San Francisco Coffee House: An American Style Franchise in Croatia

San Francisco Coffee House: An American Style Franchise in Croatia

1 The best option for Mr. Tensek and Pavec I believe is franchising. It is a cost effective opportunity to grow fast and with few risks for a small business like The San Francisco Coffee House.

The economic environment is favorable for expansion as one can see from San Francisco Coffee House’s Financial Performance Chart and the Economic Data on Croatia which indicate growth but Tensek and Pavec should choose the less risky and faster growth method of developing their business.

Organic growth is slow because the 2 entrepreneurs can’t supervise the building of multiple coffee shops simultaneously while the franchise system allows multiple contracts to be signed with partners around the country almost at the same time. In this case speed is of the essence because foreign competition is still missing from Croatia, but will not be for long as large multinational companies tend to go one after another in developing economies, and if Tensek and Pavec should go for the franchise system they would have the market share advantage when the competition arrives. It must be made clear that Starbucks coffee shops will eventually enter the Croatian market and Tensek and Pavec would better make good use of the competition free market in order to establish a dominant position for when the competition appears.

The costs for organic growth are large (the 40,000 Euro startup capital would increase for a remote location) but it would be all passed on to the franchisee. The cost with personal training is valid either option is chosen.

The free media attention generated by Elle Décor Magazine results in a better negotiating position with the franchisee and also in free advertising.

If the proper partners are found ( open-minded to understand the 2 way winning opportunity of a proven business model, financially potent as not to involve reticent banks in the project and respectful to the franchise agreement) the development of the San Francisco Coffee House Franchise is just a matter of transferring the know-how from one place to another and serve customers that are already aware of the SFCH brand.

The only minus of the franchise option is the lower profit over time opposed to direct owning but fades away in front of the risks of directly opening a potentially not profitable location and to the fact that more branches can be opened all over the region in a small period of time with almost no cost . Cost of opening a new location and operating it for 6 months is :

40,000 – minimum startup

138,666* / 2 = 69,333 – expenses for running the business for 6 months

Sum = 110,000

and in case of bad business the money lost would amount