San Francisco Coffee House An American-Style Franchise In Croatia

1. San Francisco Coffee HouseAn American-Style Franchise In Croatia Group 2 Valerie- MA1N0220 David- MA1N0219 Bảo Bảo- MA1N0230 Amos- MA0N0241

2. San Francisco Coffee House

3. San Francisco Coffee House • Introduction • SFCH- was started in winter 2003 , • Two Croatian entrepreneurs; Denis Tensek and Jasmina Pacek • The couple utilized their specific professional experiences and understanding of the habits of Croatian customers to create a unique visual identity business opportunity • Tensek: manager in US companies, MBA ( creating Service Quality and satisfying customer expectations • Pancek: MA in Fine arts and Design, Art Director in US Corporations

4. SFCH Uniqueness • They started with one coffee shop • The shop had a combination of service, quality, products and cozy American atmosphere • They felt it had a potential to grow into a Franchise But had the following questions to answer; • How would they grow? Growth model? • Should they develop their own outlets or open more company owned outlets?

5. Possible Options • Taking a master Franchise license for Croatia from US Starbucks -Lengthy, complicated and extremely expensive process vs expected returns - also Starbucks had a low brand recognition in Croatia, -Imported Brands were not flexible- they did not allow adjustment needed to succeed in the local market ( pricing is too high) for market with lower purchasing power.

6. Challenges • Opening self owned stores • Costly, slow, hard to control • Lack of means and lack staff • More risky, • No time to travel to all locations around the country

7. Investment Challenges in Croatia • Croatia has a small economy (low economic development) • Changing legal system, • Little experience in franchising • They only had one young store, • Franchising was quite unfamiliar to the Croatian emerging market, • Overall conditions were not ideal for franchising ( insufficient regulation)

8. Further Questions Raised • Should they Franchise or not? • How could they protect their Intellectual property and Business Know –how? • How could they fight Imitators? • What would happen is Starbucks and other major coffee chains entered the market? • How could they become the biggest and most successful coffee House nationally or regionally?

9. Investment climate in Croatia • Political environment • Economic environment • Institutions for Franchising • Educating about franchising • Franchising promotion • Creating websites with information about franchising on internet • Connecting Franchisors with potential franchisees • Helping domestic companies to become franchisors • Establishing Franchise fairs and Round tables

10. Barriers to Franchising Development • Laws • Franchise professionals • Problems with banks unfamiliar with Franchising • Small market

11. Opening of SFCH- 2003 • The entrepreneurs pursued uniqueness in their business venture • Differentiation was their concept • Name SFCH has the Impression “Made in USA” to attract a “new market” • Location: was crucial and had to be strategic • Town center, with heavy foot traffic • Target market was business people: students and business professionals of all ages

12. Uniqueness of SFCH • First American coffee house in Croatia- enjoy first mover advantages : • Customers could enjoy the Authentic Ambience of the American City, • Best decorated service industry interior with an Urban, bright and sophisticated Environment • Research visits to Us, studying technology of coffee making, buying supplies and ingredients

13. Product offering • Unique assortment, different types of coffee and ‘coffee to go’ • Coffee in 17 diff latte (in milk) and mocha varieties • American-style muffins, many varieties, • Environment: relaxing urban atmosphere • Local and international newspapers and magazines, free wireless internet • Ambience plus smooth jazz and billboard music

14. Employee Training and Management • Hired young employees, no prior experience in coffee making, • Qualities: trustworthy, loyal and honest, • Trained employees for working in coffee shop and bar, • workstations with detailed job descriptions, checklist and shifts for weekly or monthly routine duties vsambiguous job descriptions

15. Incentives for employees and Stakeholders • Salaries were higher by 20% compared to other local coffee shops, • There were scheduled performance reviews, if satisfactory employees were awarded with 5% salary increment • Motivated employees, improved service quality and increased customer satisfaction • Paying suppliers on time- care for stakeholders

16. SFCH FINANCIAL PERFORMANCE • INCOME DATA 2006(IN EUR) 2007(IN EUR) Net Revenues 13,333 16,666 Total Expenses 86,666 93,333 Direct Costs 50,666 54,000 Depreciation 2,666 7,333 Gross Profit 80,000 105,333 Operating expenses 36,000 39,333 Earnings Before I&T 44,000 66,000 Taxes 9,680 14,500 Earnings after I&T 34,320 51,480

17. Foreign Franchising competitors • FRANCHISOR INDUSTRY # OF OUTLETS • McDonalds fast food 16 restaurants • Subway fast food 6 restaurants • Fornet bakeries over 15 locations • Dama Service refilling Toner cartridges 3 locations • Berlitz foreign language school 1 location • Firurella weight-loss for women 2 locations • Berghoff kitchen equipment 3 locations

18. Local Franchising Competitors • FRANCHISOR INDUSTRY# OF OUTLETS Electromaterijal household appliance distrib >50 Stores X-nation fashion clothes 40 s / corner Rubelj Grill grill 17 rest. Skandal Fashion clothes 15 stores Body Creator weight-loss for women 4 centers Bio & Bio health food 3 shops Bike Express courier services 1 center SFCH COFFEE BAR 1 LOCATION

19. Way Forward? • Franchising: possible model for business growth. • Advantages: • Lower financial investment, • Lower risk • Faster growth • Local market knowledge by franchisee • The franchisee’s motivation to succeed

20. shortcomings • Not enough information about franchising; low entrepreneurial and institutional awareness of franchising • No well established support organizations for the development of franchise networks in Croatia (2 centers only) • No significant support from financial institutions; banks reluctant to take the risk, • Company –SFCH- was young and unproven in other locations

21. Options for SFCH growth • Enjoy their local success, • Open additional stores themselves, or • Try their own Franchise concept

22. Question1 • Could the couple develop franchising in a market where the local conditions were less than conducive? • Answer: too Risky

23. Question 2 Could they gain national prominence? • Yes they could, since they were first cafe in American style combining quality, service, style and good price • Moreover, the taste of coffee as well as other cafe‘s features were adapted to the local hobbits (which for example Starbucks cannot be so flexible) • They were successful in the poorest region..why not to be successful in other Croatian regions • Franchising is a challenge

24. Question 3 • The couple had never run a franchising business and did not have the necessary experience and knowledge. How could they overcome the weaknesses they possessed and the environmental threats? • Bring Foreign investors – can take advantage of incentive, tax benefits, customs privileges • Cooperation with centers for franchising business (future franchising – long-term view) according the EU prognosis we can find high potential in Franchising system • Cooperation with foreign banks directly - not only with subsidiary banks • Other form – licensing, join venture

25. Question 4 • How could they seize the opportunities in the market place using their unique experiences, capabilities and strengths? • The uniqueness of the concept which gave birth to San Francisco Coffee House places itself at an advantage over its competitors. • The idea behind this coffee shop is rooted in America, from the menu to the ambiance of the shop itself present a one of a kind experience which is totally different compared to Croatian coffee shops.

26. Since the concept is Americanized, a way that they can seize more opportunities in the market is through research and development as the food and beverage industry in America is changing constantly. • Based on the research and development that they will be doing, they will be able to keep up with the trends present in American coffee shops so that they can offer new items in their shop while continuing to maintain their competitive advantage and possibly attract more opportunities at the same time.

27. Thank You For Your Attention!!! Enjoy your Day!!