Reading time: 5 minutes

Currently, the coffee industry in New Zealand is booming and will likely continue to grow. Whether you already have a successful coffee shop or are simply looking to buy into an existing franchise, a coffee shop franchise can be rewarding and beneficial. However, there are some considerations you need to make before taking this step. This article will outline the steps you need to take to successfully open a coffee shop franchise. 

Having an Established Coffee Shop

Before you turn your existing coffee shop into a franchise or offer third parties the opportunity to join your business, there are a few things to establish. You will need to ensure that you have a successful: 

  • business model; 
  • marketing scheme; and 
  • operating systems. 

Moreover, you must ensure that you can replicate all of the above under a franchise model. Once this is proven, you are in a great position to start a franchise.

Additionally, you must scrutinise your business model and understand whether it will fit a franchise business. For example, one business model may work for a single location but may not work across multiple locations. Furthermore, your business model needs to be different from the competition, especially in a competitive industry. For instance, your business model can stand out based on:

  • quality;
  • speed;
  • branding;
  • prices; or
  • social responsibility.

If you turn your business into a franchise prematurely, you may have difficulty raising brand awareness in several locations and not have a viable customer base. Moreover, it may be challenging to beat competitors in the market if your business is not well-known. 

Business Structure

Your business structure needs to suit your business needs, especially when running a franchise. As a coffee shop owner, you may be operating as a sole trader or a simple partnership. However, these structures may not work once you become a franchisor. Most franchise owners move from a sole trader structure to a company structure or even a dual company structure. 

Franchisors commonly adopt the dual company structure. Here, the operating franchise companies perform daily operations such as making sales, granting franchises and receiving fees, while the holding company will hold assets (including the intellectual property). This structure aims to safeguard the assets and IP from any claims made by franchisees. Such claims can be brought against the operating company (as the contracting party enters into the franchise agreement). 

Consider Locations

When setting up a franchise, you need to find suitable locations where your coffee shop can operate. Locations are crucial to your success. You may choose to open in locations with a suitable existing customer base. In addition, you should research the target market in your potential areas and competitors. As the franchisor, you may be responsible for picking and approving the location of the coffee shops. Alternatively, you could require prospective franchisees to propose locations. Furthermore, they should set out for your consideration why that location is appropriate for the business and whether it satisfies any criteria you have set. 

Moreover, it would help to decide whether you or the franchisee will hold the lease for the franchise. If you hold the lease, you can issue a premises license to the franchisee. By holding the lease, you have more control and can replace the franchisee without consent from the landlord. However, you will need to pay rent even if the franchisee abandons the business. You may also need to pay a bond or guarantee. Alternatively, the franchisee can personally hold the lease.

Franchisor Toolkit New Zealand

This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.

Download Now

Preparing Legal Documents

As a franchisor, you should consult legal help and draft a franchise agreement. This will govern the relationship between you and your franchisee. Moreover, it can outline both parties’ rights and obligations relating to the franchise. Clauses can include:

  • franchise fees;
  • dispute resolution;
  • the terms of the relationship;
  • what support you will give the franchisee;
  • licensing;
  • right of renewal;
  • franchisee obligations; and
  • termination.

Secondly, you may choose to draft a franchise disclosure document. This document is not compulsory but still beneficial to have. However, if you are a member of FANZ, you must provide this document to your franchisees. You give this document to the franchisee before they buy the franchise and update it annually. Furthermore, the document will outline the health of your franchise, including:

  • financial situation;
  • your experience as a franchisor;
  • history of the business;
  • system features;
  • forecasts; 
  • profit projections;
  • intellectual-property; and
  • what accompanies the franchise purchase.

Key Takeaways

In short, if you are running a successful coffee shop, it may be beneficial for you to consider franchising. Once you establish a franchise network, you can amend your business structure to suit a franchising style. The next step would be to decide what location you want to open your franchises in and who will hold the lease. You also need to prepare a franchise agreement and franchise disclosure document for your franchisee.

If you need help setting up your coffee shop franchise, you can contact our experienced franchising lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page

Frequently Asked Questions

What is a franchise agreement?

A franchise agreement will outline the relationship between you and your franchisee. It outlines your franchisee’s rights and obligations. This document protects your interests in your business and ensures the franchisee knows what they are signing up for. 

What business structure will suit my franchise?

Most coffee franchises choose to have companies instead of operating as sole traders or through partnership structures. This offers more excellent protection for the individuals and the franchisor assets. 

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2019 Top 25 Startups - LinkedIn
  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards