It is crisis time at Coffee Republic, as chairman and chief executive Bobby Hashemi battles with a group of shareholders determined to oust the larger-than-life founder from power. The rebel shareholders have called an extraordinary general meeting, on an as-yet unnamed date, in a bid to force him out of the business.
The EGM is the latest uprising in a long-running shareholder revolt against Hashemi, a former investment banker who founded the chain in 1995 with his sister, Sahar.
Coffee Republic was one of the pioneers of US-style coffee bars in the UK, but it nearly collapsed in 2001 after a disastrous over-expansion led by Hashemi. He left the scene, only to return a year later.
In 2003, he attempted to change the chain's fortunes by starting to alter the business model from wholly owned coffee shops to 'delis' run by franchisees.
However, even this switch was mired in confusion. At first it appeared that the brand would be renamed Republic Deli and indeed, some were established; at least one remains, near Liverpool Street Station in London. But the company then decided to retain the word 'coffee' and opted for the moniker Coffee Republic Deli. In effect, therefore, Coffee Republic now has three brands operating simultaneously: Coffee Republic, Coffee Republic Deli and Republic Deli.
At present half of its 44 stores operate under the Coffee Republic Deli concept. The company expects a further 25% to be converted in the next 12 months, leaving only about 10 to 15 in the original Coffee Republic format.
All is not doom and gloom, however. At the end of August, the firm launched an 'All fresh' commitment. This is a pledge that all the sandwiches and salads sold in its deli stores are made fresh in its kitchens daily. The focus on food appears to be having a positive effect. In the year to 26 March, Coffee Republic's deli bar like-for-like sales increased 11%, although those for the total network fell by 4.8%.
Will Coffee Republic be able to make significant inroads into the dominance of Pret A Manger and stave off competition from entrants such as Eat? We asked Debbie Smith, managing director of direct agency Meteorite, which works with Costa, and Philippa Bond, partner at HPI Research, which has worked for McDonald's and KFC.
DIAGNOSIS 1 - DEBBIE SMITH MANAGING DIRECTOR, METEORITE
It has been a surprise to many that coffee shops have not only survived, but actually thrived.
However, the sector is extremely competitive and is being driven by two ends of the spectrum: the bigger chains and the small independents. The middle territory is proving pretty tough and that is exactly where Coffee Republic has ended up.
One can understand why; as a coffee shop, Coffee Republic is in no-man's-land, with an indistinct brand proposition. To my mind, it feels as though it has always been a business, not a brand.
Will a move to a New York deli approach save its bacon? Well, it will certainly give it something to talk about, but a brand is not just a set of product offerings.
The food market is particularly unforgiving. Customers are far more discerning and one bad experience can rule out any future custom, which is the lifeblood of this type of operation. However, if Coffee Republic can get the food offering right, there is a big market for 'casual eating' that looks set to grow.
REMEDY
- Create strong brand values that tell the customer what it stands for, rather than what it sells.
- Add authenticity by employing some New York deli experts.
- Get the food selection right - freshness, variety, quality and availability are a must.
- Work hard to carve out a distinct territory in the crowded 'casual eating' market.
- Pick locations carefully. This is not a coffee-shop offering and will not work everywhere.
DIAGNOSIS 2 - PHILIPPA BOND PARTNER, HPI RESEARCH
In terms of scale, Coffee Republic suffers in comparison with Starbucks, Costa and Caffe Nero.
As a much smaller chain, it is not surprising that Coffee Republic's profile is lower and its brand less distinct. This scarcity of branches means people are unlikely to know what the brand stands for.
This wasn't always the case. Coffee Republic used to own more than 100 stores. Now the figure is less than half that. Some, but not all, are styled as delis, but they vary in size and feel.
Media coverage of the brand tends to involve tales of shareholder battles. None of this is remotely helpful and is bound to depress interest from potential franchisees. This in turn will restrict its progress toward the kind of critical mass that warrants substantial promotional backing. A national campaign would, for example, involve a high degree of waste.
The deli concept is potentially differentiating, and should boost margins per customer, but the delivery appears somewhat half-hearted.
REMEDY
- Start from the bottom up by minimising central overheads and concentrating efforts at store level.
- Ensure franchisees have a clear understanding of the deli concept and reward them for making it work seamlessly.
- Research and act upon the needs of users to enhance the service and the ambience.
- Police product delivery to ensure uniform excellence, and only then create strong communications to spread the word.