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Gloria Jean's: retail franchiser grows nationally and internationally.

Taking a quaint Mom and Pop shop in a Chicago suburb and converting it into a multi-million dollar business and the nation's largest chain of retail gourmet coffee shops may seem like a dream to many. But for Ed Kvetko, president of Gloria Jean's gourmet coffees, it's his daily business.

In 1979, Ed and wife Gloria Jean thought it would be fun to take over a small coffee store called The Coffee Bean Ltd. in their Long Grove, Illinois neighborhood. Despite its charming rough-sawn cedar rustic look and excellent location, the store was failing miserably and was nearly bankrupt. With a keen business sense, Ed, who was a custom home builder at the time (he had already been a factory worker, truck driver and air traffic controller) and Gloria Jean, who owned a beauty salon, decided to take the challenge. They shut down the store, fired the employees and remerchandised it. When they reopened the 550 sq. ft. outlet, Ed says, they "started making money literally the same day."

The secrets of their success

Adding a large product mix was a key element in the Kvetkos' formula for success. "My intention was to offer as many products as I could in the way of coffee and convert the store into a one-stop shop," said Ed. The mix, which has worked well in his subsequent Gloria Jean's outlets around the country, includes both expensive and high-volume items that range from coffee beans to coffee candy and from coffee pots to espresso machines. Getting together a knowledgeable staff was also essential. In fact, Ed contends that the high quality of service provided by his three employees at the Long Grove store allowed him to make no investment in advertising at all for the first five years.

With the Kvetkos fast becoming coffee fanatics, it was not long before a second store was added. Leasing agents for Chicago's elegant Woodfield Mall contacted Kvetko in 1980 to persuade him to rent space in their complex. When he decided to open the second store in 1981, Woodfield's agents would not give him the lowrisk one year lease he was seeking and forced him to take a five-year lease instead. Today, says Ed, the situation has been completely reversed and when he fights for 10 year leases he usually just gets an eight year contract. Gloria Jean's new store in the mall features 1,820 sq. ft. of floor space.

Six years ago, Gloria Jean's entered the franchise market, bringing the total number of outlets to more than 130. The company's development plan calls for opening 50 corporate-owned stores and 50 franchise outlets per year for the next five years and healthy sales figures indicate that market demand will likely make this feasible. Gross sales jumped from a mere $185,000 in 1979 to $32 million in 1990 and $47 million in 1991. Projections placed gross sales at around $68 million in 1992. The company is opening stores so quickly that it currently has more stores than do its main competitors combined.

"A great part of our success with franchisees is that we don't tie them into an exclusive purchasing contract," explains Ed. "If you give them a good product and a fair price you don't have to."

Even without the exclusive contract, some 92% of all coffee sold at Gloria Jean's outlets is roasted by Gloria Jean's itself. The Kvetkos still insist on approving any new products that franchisees wish to introduce, but the relationship tends to be rather cozy. About 70% of all new stores are opened by existing franchisees, most of who are husband and wife teams like the Kvetkos themselves. When Gloria Jean's first entered the franchise business, most of their packages were sold to steady customers and acquaintances, with promotions conducted through word of mouth. For the first year, the company didn't even have a brochure.

The economic downturn in the U.S. has not dampened Gloria Jean's growth potential. In fact, financial analyst Sylvia Porter has called Gloria Jean's a recession-proof business. While Kvetko admits sales are not as high as normal in many stores, he says existing outlets with a one-year track record are still seeing sales increases of 7.6%. "People still buy that cup or pound of coffee because it's not that big of a luxury," he says, "and once you've tasted a gourmet coffee you learn the difference quickly."

While stores began by selling coffee only by the pound or half-pound, it was Gloria Jean, who is still the company's secretary-treasurer, who introduced the idea of selling quarter-pound bags that allowed customers to sample more varieties and at the same time brought in others who would not normally have afforded a larger amount. "At a quarter-pound, everyone can afford to taste something and choose to like it or not," says Gloria Jean. "If I was back to being a homemaker with two children I might not have been able to afford our stores," she adds, "but, with quarter-pound portions you can even keep a small assortment in the freezer."

Product variety

The company currently imports coffee beans from some 20 different countries. The full product line includes 200 different types, including flavored, decaf| feinated, and straight coffees, with stores usually carrying 64 varieties. Besides espresso, outlets generally brew another three or four varieties. The Woodfield Mall store, for example, also carries more than 20 different iced coffees, including a unique concoction of yogurt, peanut butter, and coffee, a blend which Ed admits he stole partly from the Japanese. The merchandise line includes 42 different packaged gift items and the company also offers private label coffee and coffee packages.

With their success at home, the Kvetkos are now setting their sights overseas and are considering such places as Russia, the U.K., Korea, Germany, and France, among others, as potential sites. Their Mexican franchisee is planning to open 10 stores in that country over the next four years.

On the home front, opening several outlets in New York City remains a goal.

The Kvetko touch

There is little doubt that a great deal of Gloria Jean's success is due to the Kvetkos' management style in which employees and franchisees are made to feel a part of an extended family, despite the company's size. Franchisees in each region elect a representative to discuss their plans with the company's top brass four times a year. This, besides an annual convention to which everyone is invited and urged to attend. Franchisees get on-site training for seven days, plus three days at a corporate store and 11 days at their own outlet.

Employees at the company's 76,000 square foot headquarters in Buffalo Grove, just outside Chicago, enjoy a fitness room and participate in volleyball games in the warehouse every Tuesday night. Workers can rent free videos from the company's own video library created for this purpose. Managers receive a diamond ring as a token of appreciation after only five years of service. The Kvetkos even designed their store prototype, a combination of brass, dark green wall coverings and polished wood, that lends their outlets a combination of elegance and hominess.

It does not come as a surprise that Gloria Jean's was chosen Illinois' Entrepreneur Retailer of the Year by Inc. magazine in 1991, named the 8th BestManaged Franchise in America by Success magazine, and ranked as the number one Gourmet Coffee Franchise in America by Entrepreneur magazine or that Chicago Mayor Richard Daley issued a proclamation declaring June 14-17, 1992 as "Gloria Jean's Coffee Bean Week." With so much success, have the Kvetkos encountered any failures? Well, let's just say they'd rather not dwell upon that little espresso machine that they tried to market and flopped. With a track record like that, the Kvetkos can kick back and enjoy their passion for collecting coffee memorabilia and an- tiques for display in their Coffee Museum.

Now that Gloria Jean's is a well-established name, some analysts might suggest that it's time for Kvetko to consider selling a slice of the business when it is most desirable. However, the 50 year-old executive has other ideas in mind. "I currently own 100% of the company and I don't want to give up control to a venture capital group," he says, "not even a fair size of the company." While some would guess that it's Kvetko's way of maintaining control, those who've ever met him know that he's just having too good a time watching his "baby" grow to let it run loose.
COPYRIGHT 1993 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:includes "Gloria Jean's opens coffee museum"
Author:Fittapaldi, Santiago
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1993
Words:1418
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