Coffee Republic pledged to open its first new store in four years today after drawing encouragement from its recently launched deli bar format.
Nine of the firm’s 46 outlets have so far been converted into delis – offering fresh food as well as coffee – and a further four bars have been franchised since it launched its franchise scheme in November.
In the six months to September, Coffee Republic reported an operating loss of £661,000, against a deficit of £800,000 in the same period in 2004.
Sales fell 13.7% to £7.7m after the closure of several “non-core” bars.
The company said it hoped to restore profitability in 2006, when it is planning to open new franchised sites.
The deli bars are at the heart of Coffee Republic’s turnaround plan to grow the business – as it takes on rivals such as Starbucks, Costa Coffee and Caffe Nero.
The firm added that “a few” of its 46 bars would be sold off because they were unsuitable for franchising or did not fit in with company plans.
It envisages owning and operating just 10 to 15 of the remaining outlets, using them to test new menu ideas and store concepts.
Reported sales would continue to fall as more franchises were agreed because it would only receive a royalty on revenues, the company said.
However gross margins would go up as franchisees bore the brunt of direct running costs.
Regional bars continued to perform more strongly than in Central London while like-for-like sales were slightly down in the half year to September after a bright start, in part due to a downturn following the July terrorist attacks.
Unseasonably warm early autumn weather also had a negative impact with fewer chilly days resulting in less customers seeking a hot drink.
Chairman Bobby Hashemi said the reduced losses demonstrated continuing improvement in business performance.
“The encouraging progress of our franchising efforts to date, together with the strong pipeline and interest in franchising the Coffee Republic brand demonstrates that the next phase of our turnaround strategy is starting to gain momentum and deliver results.”
Coffee Republic was forced into a painful restructuring after trading suffered in the wake of economic and tourism downturns since 2001.
Its estate was halved while new equity and banking facilities were secured to improve the group’s financial stability.
Today’s update saw shares rise 5% to 1.07p.
References: EGi News 22/12/05
