From the source: Kenton Campbell, Zarraffa’s Coffee
At the age of five, Zarraffa’s Coffee CEO Kenton Campbell already exhibited an entrepreneurial spirit, starting up a bottle collection agency for all the bottles in his neighbourhood and carting them down to the local Safeway in Eugene, Oregon in the USA.
As a 20-year-old in 1990, Kenton worked as a waiter, developing an interest in the money passing through his hands. Key moments in the next couple of years also helped shape his business focus and a love affair with coffee.
After establishing a successful start up coffee cart, Kenton learnt a hard lesson about subleasing when the shop owner wrapped up the business from under him.
Prior to closing the cart down, Kenton had a chance meeting with two Australian businessmen who walked past his cart. Little did Kenton know that this encounter would change his whole life as the businessmen were in Seattle representing the firm RFG to investigate current coffee trends.
“I told them that they couldn’t walk away without trying one of my coffees and they enjoyed it so much they came back every day for a week. Each day I would greet them by name and make up their order from memory. It must have made quite an impression because at the end of the week they offered me a job to relocate to Australia.”
In 1995, Kenton made the move to Australia as a consultant to the Espresso Coffee trade, educating the industry about the added value carts could bring to their business and working as a barista.
During Kenton’s first week after arriving from the States, he had a major car accident, which led to him meeting his wife Rachel [Zarraffa’s co-founder], who was his sports massage therapist at the time.
“After convincing my wife to co-sign a $9,000 personal loan we established Zarraffa’s Coffee, on the Gold Coast, in 1996.”
Zarraffa’s, originally a roasting house operating from the backstreets of Southport on the Gold Coast, where customers would come in for their coffee and perch on hessian bags of unroasted beans, now operates in Queensland, Western Australia and New South Wales.
Inside Retail Weekly: How has business been for Zarraffa’s recently?
Kenton Campbell: It’s been overwhelming. The business itself is in the middle of moving to a new facility that is in Eagleby. We brought our packaging business and logistics back in-house to our new 18,000 square metre facility, which has really good loading and unloading bays, so logistically it’s been a lot easier.
Over the last three years, we’ve been spending on technology including Salesforce and Pitney Bowes to get demographic information, and have also brought our IT in-house as of a few months ago.
And so all the behind the scenes work has now come to fruition over the last 12 months.
A lot of the hard work we’ve been putting in the last few years, things like Salesforce, which we call Mufasa [Lion King fictional character], because everything links in through Mufasa, is now all coming to fruition.
At the beginning of this calendar year, I said this will be the hardest but best year we’ll ever have with our business because everything will start happening for us. All the hard work will start paying off.
Three or four weeks ago we completed moving the packaging and logistical company to the facility. In July, our roasting will be from there and by August, we’ll move into a 1000 square metres new office complex for Zarraffa alone, which will have a hot desk and soon be paperless.
The new facility will have an amphitheatre that will seat between 80 and 120, depending on how we set up the full theatre. We also have a kitchen out the back for R&D and use for functions to train and show what we’re doing in the future.
For this calendar year, we’ve been gearing up for a 17 drive-through store increase. Some of those are moving a few of our franchisees out of traditional shopping centres and into drive-throughs. Only two of those are new blood franchisees so new people coming in to drive-throughs. The rest are either corporate or current franchisees, doubling or tripling the portfolio of stores.
IRW: Would they form the bulk of the short-term plans?
KC: For the first time in our company’s history, we have gone from an entrepreneurial plan – which is me saying we’re just going to do this many stores, let’s go for it – to last year at our conference at Hamilton Island, where we produced a ten-year business plan, which outlines 239 drive-through stores by 2025.
In the next three years we will transition almost completely out of any stores-only – certainly out of the shopping centres like Westfield, we will no longer be in those situations.
That’s just a matter of leases coming up. If you take our store at Helensvale Westfield, the rent was $170,000 in the first year and now they want $250,000 for a renewal – so that gives you an idea of why, we are no longer there, it’s lunacy.
But the good part is, in six months those franchisees are going to be out but they’ve already got two drive-through stores they’re looking to transition to next year, so are basically relocating.
We love our current franchisees and they are more important than the ones of the future, so we have to treat those with the utmost respect before we go out and try and get new people in.
Our Zarraffa Area Developers [franchisors] in NSW and WA were supposed to get only get one new store each this year but now we’re going to get 17 between us [corporate and franchise stores] this year.
I don’t like to use the term master franchising, because it’s not. Our approach is similar to Subway in the way they treat it, but we are much more in control than them in Australia, because we have to be.
Basically it’s operations manager down, so they [franchisor] won’t hold a huge office, they’ll basically just be out and opening up stores, finding new locations. Since we’ve had the area developers in Western Australia, we’ve now got three new stores on the boil, where before we just couldn’t, it was too far away.
We’re not going out just to be the monster in an area, if we don’t do four in an area, fine, it means that we couldn’t find four good locations. But we believe that we can, from history we will probably get at least that.
At our conference, we said we’re going to complete the brand, so have all the infrastructure, where we don’t have to move again. We’re basically set up at our new roastery to do quadruple what we do now in volume to fulfill about 240 stores.
And that means I don’t have to think about it [infrastructure] in the next ten years. All of our area developers eventually will have their own distribution points and roast fresh.
IRW: What is your general appraisal of the state of play in franchising state of play?
You definitely can’t judge an industry by what certainly are a few that are on the extreme when it comes to not caring about their franchisees or staff as a whole.
There is no doubt every organisation, whether it’s franchise or not, will always have issues when it comes to making mistakes, having to evolve and grow when it comes to how they treat their employees, staff and it’s no different for franchising.
Franchising is not a cure or answer to no accountability or responsibility when it comes to franchisees or risk. The fact is, and the way I look at it and I’ve always been very honest with my franchisees, what you’re [prospective franchisees] really getting into is the opportunity to pay me to use the current system, which is evolving every day and getting better we think.
But you basically are paying me a percentage to use the brand and you’re getting a license under our lease to operate that brand within a location.
It’s up to you – and this is no different in business – as a franchisee or business-owner, to do your due diligence. If the bank gives you money, they’re thinking that you know more than they do and believe in you, but it’s like anything, they’re supplying you money you need to pay back.
If you go into any business blind, or naive, it’s not a power tool or weapon, it’s just plain stupidity, that includes me or anybody. If I go into something and I don’t know and I haven’t done enough real due diligence, then I am going to more than likely going to pay a price.
When you talk about a fee – the fee in our business is really only for the right to use the brand and conduct within a premise that you’ve agreed under a license.
Now our brand has and always will, invest back into the brand above and beyond what the agreement does. Otherwise we would not go from about half a million dollar average turnover to a 1.5 million dollar average turnover in about eight years. That wouldn’t have happened.
We wouldn’t have food costs lowering, as wages are rising to offset that, because if we didn’t invest the time, energy and money to look for better ways of doing things, it wouldn’t just happen.
In our franchise systems, including Zarraffa’s and all the other ones, I can say the clowns got it right, McDonalds, Hungry Jacks, KFC some of the bigger franchise chains that have been around generational and no longer have entrepreneurs running them.
Our business is very lucky, if you look at the world, not just Australia, there would be very few businesses our size that still have me, dealing with franchisees. I [founder] would have sold out by now. In many many cases around the world, when you start to get to the volume we are at, the entrepreneur disappears.
So the thing that the other giants had to do and we have to do to keep me sane and me as an asset, is systemise it.
We are more like those bigger players, because we’ve had to be. So what the franchisee then gets is a world class system, that’s always evolving, better buying power – our food costs have gone down by 2-3 per cent and that’s been offset unfortunatly by the penalty rates but, what can you do? Your hands are tied, you try to do what you can do. It’s been offset by us leaving the centres and getting better overall rents.
When you talk about our drive-throughs being out of the centre or strip malls, in many cases it’s becoming over a 10 per cent difference in rent and outgoings. Now that money is right in the franchisee pocket. We are not naive as a brand, we reinvest.
In fact, basically except for my pay cheque, a nice car allowance and allowance to travel, all the money that has come from franchise management, has been reinvested into it. And I’m talking all of it. I have not taken a dividend, except to get this new facility going, and building a $2 million office and a new infrastructure up here and really, it’s a different way of investing in the brand.
I have done nothing but invest back in the brand and I think that any franchisor that doesn’t do that will fail, period. If you look at the ones you’re talking about, I won’t infer, it’s pretty much out there, those are ones that let accountants run the business, they tried to suck everything dry.
For us, we always needs to put and invest back in for the next best thing, to revitalise the brand, so that when it comes to the time for a refresh or refit, it’s current, what the customer’s expecting, we’re relevant still. We’re a stayer, not a player brand.
My goal in the next three years is to be in a position where the brand uses me as an asset, not the other way around and I don’t have to be the brand.
So in the current state of play, don’t judge me by those fucking people, because our brand is not like that. Do we have people that don’t agree with what I do as a leader? Of course. Do they have a choice to not be in the brand? Of course.
But I can sleep at night with every decision I’ve made, we never churned anybody.
Now everyone needs to look at themselves in the mirror and this is in small business too, if you go into a business naive especially thinking that a franchise is everything you ever wanted, then you are lying to yourself and it’s up to you to grow up, if you’re an adult.
Our store at Harbour Town when we started, was doing $700 days the first February – my stomach churned a bit and I went okay, what have I got to do? Everything. I went out and if you walked by me, I’d be offering you a coffee for free, because I knew that the next day you’d probably come in and that’s that happened.
Last year, that store did a $60,000 week during Rogue One [Star Wars film] – over $9 grand a day. This from a $700 day almost 18 years previous. Now did that just happen? No. It took all the systems, investments and time. Here’s the thing, the minute that we take our eye off the ball, we are in trouble.
Even McDonalds, if you go to one of their restaurants and if it’s run like shit, unless it’s in a really good location, usually they fall down the tubes. And that’s true of fitouts and training.
Again, naivety is not a power tool or a weapon, it’s just plain stupidity. It’s my responsibility to make sure that the franchisee knows exactly where they’re at. If you can’t do 15 hours on your feet and unwilling to always work in your business as a franchisee, then don’t look at Zarraffa’s, because it’s never going to be for you.
Business is hard at the best of times but at the same time, we’ve got franchisees that have come to me and said you’ve changed my life. More than not, there’s not a table you wouldn’t sit at our conference now and get people saying, “I know where the brands going, never been more excited and I’m there.”
IRW: In terms of other challenges and the competitive side of things, what are your thoughts on the rise of trendy independent coffees all throughout Australia?
KC: We’ve gone through about a decade of the bearded wonder – $100,000 for a little cheap roaster and some milk crates and you’re in business. Guess what guys, I did that 20-odd years ago. Here’s the thing, it goes back to my point, I’m a stayer not a player.
I’ll give you an example on the coast – a cafe I used to go to after yoga, because the landlord got greedy and saw what they were doing and asked for too much rent, now guess what, they’re gone. They’re having to move because they can’t find a spot. So what’s going to happen is, and it happened in the United States, is there’s going to be a culling.
Business still happens. The crates aren’t cool anymore, shave your beard.
So there will be a culling and those people will not be replaced and because our competitive edge is, we are the number one in my books, the number one coffee drive-through in the world.
I’ve been around the world enough and we are the number one. Isn’t that fitting in Australia, I had to come here to do the American dream. Australia punches way above its weight and because I came here and have been here long enough, that’s what we’re doing, punching way above our weight. Because the business still has an entrepreneur running it, it’s still going to be valid and evolve.
My focus is on how to stay, and not be burnt out by corporatising. I’ve had people come in and offer very large cheques over the last few years. We’ve got the competitive edge. Go out and put your ass on the line and spend $750,000 up the street from us and good luck. Being in big business is tough, you have to get it right.
We are not naive at all but even then, we’re still not going to get it 100 per cent right, though that’s all we try to do.
I think that the time’s coming back to us. At our recent conference, one franchisee asked if our growth’s done, and I said no, eventually the shopping centres won’t convenient anymore, we’re going to be because we are outside, so I think we are ahead of the curve.
If you come into my store and I smile and hand you a great coffee and don’t treat you like a number and like a person and have a good arms length relationship the rest of your life, you’re going to keep coming in.
And you might go occasionally got to someone else because it’s more convenient, but I’m going to be your other one [cafe]. You go to four or five others, but 50 per cent of the time I’ll be the main one you come to. When all these other guys let you down, because they sold, didn’t refit or lost their position, you’re going to come to me.
And that’s why McDonalds in my opinion, is a stayer. Everybody just goes, I might as well just go to McDonalds. Because at least I can count on getting what I know I’m going to get, 99 per cent of the time. Now, I think we’re doing better than that. I’m coining the fourth wave of coffee, we’re bringing all those something waves into the fourth wave and I’ve got a beard to prove it.
IRW: How does digital play into your strategy?
KC: In terms of e-commerce, IT and especially marketing, we’re behind. A couple of years ago I realised, even my kids, they looked at us and said your memes are shit Dad. And we’re not relevant in that space. The good part about that is, we know we’ve got a lot of room for growth and have a strategy around it and we’re coming back to coffee.
We’ve done corporatising, it took us the last couple of years and we’re finishing that off. Now, we’re coming back to and showing just how much we care about coffee – that’s that fourth wave.
We’re convenient as a brand, where our speed of service gives you time back whether it’s in the car or in-store, we’ve got a great environment for you to do that at.
But, there’s also a story behind it – and I’m not talking we buy fair trade, we are fair trade and are coming out with more than just a cup, which we can speak about at another time because it’s a whole new campaign we’re about to bring out.
IRW:In that context, how important is sustainability for the company?
KC: I’ve been doing for years what people are just buying a stamp for. Now a lot of people are sourcing and doing the right thing, but we’ve been doing it for a number of years when it comes to recycling, getting compostable cups, and helping communities.
Now everyone’s caught up, but when it comes to our footprint, we don’t buy fair trade, we are fair trade.
In that space, I’ve been supporting the Meru Coffee Co-op now for six years.Nobody has known their blend but now they’re going to. Everyday they’re already helping over a thousand families with supplementing their income to get their coffee growing – they’re right next to the Lewa Wildlife Conservancy. We buy at market, we help them with their profits and their seeding nursery, so we aren’t giving them money and hoping, we are actually participating, which is harder, but more fulfilling.
Now they’re right on the border to the people that we help with their anti-poaching community. There’s 20 schools around and I think we’re the 30th largest single donor.
I’m just the vehicle, everytime you sip a cup of coffee, you’re putting into these things initiatives including cancer research – because I had cancer – and also children that have suffered abuse.
Companies that don’t support the community and don’t do it for real, people nowadays will know and they will shut you down.
It’s possible to actually go and physically see the kids and schools that we’re supporting. You can go to a glamping safari and see these schools and the directors and the people that run the anti-poaching campaign.
Now I’m only supporting communities that are already supporting themselves and that’s the other thing I learned. You can’t just give money and hope. You can only give support, time, energy and money to someone who already has it and a community behind it, otherwise you might as well just throw the money into a fireplace.
It is harder, there’s no doubt it’s harder, you have to be committed, you have to sacrifice time, have to deal with, in this case, different cultures who work a bit differently. You have to be more patient and understand that they’ve got a second set of politics.
The first time we ordered coffee from the co-op and nobody knew, and I knew it was in the cup, was probably one of the proudest moments in my life. I just thought, you know, it’s something else.
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