The Human Bean, an Oregon-based specialty coffee drive-thru franchise, recently announced in a company press release “it is expanding with 28 stores now open and area development agreements for another 110 drive-thrus in the U.S.â€
The Human Bean claims they are offering an attractive franchise concept that is almost unheard of in the industry: no royalty fees!!!
I’m sure that is sweet music to some ears, but I suggest buyer beware. Sounds too good to be true, doesn’t it? What’s the catch?Â
A quick look at the FAQ off the Human Bean Website reveals:
Q:Â What are the ongoing royalty fees?
A: We do not collect a royalty fee on sales. We earn revenues from bulk sales of coffee beans, cups, lids and other supplies to our franchisees.Â
Sounds like a “Tie-Buying Clause†some say the most dreaded clause in franchising.Â
The press release goes on to say: “Not having to pay franchise royalty fees each month means more money in the pockets of the franchisees.†Not necessarily; if the cost of the beans, cups, lids and other supplies are above market prices, then more money may not be left in franchisees pocket.
I’m not passing judgment on the Human Bean, I don’t know all the details, the stores look pretty cool, and I believe in “fair trade†coffee but if it sounds too good to be true it probably is!
Cross Posted at: Let’s Talk Franchising
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So ….
IF COGS x Markup > GROSS x AVERAGE ROYALTY,
then it is not a good deal?
Interesting that their UFOC is not on Caleasi, despite having one franchise in California.
Good Question Laura. I’m not saying its a bad deal. I’m just saying nothing is free. You have to pay for use of the brand or there is little no incentive for the brand to grow. Promoting a franchise opportunity by saying “no royalty fees” is nothing more than a hook. It maybe a pretty good hook. The fees are built into the cost of the product. The franchise ties the franchisee into buying product from them. Its not the first Product Oriented Franchise, there have been many i.e. Baskin Robbins, Singer Sewing Machine, Gas stations, to name a few.
Michael, Could it be a company owned store in CA?
Could be. But they appear to be marketing franchise sales in California, at least from the website.