San Francisco Coffee
house:
An American-style
Franchise in Croatia
MA1N0225 Mario Moreno
MA1N0229 Maria
MA1N0216 Oogi
Introduction
• On the return to their homeland of Croatia following a sixyear visit to the United States, a croatian couple has
decided to open their own coffee house, one that is unique
to the Croatian environment - a California-style coffee
house.
• While Croatia had many coffee houses, the wanted to
provide a combination of service, quality, products, and
atmosphere from their time living in the US.
• This couple started with a single coffee house.
• Since the start the felt this idea had the potential to grow into
a franchise. (instead of purchasing a franchise, they
considered creating one and adjust it to the local market)
• They decided to use all their US lifestyle and professional
experiences to develop this plan.
• Their initial coffee house became a success, and the couple
realized that the potential for this concept was national.
BUT, how would they grow?
• Growing organically by opening self-owned stores was
costly, slow, and hard to control.
• Their concept had started to garner local publicity and
inquiries from would-be franchisees began to arise.
• But, how could they franchise in Croatia?
• Croatia has a small economy, changing legal system, and
little experience about franchising. The Franchising idea
was not ideal for them.
So, how can they become the biggest coffee house?
The entrepreneurs
• San Francisco Coffee House(SFCH) is an example of
entrepreneurship where two people not only used their life
experiences from the other societies where particular product or
service was available, but also used their specific professional
experience to contribute in creation of this unique visual identity
and business and business opportunity.
• The managerial experience Denis gained by working in large
American companies and the educational experience gained from
an MBA from California State University gave him an advantage
in creating a business in Croatia that was world-class, towering
above local offerings in service, quality and customer
perceptions.
• On the other hand, Jasmina’s international design experience,
experience working as Art Director in American
corporations, and a Master of Fine Arts and Design gave
SFCH a recognizable visual identity and an interior in which
visitors can feel the San-Francisco-style coffee shop
atmosphere.
• Thanks to their successful careers and profitable real
estate investments in the USA, they felt comfortable and
confident to return to Croatia with enough capital to help
them in their new start, and help their country at the same
time.
• The couple even considered taking a master franchise
license for Croatia, but the process was long, complicated
and expensive in comparison to the expected return.
• Other problem with imported brands was that they often
didn’t allow the adjustments needed to succeed in local
markets, in this case, product prices were too high for the
local purchasing power of Croatia.
The Environment for Franchising in
Croatia
• The environment for
franchising in Croatia
– Insufficient regulation
– Little market know-how
about franchising
– Low economic development
• On the other hand
– European integration had
created opportunities to start
bringing in new businesses
from the outside.
The Economic Environment
• In 1991, after The Republic of Croatia gained its independence.
After independence, the Croatian market became flooded with
imported goods of variable quality.
• The Croatian market increasingly opened to great variety of
international products and services.
• In the late 1990s, economic growth began and salaries has
grown appreciably. Salary growth resulted in increased
consumer demand for higher quality world brand names. The
habits of younger Croatian consumers had changed.
• Financial institution in Croatia were mostly owned by foreign
banks. (around 90 % according to the one source)
• A main characteristic of the Croatian domestic market was the
bankruptcy of small entrepreneurs as they struggled to collect
their own debts.
Political Environment
• Business environment with standards of EU and with embedded in
the local market economy was one of the major goals of the Croatian
government’s policies.
• The government’s dedication to the reform of the national economy
could seen attract foreign investment for the development of the
Croatia’s domestic and international market.
• Foreign investments in Croatia were regulated by the Company act
and other legal norms. According to the act: foreign investor would
invest alone or as a joint-venture partner with a Croatian company or
private citizen.
• Government’s desire for foreign investment, investors gained access
to a number of newly opened market; entrants could take advantage
of a number of incentives, tax benefits and custom privileges .
Institutions of Franchising
• The Republic of Croatia had approved a number of laws
which resulted in Croatia’s acceptance into WTO and
CEFTA (Central European Free Trade Agreement); these
legal changes also allowed Croatia to begin negotiations for
acceptance into the EU.
• There was no specific legal basis for franchising in Croatia
and no legal standard for development of franchising .
• There were two Centers for Franchising, one in Osijek and
one in Zagreb. Each of these centers had worked with the
Croatian Franchising Association to stimulate franchising
development in several ways:
Institutions of Franchising (cont’d)
• Education about franchising- The Franchise Center in Osijek, for
example, had organized seminars, “Franchise A to Z”
• Franchising Promotion- both centers and the association were trying to
promote franchising as a way of doing business through the local mediainterviews, articles, in the newspapers and magazines, etc,;
• Creating Web sites with information about franchising on the InternetInformation on the portal with current news about franchising in Croatia,
information about new franchisor, and newly opened franchised locations;
• Connecting franchisors with potential franchisees- one section of the
franchise portal contained offers from franchisors interested in Croatian
market.
• Helping domestic companies to become franchisors- The Franchise
Center in Osijek, with the help of Poduzetna Hrvatska, organized training
for potential franchise companies if they decided to use franchising as a
growth strategy.
Barriers to Franchising Development
• During the September 2006, Franchise Center of the Osijek
conducted a small survey about the barriers facing franchising in
Croatia. Their responses included:
o Laws-There was no legal regulation of franchising in Croatia.
o Franchise professionals- there was a dearth of professional related to
franchising; there was too few educational efforts and too few franchise
consultant
o Problems with banks- Banks did not recognize franchising as a
relatively safe way of entering in to a new business and did not have
any specialized loans for the franchising industry.
o Small market- there were only about 4 million inhabitants in Croatia.
o Franchising was not a well-known way of doing business- People
seldom recognized franchising; many thought it was connected with
insurance; people were not willing to enter into something with which
they were unfamiliar.
Barriers to Franchising Development
• According to the survey, there were some identifiable reasons for
the relatively slow development of franchising in the Republic of
Croatia:
o Entrepreneurial thinking
o Lack of franchising education
o Weak national franchising association.
• Industry experts reported that there was an excellent chance for
franchising in Croatia, that was the possibility of high growth in
this sector.
• The survey showed that although franchising was not a familiar
way of doing business, experts saw a bright future for franchising
in Croatia.
Franchisor
Industry
Number of outlets
McDonald’s
Fast food
16 restaurants
Subway
Fast food
6restaurants
Fornetti
Bakeries
Over 150 locations
Dama service
Refilling tones cartridges
3 locations
Berlitz
Foreign language school
1 location
Firurella
Weight lose center for women
2 locations
Berghoff
Kitchen equipment
3 locations
• Foreign Franchisor in Croatia (source: Round table- Franchising
in Croatia, October 24-25, 2006)
Competition
• Franchises has become more well-known in Croatia starting in
the early 1990s, after the first McDonald’s was opened in
Zagreb.
• According to the Croatian Franchise Association, there were
approximately 125 (25domiestic) franchise systems present in
the Croatian market. These systems operated 900 locations and
employed almost 16000 people.
• Companies in more than 20industries had chosen franchising
as a growth option, with sales industry and fast-food sectors
accounting for more than 20% of the market.
• Other segments with important shares included the tourists
industry, rent a car companies, courier service and fashion
industry.
• Domestic Franchisors in Croatia (Source: Round tableFranchising in Croatia, October 24-25, 2006)
Competition(cont’d)
• No well-known international coffee houses had done so.
Competition for coffee houses was mostly local. Local
competitors offered a roughly homogeneous product .
• Coffee consumption in Croatia was quite high; many Croatians
spent time between meals, in the morning, or at coffee bars,
which often also served beer and other alcoholic products.
• While regular bars and other restaurants competed with coffee
shops for customers, coffee shops were relatively cheaper,
providing a comfortable environment for socializing.
• Supplier of coffee were many and included both international and
local brands.
The Opening of “San Francisco
Coffee house”
• Osijek and Tensek
offerings
American-style coffee bar which
offering
would
consists
of
different types of coffee and that
they include novel (in Croatia)
possibility of getting coffee to go.
They decided to adapt this
ubiquitous American concepts to
the local Croatian market.
• Under the impression that “Made
in USA” brand would be positively
new market and they named the
coffee bar “The San Francisco
Coffee House.”
The Opening of “San Francisco Coffee house” (cont’d)
•
•
•
•
•
•
•
•
During that time Tensek traveled several times US researching idea’s, studying
the technology of coffee making, and bring back some supplies and ingredients.
He tried to find good location. He found an excellent location in town’s center.
Since SFCH was the 1st American coffee house in Croatia.
The SFCH assortment was unique for this market. It offered its customers
coffee in 17 different latte and mocha variants and American-style muffins in
several varieties.
Tensek and Pacek to adapt to their target market, guests were provided
Croatian and international newspapers and magazines and free wireless. The
ambiance was also enhanced by smooth jazz and billboard music from 1970s ,
1980s and 1990s.
SFCH had employees who underwent training for working in coffee shop
salaries were almost 20 % higher than other local coffee shops.
Human resource management was one of the areas where Tensek had brought
his American corporate experience into Croatia. SFCH provided full paid
vacation and benefits for its employees.
SFHC made an extra effort to maintain excellent relationships with suppliers.
What Should Be Done Next?
• Some of the reason why companies preferred to develop franchise
rather than grow organically included lower risk, faster growth,
local market knowledge by franchise and the franchisee’s
motivation to succeed. They wanted these benefits too.
• The barriers which the SFCH faced in franchising in the local
market were challenging:
o Not enough information about franchising as a result
o No well-established support organizations for development
of franchise networks in Croatia
o No significant support from financial institutions
Question1
Could the couple develop franchising in market
where local conditions were less than conductive?
• Franchising is one of the ways of business growth. Croatia has
been a developing country so opportunities for franchising have
been quite big.
• However, lack of regulations, laws and knowledge of franchise
was a serious problem for them. Croatian people were less
willing to enter franchising business.
• Croatian banks were also not familiar with franchising system,
and the rigid rules of giving loans prohibited people to take loans.
Developing franchise in Croatia hasn’t been an easy formula,
rather there have been some obstacles.
• However, it still looks like a profitable development.
Question2
Could they gain national prominence?
• The company has been on the good way to gain national
prominence. They already gained regional recognition
and were serious to expand.
• The founders were determined to make franchising, had
a good business plan, and were a unique coffee shop
which gave them a huge advantage.
• Moreover, big chain coffee shops are not that interested
to enter Croatian market because of its size.
Question3
How could they overcome the weaknesses they
possessed and the environmental threats?
• As for the overcoming environmental threats, San Francisco
Coffee House should start promoting franchising by
educating staff, maybe suppliers and other business
associations.
• They could organize some meetings and seminars where
they would talk about the advantages of being a franchisee.
Question4
How could they seize the opportunities in the marketplace
using their unique experience, capabilities and strengths?
• Their unique observations, experience in the USA, professional
capabilities and overall strengths make the San Francisco Coffee House
a successful company with good prospects of development.
• They could introduce other services to the coffee house which would
enrich American ambience and spirit, e.g. limited edition cups, cups for
selling etc.
• Having second coffee shop (in other location) would be very expensive,
but if they will prosper well for several years more maybe if would be
possible.
• Franchising system would be a perfect solution but in Croatia then
there were some limitations and uncertainties.
Thank you for your
attention!!! 