2009
The Bad Ass Coffee Company Of Hawaii
“The Bad Ass Coffee Company™ of Hawaii, Inc. is dedicated to
providing our customers with the very best in quality customer
service, the finest gourmet coffee and coffee beverage drinks
available. We are proud to serve all of this with a smile in an
exciting, unique, fun, and casual Hawaiian-style atmosphere.
We are committed to building the very best brand and franchise
possible. Our commitment is also in servicing and supporting
each of our franchise owners in co-creating, developing and
maintaining the very highest standards of reliable and consistent
customer service, excellence in food and beverage
products. We are dedicated in delivering those quality products
to our customers in our distinctive, friendly, clean, casual and
comfortable “live aloha” environment.”
David Nguyen
Business 102-003
2/17/2009
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David Nguyen
Professor Epstein
Business 101-003
17 Feb. 2009
Bad Ass Coffee Company of Hawaii
Bad Ass Coffee Co. was created on July 1989 in Kona, Hawaii. The company was able to maintain
sales as a proprietorship for approximately six year. In 1995, Michael Bilanzich purchased three
companies (Royal Aloha Coffee, Tea & Spice Company, and Bad Ass Coffee Company). Afterwards,
Bilanzich combined these three companies to form Bad Ass Coffee Co. and he relocated the head
quarter to Salt Lake City, Utah. From there on, Bad Ass Coffee Co. has expanded to many places across
the world such as Japan, Canada, and other states.
This is a map of the
location of the Bad
Ass Coffee Co.
Stores. Currently,
the franchise has
grown to over 45
stores; however,
most of them are
located in the
United States. Bad
Ass Coffee Co. is
looking to open its
stores in other
countries such as
Korea in the future.
Since the purchased of Bad Ass Coffee Company by Michael Bilanzich in 1995, Bilanzich has
decided to create a franchise (in 1999) that revolves around selling coffee, nuts, chocolate, mugs, and
clothing. Bilanzich determined to become a franchisor because he wanted to expand the company at a
very fast pace. Becoming a franchisor allowed Bilanzich to obtain funds from other entrepreneurs that
wanted to start a business under the Bad Ass Coffee Co. name. In addition, by starting a franchise,
Bilanzich was able to increase the product awareness of the company across the western and southern
part of the United States very quickly. For example, the franchisee would spend money out of their own
pocket to fund advertisement which ultimately increases awareness of all of Bad Ass Coffee’s products.
Finally, by becoming a franchisor, Bilanzich was able to minimize his risks. Since most of the expansions
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are done by the franchisees, Bilanzich would not suffer a lot of financial lost if a store was to go
bankrupt because the franchisee invested in the creation of the store.
Even though Bilanzich was able to wreak the many benefits of becoming a franchisor, there are
also many disadvantages that he may had to endure. A franchisor tends to have little power when it
comes to the franchisee’s day to day operations. Since there are usually many franchisees associated
with one franchisor, it is very hard for the franchisor to get involved in the decision making of the
franchisees. Another disadvantage of being a franchisor is that there is not a whole lot of flexibility. Even
though a franchisor made a some amount of investment into a franchisee, they are not like managers
and cannot be fired if they underperform. Finally, even though a franchisor can expand the franchise
very quickly, the start-up of franchise requirements a lot of development costs. For instance, the
franchisor must invest a lot of money in machinery, storage, and all the necessities that are required to
run a successful business.
Advantages
Franchisor
Franchisee

Rapid growth of company


Increase awareness
Minimize risks of
expansion
Economies of scale
Raw goods connection
Use of a brand name



Disadvantages






Little interactions with
franchisee
Reduce flexibility
Heavy investment costs
Continuous payment to
franchisor
Other franchisee may
affect the franchise
reputation
Difficult to sell franchise
According to the franchisors of the Bad Ass Coffee Company, franchisee receives more than a
“store location” with their initial investment. The investment guarantees the franchisees access to the
company’s extensive marketing and advertising team. By expediting $5000.00 into the initial investment
of the franchise, franchisees are offered multi-media and promotional materials at a local level. Since
the Bad Ass Coffee Co. is not a huge franchise, their advertisement team helps their franchisees by
advertising and promoting their products around their specific region (radio, magazines, and flyers).
However, the franchisor implemented a $5000.00 advertising cost in order to pay for their
advertisement and marketing program. Any additional advertisement/marketing in the future is up to
the discretionary of the franchisee and the franchisor. Finally, since there are approximately 45 Bad Ass
Company stores around the globe, coupons and discounts are determine by the franchisees and not the
franchisors.
These are some of the universal
advertisements of the Bad Ass
Coffee Company. Most of these
advertisements feature a donkey
in Hawaii carrying coffee.
Essentially, the donkey is the
symbol of how the company
started.
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Bad Ass Coffee Company is based around gourmet Kona coffee grown on the northern and
southern districts of the island of Hawaii. As a result, the suppliers of Kona coffee are located around a
centralized area in Hawaii. The Bad Ass Coffee franchisor offers their franchisees with special discounts
on big bulks of Kona Coffee; however, they did not disclosed the exact amount of money (to the public)
that it would cost for the franchisees to buy it (varies with location due to shipping).
Unlike many black
coffee beans available
in the super market.
Kona beans are very
rare and expensive.
They are only grown
in the Kona belt of
Hawaii.
Since Bad Ass Coffee Company sells mainly Kona coffee, they have established a procurement
centralized agreement with farmers and supplier of Kona coffee. However, this centralization of a
product comes with many advantages as disadvantages. One of the many advantages of a centralized
procurement is that it establishes a chain of supply. For instance, by contracting with a supplier of Kona
coffee in Hawaii, Bad Ass Coffee franchisees are able to buy bulks of Kona coffee at a cheaper price.
Another advantage of centralized procurement is the efficiency. A centralized procurement allows
franchisee to buy from a single seller without having to go shop around for different sellers which could
be very time consuming. Even though centralized procurement provides a couple of advantages, there
are also some disadvantages. A disadvantage of centralized procurement is the price. Since Bad Ass
Coffee Company has a contract with the sellers of Kona coffee, they will have to buy their products even
if Kona coffee falls. A prime example of this is when people contracted with oil companies in the past
few months to purchase oil at the “current price” (it was about $3.50 last summer) because oil prices
tend to rise during the winter time. However, when oil prices dropped, the buyers were stuck at buying
oil at $3.50 a gallon instead of the market price. Another disadvantage of centralized procurement is the
location. When a franchisee wants to buy from a centralized location, companies that are located far
away from the centralized location must pay more money due to shipping. As a result, many of the Bad
Ass Coffee franchisees are located in Hawaii , Florida, and California because it is closer to the supply of
Kona Coffee
If one found the information above intriguing and wanted to franchise with Bad Ass Coffee
Company of Hawaii, there are many steps that he/she must take. The first step in becoming a franchisee
to Bad Ass Coffee Co. is through the application listed on their website.
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Above is a screen shot of the Bad Ass Coffee Company’s application to become a franchisee. The
application takes into consideration a person’s cash, savings, education, assets, and countless other
information to determine if the candidate has what it takes to become a franchisee. If a person is
chosen by the franchise, he/she must make heavy investment to become a part of the franchise. The
table shown below estimates that the cost of opening a store under the Bad Ass Coffee Co. name is
approximately $270,000. Some of these fees include franchising, training, advertising, and equipment
fee. In addition to the fees, the company recommends that the owner has approximately $35,000 on
hand while opening the store. If all these requirements are met, a representative of Bad Ass Coffee Co.
will help the future franchisee pick his/her desire location and supervise the construction and grand
opening of the store.
EXPENDITURES
ESTIMATED STORE UNIT
Stand Alone Double Sided Drive thru
35,000 Training Included
35,000
5,000
0
Ship & Install: 105,000
0
SIGN PACKAGE
10,000
0
LEASEHOLD IMPROVEMENTS
45,000
0
OPENING INVENTORY
10,000
0
EQUIPMENT
45,000
0
CABINETS & COUNTERS
10,000
0
TRAVEL FOR TRAINING
5,000
0
$270,000
Cost varies with location
FRANCHISE FEE
ADVERTISING
STORE DESIGN & CONSTRUCTION
TOTAL
This is a table of the expenditures and investment that is necessary for an individual
to become a franchisee with the Bad Ass Coffee Company franchise.
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When a person is successful in opening a store with association of Bad Ass Coffee Company,
there are many other liabilities he/she must take into consideration. The franchise charges a 6% royalty
fee (monthly basis) on all of its stores. This means that a franchise owner must pay 6% of his/her net
sales to the franchise in order to be part of the franchise system. As a result, not including other taxes
and costs, a franchisee will receive approximately 94% of the total revenue. The royalty fee tends to
exist in order for the parent company to provide services such as market advertising, training, and
territory rights. In addition to the royalty fees, the owner must be liable for other aspects of ownership
such as salary, workers compensation, renting fees, and other costs that are associated with running a
business.
Once an owner becomes part of the Bad Ass Coffee Company, he/she must sell an abundant of
products in order to earn back all the money that he/she invested in the company. However, it may be
good to note that the investment made in the company is a sunk cost and if an opportunity arises that
offers more profit than the business, he/she should exit the franchise in the long run. Below is a list of
some of the products that the company sells. The calculation below does not take into consideration the
royalty fee, taxes, and cost of goods manufactured/sold. In addition, the calculations assume that the
investment in the franchises is $270,000
Price
Number Sold
Break-Even Point
Kona Coffee (bags)
$9.95
27,136 Units
$270,003.2
Organic Coffee
$15.95
16,928 Units
$270,001.6
Mugs
$22.95
11,765 Units
$270,006.75
This is just an estimate of how an owner can earn back his/her investment through selling the
company’s products. The products actually sold will be a combination of many items to make
up for the investment that the owner used in the creation of the store. In addition, the revenue
would be tax by the franchise, by the government, and it will include cost of goods
manufactured/sold and other company expenses in order to come up with the net income.
Once the financial aspect of the business is determined, the parent company offers the owner a
five day training session located at their head quarter in Salt Lake City, Utah (the training session is
actually paid for by the future owner of the business through his/her investment). In addition to the
training for the owner, the parent company offers manuals and on-call support for its owners and their
employees. Furthermore, if necessary, the parent company offers a training staff for companies that
have poor working employees (an area representative is available to train employees but at a variable
price).
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For franchises like Bad Ass Coffee Company, corporate training is beneficial but not essential.
Bad Ass Coffee Company can offer corporate training to employees as well as owners. This would teach
their owners how to use their time more efficiently when it comes to dealing with customers and dayto-day operations. Ultimately, this would save the individual stores an abundant of money in the long
run. Another advantage to corporate training is that it provides employees and owners with motivation.
This may be helpful in a food/drink industry such as Bad Ass Coffee Company because employees have
little to no space for advancement. Even though corporate training can prove beneficial under certain
circumstances, there are a couple of disadvantages. The first disadvantage of corporate training is the
distance that employees would have to travel. Franchises tend to have a specific location for training
their employees. As a result, some employees might refuse to do it because of travel expenses and the
time required to receive the proper training. Another disadvantage of corporate training is that the
investment might turn out to be ineffective. For instance, if a company decides to do corporate training
and the employee(s) decides to quit a week later, the employee would not have worked at the company
sufficiently long to yield a return on investment.
Even though the franchise does not state a clear exit plan, one probably exists. During these
economic times, it is very important for many companies (especially franchisees) to exit the industry if
they begin to make negative economic profit. This may mean to shut down the company for a short
period of time or to liquidate their assets completely to pay of current and long-term liabilities. Even
though many franchisees and franchisors do not like to think about an exit strategy, they do in fact have
one.
However, if a franchisee is having financial difficulties and does not want to go out of business,
the parental company does offer financial aid. If necessary, Bad Ass Coffee Co. will provide special
financial aid and investment aid to franchisee that are in an economic trouble. The financial aid is up to
the discretionary of the franchisors as they only help those that they believe will be a great investment
in the future.
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Work Cited
“Bad Ass Coffee Co.” The Franchise Mall 16 Feb. 2009 http://
< http://www.thefranchisemall.com/franchises/details/11015-0-Bad_Ass_Coffee_Co.htm>.
“Bad Ass Coffee Company of Hawaii” 15 Feb. 2009 <http://
< www.badasscoffee.com/fran_startcosts.php>.
“Buy a Franchise.” Business Link 13 Feb. 2009.
<http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073791408>.
“Coffee US The Bad Ass Coffee Company of Hawaii.” Select Your Franchise 16 Feb. 2009.
<http://www.selectyourfranchise.com/us/franchise-features/Coffee-Franchise-US-The-Bad-AssCoffee-Company-Of-Hawaii.html>.
“Evaluating and Buying a Franchise.” Truth in Franchising an Honest Look in Franchising. 11 Feb. 2009.
<http://www.truthinfranchising.com/guides/advantages-disadvantages.php>.
Hebard, Harold. Phone Interview. 16 Feb. 2009.
Paajanen, Sean. “Kona Coffee.” About.com 16 Feb. 2009.
<http://coffeetea.about.com/cs/kindsofcoffee/a/kona.htm>.
Teig, Beth. “Exit Strategy.” Franchise Times. 2006 October. 16 Feb 2009.
<http://www.franchisetimes.com/content/story.php?article=00036>.