused on the good service, the good food and the excellent coffee. If we can focus on those three things and do it well we believe that we will achieve the same sort of growth because at the end of the day, the business we’re in is really a simple business. Hospitality is simple and at the end of the day it comes down to that excellent service, to that great service and people will still keep on coming back.
Where do the bulk of your sales come from?
Well, we’ve got sort of three models that we work with. We work with the kiosk which is a smaller unit, the coffee clubs and the CBRs, which are a café/bar/restaurant.
If you look at a normal Coffee Club it’s a split between a 50/50 – 50% food and 50% wet products (coffee drinks, hot chocolate).
If you go to our kiosk, a kiosk is about 65% wet products, to 30% food.
And if you go to our larger model which is our café/bar/restaurant, now they’re all called The Coffee Club, they sort of turnaround about a 35% wet products and 65% food.
I see that Egypt and PNG are on your international hit list. Any second thoughts on those politically volatile spots?
Egypt has already signed a master franchise agreement and the first site is going to be opened I think by about November of this year, our first store. Papua New Guinea is still early stages, under negotiations but we haven‘t really set a time for the first store opening.
We’re not concerned because of the people we’re going into business with and they are locals, they are in the hospitality industry and they are also developers and owners of their own shopping centres.
Personally, to go out there alone and open up a Coffee Club, no. But we can’t really see that as being a big market either, but the maximum we’re probably going to have there is three, maybe four. Very similar to New Caledonia, the maximum we’re going to see there is probably three to four.
So it’s worth entering those markets for even a few sites?
Well, it all depends on the master franchisor, the partner that you go into business with, whether they’re self-supporting. That’s the important part because this group is in the same sort of business, in hospitality; we believe that they’ll be self-supporting.
And the bulk of your stores are owner operated – what lessons have you learned when dealing with franchisees?
Look, the franchising industry, it’s a challenging industry.
It’s a good industry, by the way, but as the franchisors I think we’ve got to be prepared to listen and work with our franchisees.
And I think it’s all about the communication, and I’m proud to say that we’ve got 250- odd franchises here in Australia and we’ve got no litigation here whatsoever because I think we’re prepared to listen and talk with our franchisees and it’s all about communication.
A few years ago now the Asian hospitality group Minor took a 50% stake in The Coffee Club. How’s that changed how you run the business?
Oh look, I don’t think it’s changed much the way we run our business. It’s probably assisted us in one way when it comes to reporting; we definitely got a much better reporting structure and most of the decisions we make now are based on actual tax and figures we’ve got in front of us.
I think they have brought that expertise in the group which we’ve definitely accepted and took it on and it’s been a great partnership.
Are you looking to change that 50/50 ownership?
I believe both groups are very happy to sort of keep on going at a 50/50 unit. In the near future there’s definitely no interest by any party to either sell down or anything.
Smart Company is a sister publication to The Mandarin, catering to Australia’s entrepreneurs, small and medium business owners and business managers.
