Earnings Claims of Top Franchises Revealed

Earnings Claims of Top Franchises Revealed

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Franchise Chatter Guide: Starbucks Franchise Plan Rolls Out in Europe While U.S. Market Braces for Growing Competition Among Coffee Franchises

by Brian Bixler on February 11, 2014

in Coffee Franchise, Franchise Chatter Guides

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This coffee franchise industry report was written by Brian Bixler.

One thing the Great Recession taught coffee purveyors in the U.S. and which investors with a Starbucks franchise in Europe may be learning now, is that when money is tight and the economy is struggling, people will give up their fancy, calorie-packed coffees for a cheaper, simpler option.

According to the most recent Coffee and Snack Shops industry report from IBISWorld market research, after more than a decade of consistent growth, the industry experienced a sharp correction in 2009 because of the economic crisis in the United States as well as consumers’ continuing demand for healthier foods. Industry revenue fell by 6.6 percent to $25.9 billion.

“During the recession, consumers spent less on luxuries like eating out, choosing to purchase low-price items when they did spend. This caused high-priced coffee drinks and other nonessential snacks to lose the battle for consumers’ shrinking budgets,” the IBISWorld report states.

First Starbucks Franchise

Starbucks Photo by Rdrev

With the largest market share in the United States, 37 percent, Starbucks was one of the companies in the sector hardest hit by declining disposable income. By the end of 2009, it closed some 900 company-operated stores worldwide. Sales have since rebounded, but Starbucks may now have to weather a debt crisis in Europe just as it rolls out a vigorous Starbucks franchise program there.

Starbucks has resisted franchising in the U.S., preferring to operate company-run stores and issue licensing agreements, which allow it to have more control over the brand. With more than 17,570 locations worldwide, the company opened its first franchise-owned store last year in the British village of Liphook and it now has some 45 franchise stores in the U.K. That’s a small share of the nearly 2,000 stores in Europe, the Middle East and Africa, but Starbucks will continue its strategy with more franchise stores to follow in France.

According to a year-end story in the Wall Street Journal in 2013, Starbucks plans to limit its number of franchise partners in the U.K. to fewer than 25. The franchisees, who sign 10-year contracts with Starbucks, are expected to open 10 or more stores. The company said it has no plans to extend the Starbucks franchise program in the U.S.

Industry Overview


One might say that as Starbucks goes, so goes the coffee shop industry. And for the most part, the future looks bright for those brands that will be able to survive increasing competition. Coffee drinks are extremely popular in the United States, which partially explains the 7 percent annual growth rate of coffee shops.

According to the Coffee Statistics Report 2012 from Coffee-Statistics.com, coffee shops represent the fastest growing segment in the restaurant industry. Grouped together with doughnut shops, bagel shops, frozen yogurt stores and other snack shops, coffee shops are the largest product segment in the industry, responsible for 42 percent of overall revenue in 2013.


In the United States, the coffee shop industry is valued at $10 billion with about 20,000 stores operating in the country. The industry is in the mature phase of its life cycle. Revenues have grown consistently during the last 10 years (with the exception of 2009). However, the rate of new store openings has slowed, operators are concentrating on international openings and price-based competition is heavy. The industry is saturated in some areas and leaders are holding on to their considerable market share.

Market Share

Starbucks and Dunkin’ Donuts alone capture more than 60 percent of industry market share, which gives them considerable power in determining industry trends and creating a barrier for non-franchised players, according to IBISWorld. Overall, 70 percent of sales are generated from the top 50 coffee shop operators.

The Small Business Development Center Network’s Coffee Shop 2012 report reveals the habits of consumers and provides data about where the industry is headed. Based on its findings, the report advises investors to know their local market, where it’s likely that mom-and-pop coffee shops compete with established national brands such as Starbucks, Seattle’s Best (owned by Starbucks), Caribou, and Peet’s Coffee & Tea.

The industry’s high level of competition is expected to intensify in the next five years, including significant price-based competition and an increased emphasis on the regular introduction of new products. Still, industry revenue is projected to rise at an average annual rate of 3.9 percent, climbing to $35.1 billion by 2018.


Peet's Coffee & Tea Photo by Piero Sierra

  • A number of mergers and acquisitions in recent years illustrate the industry’s competitive environment and the beginning of consolidation. For example, in 2012 German conglomerate Joh. A. Benckiser acquired both Peet’s Coffee & Tea and Caribou. Meanwhile, Starbucks has been on its own buying binge. Since 2011, it has acquired Evolution Fresh, a natural fruit and vegetable juice maker, Teavana and bakery chain La Boulange.
  • Strategic buys by industry leaders also make it possible for them to maintain customer interest in their products and expand menu options that appeal to health-conscious consumers.
  • Chains will continue to acquire regional players, providing them entrée to regional markets while increasing market share.
  • Companies will continue expanding beverage options to include more coffee-based drinks and smoothies as they try to mimic Starbucks. The low-cost, high-profit menu items are a fast way for companies to increase revenue and grow their bottom lines.
  • Coffee Shop owners are having some success selling the instant serving pack. According to Reuters, there seems to be considerable upside potential in the product. Only 2 percent of operators surveyed reported using the packs regularly and 10 percent said they buy it infrequently.
  • IBISWorld anticipates the largest U.S. operators will continue to enter the international market, particularly in countries and regions with promising growth, such as China.

Major Players (Entrepreneur’s Franchise 500)

Dunkin’ Donuts

Dunkin' Donuts Store Exterior

Dunkin’ Brands Group Inc. went public in 2011 and by 2012 announced plans to double its locations in the U.S. over the next 20 years. With more than 7,000 stores across the U.S. and more than 80 stores in China, the company looks to expand farther westward in the U.S. from its traditional Northeast base.

“We’re a 65-year-old brand, iconic in nature, but we’ve still got this stuff called ‘white space’— undeveloped territory across the United States,” Vice President of Development Grant Benson told Franchise Chatter last year.

During the last five years, the company has consistently ranked among the top 10 of the fastest-growing franchises in the country by Entrepreneur magazine and is No. 10 on the magazine’s Franchise 500 this year.

Dunkin’ Brands, the parent company of Dunkin’ Donuts and Baskin-Robbins, recently reported that revenue increased 8.5 percent and same-store sales rose 3.4 percent in 2013, exceeding analysts’ expectations. The company also added 790 net new restaurants across both brands, including 371 new Dunkin’ Donuts in the U.S.

Scooter’s Coffee & Yogurt

Founders Don and Linda Eckles watched the development of the specialty coffee industry in California and were especially interested in the drive-thru coffee concept. So much so, the Eckles moved back to Nebraska and opened their first drive-thru coffeehouse in 1998 in Bellevue, Neb., based on what they thought was a winning business model.

The couple began franchising in 2001 and the chain has grown to more than 110 units since then. The brand has been built on quality ingredients and convenience. And while Scooter’s isn’t the only coffee franchise to pair its beverages with yogurt, it is the one that landed the highest spot on the 2014 Franchise 500 at No. 294.

Maui Wowi Hawaiian Coffee & Smoothies

This company is many things to many people. Its roots lie in the success of its Hawaiian Fresh Fruit Smoothies and it, too, includes all natural frozen yogurt on its menu. Maui Wowi has been around since 1982 after Jeff and Jill Summerhays perfected a healthy alternative to sugar- and fat-laden foods for their family.

The couple began franchising in 1997 and some six year later further differentiated itself by bringing Hawaiian coffees to the mainland. It has developed an exclusive line of Kona espresso, cappuccino drinks, and blended gourmet coffees from Maui, Kona, Kauai, and Molokai.

Having developed a distinct brand connected with the Hawaiian islands, the coffee franchise now has more than 605 domestic franchise operations in 48 states and nine countries worldwide.

Biggby Coffee

Based in East Lansing, Mich., Biggby Coffee started with a single store in 1995 and within a year its founders decided to franchise. The company has built its brand on a less stuffy and pretentious gourmet coffee environment based on its core values of “B happy, have fun, make friends, love people and drink great coffee.”

Today, the company has grown to 205 cafes open or under contract in nine states. Biggby baristas are charged with providing an experience that will brighten their customers’ day.

The company is very measured in its growth strategy, having met its goal of signing 48 new locations in 2013. The company is now focused on growing by 60 stores in 2014. The company prides itself on every Biggby cafe being locally owned and operated; there are no corporate stores.

Also Mentioned

Dunn Bros Coffee

Dunn Bros Coffee Photo by wendysstephens

First the Dunn brothers took St. Paul, Minn., by storm and today they continue to conquer the rest of the country. In 2012, Dunn Bros celebrated 25 years as a company and launched the Provisions Bakery Cafe, expanding its menu offerings, including healthier choices for those wanting to make smarter decisions about eating.

Dunn Bros has built its brand on quality and freshness with beans being roasted in small batches for optimal flavor. Part of the Dunn Bros message includes setting a new standard for coffee.

The company opened its first store outside Minnesota in 2004 and spent the rest of the decade collecting accolades, such as being the No. 1 coffee franchise on the Entrepreneur Franchise 500. The company is also recognized for its efforts to operate green with an emphasis on sustainability.

The Coffee Beanery

This brand dates back to the American bicentennial when JoAnne and Julius Shaw began selling specialty coffee at a store in Dearborn, Mich., in 1976. Now based in Flushing, Mich., Coffee Beanery is a chain operating in the United States, Europe, Asia and U.S. Territories with more than 130 locations throughout the U.S., and 25 locations internationally.

The company is recognized for having a family business approach to running a franchise with a corporate culture that stresses values and tradition.

The menu includes espresso, fresh-brewed coffee, tea, and other specialty drinks, while also selling gourmet coffee beans, tea bags, baked goods, sandwiches, soups, and salads.

Investors may be attracted to the variety of units and locations offered by the company, including street-front coffee franchises, locations in malls, airports, office buildings, hospitals, and college campuses.

Gloria Jean’s Coffees

This brand was born in the USA, traveled Down Under to Australia and in the last decade has reconcentrated efforts to increase market share in America.

First established by Gloria Jean and Ed Kvetko outside of Chicago in 1979, Gloria Jean’s franchise system was refined in Australia after partners Nabi Saleh and Peter Irvine brought the Gloria Jean’s Coffees brand to Australia from the U.S.

In the United States, the brand, owned by Diedrich Coffee, expanded rapidly, reaching 330 locations by 2001.

Financial troubles followed with Diedrich selling off the international segment of Gloria Jean’s in 2005. In 2006, it sold a large number of cafes to Starbucks. Since then, the company’s American franchise program seems to have stabilized under new ownership of Praise International North America.

The Human Bean

This franchise concentrates specifically on a drive-thru model for quick service and convenience and continues to build its brand as “the drive-thru espresso franchise.” Begun in Ashland, Ore., in 1998, the company began franchising in 2002 and now has more than 50 locations in eight states.

It has developed new markets for the specialty coffee and drive-thru industry that didn’t previously exist. The double-sided drive-thru was designed by operators for operators, with procedures developed over years of high-volume activity.

There are several features about the Human Bean franchise plan that set it apart from most other coffee franchises: The company does not charge percentage-of-sales royalty fees or set monthly fees.

Solar Roast Coffee

Another franchise that differentiates itself by marketing to customers concerned about the environment. Solar Roast Coffee was started in 2004 by two brothers Michael and David Hartkop. Michael was an apprenticed coffee roast master, and David was a special effects artist with an interest in alternative energy. They combined their talents and went into business together, developing a solar coffee roaster for their business.

They were interested in building a roaster for low cost, but also to show the practical application of solar energy. In 2012, after having moved operations to Pueblo, Colo. to take advantage of the sunnier state, they unveiled their latest Helios 5 solar electric roasting system.

The franchise has captured the attention of magazines such as Popular Science and the Food Network magazine, creating brand awareness.

Other Recognizable Brands

Seattle’s Best Coffee

Seattle's Best Coffee Photo by drinkcoffeenews

While a Starbucks franchise isn’t a possibility for investors in the U.S., the company does have a stake in the coffee shop franchise sector. Seattle’s Best Coffee is a subsidiary of Starbucks and offers franchises to operate a Seattle’s Best Coffee Café and/or kiosk.

Founded in 1970, Seattle’s Best Coffee has more than 550 specialty coffee cafes and kiosks in the U.S. and Canada including an expanding franchising program. Its packaged coffee, including ready-to-drink iced lattes, retails in grocery stores, which also helps to build brand awareness.

Major management changes in the last few years and a new focus on opening drive-thru stations are intended to strengthen the Seattle’s Best franchise program. Expansion of the franchise program in the U.S. will continue to focus on Western states and Texas.

Saxbys Coffee

This franchise not only emerged from Chapter 11 bankruptcy proceedings a stronger company in 2011, the process allowed partners Joe Grasso and Kevin Meakim to reinvent the franchise model after buying the company in 2007. They changed the company image enough for QSR to name the company “One to Watch” in 2011, based on the concept that is a hybrid between Starbucks and the small neighborhood coffeehouse.

After MVP Capital of Radnor, Pa., acquired Saxbys in 2012, a new management team expressed the great potential for the brand, which it hopes to grow quickly to 100 units.

Saxbys differentiates itself through its taste profile and menu diversification, trying to appeal to tastes that fall somewhere between Starbucks’ strongly roasted coffee and Dunkin’ Donuts’ lighter East Coast roast. Menu diversification also includes frozen yogurt, which was added in 2008.

Peet’s Coffee & Tea

This brand dates back to 1966 when Dutch entrepreneur Alfred Peet opened a small coffee store on the corner of Walnut and Vine streets in Berkeley, Calif. Unimpressed with what Americans called coffee, Peet, who grew up in the coffee trade, brought Old World sensibilities and style to his project, roasting coffee in small batches from fresh beans of superior quality, and achieving a dark roast that produced a rich and complex coffee.

Fast forward several decades to 2012 when Joh. A. Benckiser acquired Peet’s Coffee & Tea, leading to last year’s announcement that Peet’s would embark on the biggest retail expansion in the company’s 47-year history. Opening stores in Solon, Cleveland and Columbus, Ohio last fall was part of an effort to open more than 90 new stores in eight markets across the Midwest and East Coast by the end of 2014.


Imagine owning a Starbucks franchise on wheels. That’s the basic idea behind Cafe2U. The Australian-owned company opened its first franchise in the United States in 2011 in its attempt to remain the largest mobile coffee franchise in the world.

Franchise Chatter talked to one of the first U.S. franchisees, Serena Liu, last year as she described making 25-30 stops per day in her van that is equipped with all the accouterments necessary to make espresso-based coffee drinks. She sells her product to employees and customers of various businesses.

The coffee-on-wheels concept started in Australia in 2005 before spreading to the United Kingdom, the United States, Germany, New Zealand, and, most recently, South Africa. There are now more than 200 Cafe2U franchises worldwide.

Cafe2U Franchisee Serena Liu

Cafe2U Franchisee Serena Liu

Franchise Matching Quiz

{ 2 comments… read them below or add one }

Nolan Minyard June 1, 2015 at 12:58 pm

I want to put a starbucks in Canyon Lake,TX.78133 . Can I Get infomation on this where,or how would I get this Answer?


Franchise Chatter June 1, 2015 at 3:05 pm

I don’t believe Starbucks is awarding franchises in the United States right now, but you can always try contacting the company directly through their website. Good luck.


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