Coffee Club franchisees lost all their money within seven months

Coffee Club franchisees say they ran out of funds after seven months but kept trading for more than two years with the help of head office.

A FORMER Coffee Club owner who lost more than half-a-million dollars within seven months of taking over a company owned franchise is battling to walk away without suffering more losses.

Tim Creedon co-owned a Coffee Club outlet at Albany Creek on Brisbane’s northside – one of more than 10 Queensland franchises to close over the past few years.

He, and his business partner, paid $360,000 for the franchise in December 2016 and claim by June the following year that they had spent another $190,000 in keeping it open before their funds ran out.

The Albany Creek store closed in October 2018 although for the last 16 months it was in operation it was receiving financial assistance from head office. Picture: Google

However, the store operated for another 16 months with assistance from Minor DKL Food Group, the owner of The Coffee Club brand, which paid rent and franchise fee relief before it closed in October 2018.

Mr Creedon said despite taking more than $15,000 a week in takings during the final months of operation they were still not making money and doubted the franchise was ever financially viable.

“It’s not as though it wasn’t run well, it wasn’t a viable business,” Mr Creedon said.

“In the first six months of trading, we were taking more than Coffee Club but were still not making a profit.”

He said some of the problems they encountered included the electricity bill being three times as much as they had budgeted and wages constantly topping 40 per cent, well above The Coffee Club’s guidelines.

“When they sell you a store they say wages have to be 30 per cent of your gross take, food is 30 per cent of gross take and the other 30 per cent is what you pay all your other bills out of,” Mr Creedon said.

Coffee Club's Sherwood outlet closed last year. It has been one of more than 10 to have closed in the past few years. Picture: Darren Cartwright

“Even our wages were over 40 or 50 per cent for the first few months … it was one of those stores that you couldn’t just have the bare minimum staff on because you had outside areas … we were n doing 14 hours a day every day.

“Our first electricity bill came in twice as much as than we projected and they never said, when they looked at our budget, ‘boys you need to make this more’ because they would have been paying for electricity before we bought it.”

Mr Creedon said the chain took nine per cent off the top of gross takings as a franchise free and about another three per cent for promotion and marketing.

Minor DKL Food Group CEO Nick Bryden said they offered support for the franchisees of their Albany Creek restaurant which closed in late 2018. Picture: AAP Claudia Baxter

Minor DKL Food Group’s CEO Nick Bryden said all relevant information was provided for the Albany Creek franchisee and that the owners took independent financial and legal advice prior to their decision to join the network and opening the store.

“Throughout the franchise term The Coffee Club provided substantial financial and operational support to the franchisee, and is disappointed that despite everyone’s best efforts there was not a positive outcome,” he said.

“We are constantly evolving and optimising our model, offer, and support systems to enable our franchisees to be as profitable as possible, and it’s pleasing to see this reflected in current positive network sales growth.”

Another former Coffee Club franchisee, who also lost tens of thousands of dollars in a Coffee Club franchise, empathised with Mr Creedon.

They said there were pitfalls and not the least was that promotional deals were not suited to all stores and were “all-in” which meant no owner could opt out even if was going to cost them money.

“Seventy-year-old ladies do not eat steak sandwiches for lunch, they come in for coffee, cake and small ticket items,” they said.

“A promotion for steak sandwiches for example would not work in an area (in suburbs around southeast Queensland) that have a high demographic of retirees.”

Recyclable coffee cups are examples of The Coffee Club rebranding which started last year. A new logo is about to be released as well. Picture: Claudia Baxter

Mr Creedon said since they closed the doors they have been attempting to mediate an outcome with Minor DKL which had billed them $150,000 for rent.

The franchise agreement and premises licence were not due to expire until December 3, 2023.

“We’ve lost $550,000 and all we want to do is walk away and call it a day,” Mr Creedon said.

Before they closed, The Coffee Club Franchising Company warned the partners that they would have to pay rent until the franchise agreement expired as per conditions of their agreement.

“If you do close or abandon the Store, all voluntary support currently provided to you will be withdrawn immediately,” the letter dated October 10, 2018 stated.

“This means you would then have the obligation to pay mostly rent under your Premises Licence Agreement.”

The correspondence also acknowledge Mr Creedon and his partner were in financial trouble and struggling to make ends meet.

“We have never denied or disputed the financial difficulties you face, which is reflected in the material support we continue to provide,” it said.

“We continue to voluntary take material steps to help you with the difficulties in your store.”

Mr Bryden did not respond to questions about why The Coffee Club allowed the Albany Creek store to operate or be sold to a franchisee when it knew the business was losing money.