Seattle's Best Coffee puts out call for franchisees

Starbucks has never franchised, and it's not about to start. It wants stores controlled from Seattle's corporate office, either directly or through partnerships with big companies such as Safeway and Kroger.

Its lesser-known sibling, Seattle's Best Coffee, has other ideas.

Known as SBC, the chain had some franchises when Starbucks bought it in 2003. These days, about 480 of its 550 shops are inside Borders bookstores, but a few dozen are traditional franchises.

SBC has put out the call for more franchisees — people with franchising experience and preferably current ownership of other franchises.

Launching an SBC cafe or kiosk runs $191,000 to $521,500, including about $60,500 to $70,500 to SBC for franchising fees, inventory and marketing materials.

After that, SBC takes a 7 percent royalty, which is a little higher than most food companies, according to Kevin B. Murphy, a franchise attorney in San Francisco who helps people evaluate franchise opportunities and consults with companies that franchise.

Its other startup costs are in line with most food and beverage franchises, which cost $100,000 to $500,000 to start. McDonald's is an outlier with startup costs closer to $1 million, he said.

"When they're looking for people who own other franchised-food establishments, they're looking for people who are used to working seven days a week, putting in 70 to 80 hours a week and earning below the minimum wage," Murphy said.

The expansion push comes as Gerry Lopez, president of SBC and two other Starbucks businesses, announced plans to resign Feb. 20 for personal reasons.

Lopez, who also runs the company's food-service operation and the sale of bottled Frappuccino, coffee beans and other products in grocery stores, will be replaced by John Culver, now head of Starbucks' fast-growing Asia Pacific region.

Food franchises typically have margins of 10 to 15 percent and up, said Steve Olson, publisher of Franchise Update Media Group in San Jose, Calif., an educational resource for the franchise industry.

When he was an executive at a California coffee franchiser called "It's a Grind Coffee House," he saw franchisees with profit margins as high as 20 percent.

"It's a difficult business to run, but the margin can be higher because coffee is 99 percent water," Olson said.

The difficulty comes because customer expectations are so high, he said. "If I'm going spend $4 for a latte, it's got to be good."

SBC pitches the concept as a good fit for existing franchisees who want to add coffee and breakfast to their mix, and people who have small spaces with good traffic.

The SBC shop would have a separate entrance from any neighboring food franchise, said Marie Gill, SBC's director of franchising and business development.

"We also see opportunities in office buildings and hospitals," she said.

Gill is one of about 60 people who work only for SBC, which has little overlap with Starbucks' operations. Although they share ownership, the competitors do not discuss drink recipes or real-estate choices.

If Starbucks wanted to sell SBC's popular Red Cane Kola, a cold drink of sugar and cola nuts with creamy froth on top, "they'd have to make up their own recipe," said Tom Ehlers, who manages the SBC brand.

Starbucks does not break out SBC earnings separately, and SBC does not give projected profit figures to potential franchisees.

It also will not say how many new franchises it wants to open.

SBC began as the Wet Whisker on Whidbey Island in 1969. It was renamed Stewart Brothers Coffee, then just "SBC," then Seattle's Best Coffee. It went through a couple of ownership changes before Starbucks bought the chain of 129 stores six years ago.

SBC is known for having a smoother coffee roast than Starbucks, and its logo is red in contrast to Starbucks' green.

"I call it 'complementary competitive,' " Ehlers said.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com