Stephen Spitz

Coffee franchise Xpresso Delight is coming off another solid year, with franchisee numbers jumping from around 100 to 140, and revenue hitting $8.5 million.

Today co-founder Stephen Spitz explains how a mainstream media campaign using infomercials on a popular morning show has turbo-charged the company’s growth, and reveals his plans to take the brand overseas, to some surprising places.

You’ve had really good growth in franchisee numbers in the last year, up from just under 100 to 140. Does that mean the GFC hasn’t treated you too badly at all?

No. As far as we are concerned the GFC was far more in the public eyes because of the media coverage that it got. And it was up to us to minimise the day-to-day perception that things were a lot worse than what they really were.

What did that entail? Talking to franchisees a lot more?

Let me just explain our business model a touch first. Paul Crabtree and myself are the cofounders and owners of Xpresso Delight, and we have a business model where we have master agents in each state and in New Zealand and they are our eyes and ears on the ground. They are the ones who are continually trained with Paul and I, to identify, mentor and put on new franchisees. So what Paul and I do is basically is provide the leadership, vision and certain resources to be able to get the most out of the master agents as possible.

So yes, from time to time, if a master agent was feeling a little bit overwhelmed or hurt, you know a prospective franchisee that was looking to come on and then used the GFC or economic climate as an excuse, it was the role that we play to minimise that and basically say you get up in the morning the same way, you go to bed at night the same way and if you don’t listen too much to what is going on around, really, things have not changed that much.

And to underline that, recruitment has rolled along pretty well.

Exactly, but I would also say that compared to last year to this year, we have gone very heavily in a lot more marketing. A lot of companies, when the perception is that the economic climate is a little down, what they do is they look to try to wind back any costs that they feel are not as important and one of the areas that they will wind back very quickly is their marketing. And both Paul and I have always been of the belief that if even the perception in the markets is down a little then we have to overcompensate that by making sure that our marketing has increased even further.

What sort of marketing are we talking? To prospective franchisees or marketing the brand in general?

Both. We don’t specifically market the brand. We are not a huge corporation that can afford to just do marketing for the sake of brand name, and we are a business-to-business franchise, where the average person on the street would never of heard of Xpresso Delight.

We will only ever do marketing where we can measure it as effectively as possible, because if you can’t measure it you don’t know what effect it is having. So, the biggest change for us is that we have gone to mass media and we started a program at the beginning of this year of live infomercials on Channel 9’s Kerri-Anne show.

How has that worked for you?

How that has worked is we have increased our lead generation, that is the cold calls coming into the business. To put that into perspective, last year we generated in the whole year – and I am talking calendar year not financial year so there is no misunderstanding – we generated in effect about 750 actual enquiries that came into the business. Now if we have a look at the end of July, the number of raw leads we generated as a group was 1,050.

That is very big jump in terms of the annual run rate.

Yes. You know yourself that lead generation is a funnel system, it gradually filters right. So we have the raw leads, the calls that come in; down to qualified leads, and a qualified lead for us is someone that’s looking to do something fairly quickly, have the funding ability to be able to do it and their motivation is high because they want to do it; to booked appointments; to sitting down in front of the master agents and having presentations one on one; to walking out with an expression of interest, which means that they have a legal binder with a copy of the latest franchisee agreement document, code of conduct, everything as if they were looking to do due diligence on the business.

And it goes right through to the process of actually having a conference call with myself or Paul, the master agent and the prospective franchisee is on the phone, all at the same time. Every single one of our franchisees goes through this process and it makes sure that expectations are similar, it is a 360 degree view, which means that the master agent if for any reason they were giving the franchisees any expectation of something different, we can pick up on that very quickly. It also gives us a process because they have needed to do a number of steps along the way to get to that point, how quickly they have done it, how well they have done it, for us to also to determine whether they have got the right mindset and determination and are indeed going to be able to follow the systems that we have got in place.

Was that infomercial strategy something of a risk?

Well, what we did to start off was we actually started on Foxtel with one minute commercials. You’re right, there’s no guarantee, so we started first and foremost with getting an average of 80 spots over a week, with one minute commercial spots across the lifestyle channel, National Geographic, just half a dozen different channels. We monitored the calls that came in, making sure that we had an external inbound company that were taking the calls, we’ve got a 1300 number and obviously our website.

So we did in effect some trial runs with that initially and then we decided okay, the one minute spots, we’re getting a certain result from that. We want to be able to increase the number of leads that we’ve got coming in and so we came up with a four minute infomercial which we started in January this year.

Is it a big jump to mainstream media?

Yes absolutely, it’s a big cost commitment because obviously doing one four minute spot, I mean we’re talking a substantial cost to do that. So yes, of course it’s always going to be a risk, but we felt that it was a risk worth taking because with the appeal of our particular franchise, we appeal to a very wide range of users.

If you look at our average franchisee, the average age would be middle to late 30s, typically husband and wife, partner couples. But our youngest franchisee is early 20s and our eldest franchisee is in their 60s. And we appeal to a very, very wide socioeconomic group, we’ve got blue collar, white collar, professionals who love our business and obviously because of the nature of it we have a high percentage of female franchisees as well. I think the average in franchising is somewhere around about 20% from memory, we’re probably up around 40%.

So obviously picking a morning time show like that, where the likelihood of having a partner who’s not got a full-time job or only working part-time and happens to be watching at that time, it captures their imagination. I have to tell you I’ve got examples James where I have actually done conference calls with franchisees who have come into our network who have had desire to buy a business, they didn’t actually go out looking for us. They happened to have the TV on in the background and something piqued their interests and it lead from there.

The big attraction for a lot of people would be that yours is a franchise that you can do on a part-time basis. Is that part-time franchise a trend that you’re seeing being picked up across the franchise sector?

Absolutely, I guess one of the things that we’ve always identified that having a second income coming into the household is more of a necessity rather than something that you have the choice of doing. But typically with having a second income coming in you still want to be able to have the flexibility of time and lifestyle to be able to do other things. So in answer to your question, absolutely there is a rise in demand for that.

Have you and Paul sat there and dreamed up other franchise ideas that could operate on that part-time basis?

To be perfectly honest we’ve looked at how we could probably franchise some other industries that are out there but we also are very, very focussed on what we’re doing and we’re concentrating solely on Xpresso Delight, and we’re actually working to the point at the moment where we’re looking internationally and taking this business model further.

Going international is always a big step for a franchise. How are you approaching that in terms of research?

The easiest thing in some ways is to look at New Zealand as your first international expansion and we actually did that back in 2006. And we’ve got quite a healthy little network building up in New Zealand as we speak. Having said that both Paul and I have spent a lot of time and money with DC Strategy, making sure that our business model domestically is one that works in so far as the original founders being able to be taken out of the business at certain times and for it not to be affected in any way. And obviously making sure that it’s got a good enough income coming in that it can look at concentrating some of its resources elsewhere.

Originally DC Strategy looked at our business model and said, you’ve got to be open to the fact that we may come back with a number of different solutions or ideas about how the actual business model will work internationally outside of Australia and New Zealand, because we are quite different. And what I mean by that is that Paul and I run our business from our homes, our master agents also do the same thing and our franchisees obviously run their business from their homes. So we’ve always been a business where we don’t say to any perspective franchisee “do what I say, but not what I do”. It’s always “this is how we run our business you can do the same thing”.

So in that work with DC Strategy, are there countries that appeal as the next target?

There are so many filter systems to be able to work out which countries or which regions we should be looking at. Actually when we did the whole filter system, the top three countries surprised us. Germany was number one, Spain was number two and away they went down the list. We are probably very interested at looking at the US initially, obviously because of the size of the country and because we believe that there is a huge opportunity for real coffee to be at the workplace, because in the US a large majority of the coffee that’s already consumed there is typically instant or percolated coffee.

What are the challenges for managing an international expansion? What are the next steps?

For us obviously the challenge is making sure that we have our master agents domestically not losing any focus, and making sure we are constantly improving where we can and then being able to duplicate that process wherever we do go elsewhere. So the challenge for us is really no different to the way the business operates here day-to-day anyway.

Would you need more infrastructure to support overseas master agents?

Initially no. We currently have six master agents managing a population between the two countries potentially of around 25 million and we have only scratched the surface of what we see as the overall demand in the coffee market for our product and service, and obviously the potential for the number of franchisees that we can have operating domestically.

So we can at the same time have what we deem as country partners. So we will actually go out and seek individuals like Paul and myself to be set up and run in their countries, or there may be more than one country partner in the US because of the size of it. And then they will be managed, those country partners will be managed by Paul and myself. However they, the country partner, will in effect will be like ourselves, operating the way do here in Australia and New Zealand. So absolutely the business model is set up in such a way that is highly leveragable.

And have you put a timeframe on all this?

Yes, our timeframe that we’re working to is to identify at least one or two country partners being operational in the US by the end of 2011.

And in Australia the growth will just continue to roll at a similar pace do you feel?

I believe it will increase. We believe by the end of 2010 we should be sitting at around about 150 franchises. By the end of 2011, we should be around 200 franchises and on target for our original goal of a couple of years ago to be 250 franchises by the end of 2012.