Large retail chains continue to dominate specialty coffee market, but small operators are making inroads carving out niche segments. Ziggi’s Coffee is an example of a local business that has grown a passion for caffeine and customer service into a thriving coffee kingdom of 30 franchises.
About 64% of U.S. consumers drink coffee every day and 48% of millennials drink gourmet coffee beverages every day, according to the National Coffee Association. The association’s 2018 National Coffee Drinking Trends study also suggests “gourmet coffee continues to engage younger consumers.”
As the demand for coffee continues to increase, the way consumers order and buy coffee is evolving. Ziggi’s Coffee, which started in 2004 as a small coffee shop in downtown Longmont, is betting on a drive-thru concept to offer a superior cup and standout service to customers.
Coffee experience
It’s about creating a positive experience that is faster, more authentic and convenient, said Brandon Knudsen, co-founder and president of Ziggi’s.
Ziggi’s spread its wings opening drive-thrus and cafes locally, before establishing a retail footprint in other parts of Colorado and beyond. Ziggi’s began franchise operations in 2016 after perfecting the business model, Knudsen said.
Ziggi’s has been particularly successful in expanding its drive-thru franchising in Colorado and beyond, in Arizona, California, Iowa, Oklahoma, Oregon and Pennsylvania, he said.
“We always wanted to be a drive-thru,” he said.
Drive-thrus have been popular in the Pacific Northwest since the 1990s, he said. His wife, Camrin, another Ziggi’s co-founder, worked at a The Human Bean drive-thru in Ashland, Ore. That became an inspiration for the couple to move to Colorado.
“The drive-thru craze hadn’t hit Colorado. We wanted to capitalize on the lack of drive-thrus,” Knudsen said.
Americans are becoming smarter coffee consumers and have come to appreciate the diversity of flavors and tastes in coffee, said Dan McCloskey, chief creative officer at Premium Quality Consulting, a U.S.-based coffee consultancy. In most instances, they don’t mind paying $4 or more for a cup, he said.
Coffee drinkers have come to expect a certain quality in coffee beverages they buy and every decent sized town in America boasts of at least one specialty coffee brewer and independent retailer, he said. The group of independent coffee brands, distinct from big players such as Starbucks, Dunkin’, McDonald’s, Peet’s Coffee and Caribou Coffee (both owned by JAB Holding Co.), among others, make up a major segment in the coffee market. There are an estimated 5,000 coffee brands in North America, McCloskey said.
“I’d argue that independent coffee is the dominant ‘chain,’ at least in terms of driving consumer expectation about quality and experience,” he said. It has added “the cool” to the coffee experience.
Drive-thru is not a brand play, but a practical play that makes the delivery of coffee easier, McCloskey said.
“If you combine it with true quality, it might be special,” he said.
It’s hard to deliver “cool” through a window, but it doesn’t mean drive-thrus can’t do it. That’s the challenge to persuade a consumer they are getting the same cafe experience inside their cars, McCloskey said.
Ziggi’s formula for success
The model for the success of a coffee shop is simple, Knudsen said: “Serve 350 people a day and you’ll be successful.”
But he learned the recipe of success through trial and error.
Understanding the labor and materials costs in relation to business being generated was tough in the early days of Ziggi’s.
“I was in survival mode. I didn’t understand my costs,” he said.
Interestingly, Ziggi’s never had a down year, even during the recession of 2008, he said. In 2019, Ziggi’s combined revenue will be north of $10 million.
Ziggi’s focus on quality ingredients including sustainably sourced and fair-trade coffee, together with customer service, helped fuel growth, he said.
The company always worked to be a good neighbor, and the community has reciprocated by supporting the business, Knudsen said.
Growth through franchising
To Knudsen, franchising is about sharing a tested business experience blended with a dynamic concept. He and his wife fine-tuned their business processes for about 12 years before delving into the franchising world.
“We have dealt with all aspects of running a coffee business,” he said
He thinks the coffee business has room to grow. He agrees Dutch Bros Coffee and The Human Bean, which he calls “two awesome companies,” are his competitors. Dutch Bros is a big player and The Human Bean was “our inspiration,” Knudsen said. “Having more is good. It will help educate people about drive-thrus.”
Coffee is evolving the way the craft beer industry is, he said: “There are more and more ways to have coffee to suit different taste buds.”
His company offers three franchise business models — a double-sided drive-thru, a coffee house with a drive-thru and a coffee house — that require different levels of investment ranging from $199,700 to $910,500.
Ziggi’s drive-thrus range in size from 500 square feet to 625 square feet, but there is no cookie-cutter site plan, Knudsen said. Menu offerings also are customized given the location of the drive-thru. Sites closer to schools will have chocolates and smoothies and those close to downtown will have trendy drinks, such as nitro coffee, and a bevy of customized energy drinks, he said.
Customers look for consistency and quality, Knudsen said. “People are creatures of habit.”
Ziggi’s success is related to the company’s training designed to help employees quickly understand customers’ needs. There’s no one way to deal with all types of customers, and knowing that can help employees provide a stellar experience, he said.
Franchising offers economies of scale and is a great idea for entrepreneurs looking to have more than one or two locations, said Tom Cook, a principal at King-Casey in Westport, Conn., a national retail and food service branding, design and consulting firm. But coffee remains a competitive business, and as long as brands can stand out they can hope to do well, he said.
A lot of consumers don’t like to shop at chain stores and better customer service can help retailers get traction even in a tough market, Cook said.
Specialty coffee is a business about experience, and it’s going to grow, he said.
High-end coffee retailing has taken many directions, which includes among others, the drive-thru experience, said Tommy Thwaites, co-founder of Coda Coffee Co., a Denver-based coffee supplier to Ziggi’s and many other coffee shops. Brands that tend to offer great products at fair prices and continue to innovate while providing excellent customer service will continue to do well, he said.
“Retailers have to differentiate themselves. Ziggi’s quality of product and speed of service keeps them busy,” Thwaites said.
Independent coffee operations tend to revolve around the owners, who often find it difficult to scale up in absence of a support network, Thwaites said. It’s also difficult to create an identity as a small, independent operator. Specialty coffee trends can change quicker than one might realize, he said. Franchises potentially can deal better with market changes and offer support to their franchisees, said Thwaites, whose company also works with Scottsdale, Ariz.-based Kahala Brands.
Drive-thru model
Drive-thrus offer high volume, better margins, low labor and operational costs, said Cook of King-Casey. His firm is helping Starbucks, an early adopter of drive-thrus, deliver a superior customer experience, Cook said.
“We helped improve communication, identifying opportunities for enhancing sales and customer service experience,” he said.
King-Casey’s input help Starbucks see the drive-thru as consisting of distinct customer zones with business messaging opportunities tied to varying customer needs, attitudes and behavior, Cook said. It helped Starbucks bring the cafe experience to the drive-thru.
“Drive-thrus are here to stay. Everybody is in it for the ease and convenience,” he said.
As more and more people commute to work, the drive-thru model becomes more relevant for the coffee business, said Justin Livingston, founder and president of Franchise Transformations, which works with Ziggi’s to market its franchising opportunities. A drive-thru is about finding a prime location between where people live and work, and having the right technology and equipment in place, he said.
“We need to be the fastest cup around,” he said.
Ziggi’s recently signed its 30th franchise agreement, he said, adding a franchise business to be successful needs a recipe, ingredients and direction, and Ziggi’s managed to develop a playbook for that. It’s important for Ziggi’s to offer franchises to people who are a good fit for the brand, have the necessary financial ability, and are committed to following the process.
“There’s plenty of room for everyone. We are not here to push anybody out. We are putting out a product,” Livingston said, adding that Ziggi’s customers are different from Starbucks customers.
The consumption of specialty coffee by adults in the United States increased from 62% in 2001 to 67% in 2017, according to the Specialty Coffee Association. In 2017, the retail value of the U.S. coffee market was about $80 billion, and the share of specialty coffee was about $45 billion, according to the Specialty Coffee Association data.
High quality boutique chains “adopting a more advanced set of business practices, and delivering well-crafted artisan concepts at scale,” will help usher in the “5th Wave” of coffee, according to Allegra World Coffee Portal CEO Forum. “Successful 5th Wave brands will be unashamedly business-focused, and driven by genuinely passionate leaders, to deliver authentic and principled concepts that deeply connect with savvy millennial audiences.”
Believing in Ziggi’s
In 2017 Claude Jones lost his job and was looking to do something with his “newly found freedom.” The word coffee came up many times as he spoke with his wife, Aurora, about options. Jones’ severance and the couple’s small inheritance made them think of owning a coffee business.
“My wife and I love coffee,” Jones said.
The California couple’s research, punctuated by a failed business discussion with a coffee company, and an insipid coffee experience, eventually brought them to Ziggi’s. Months of phone and email chats with the Ziggi’s team followed.
Jones said he liked the Ziggi’s story: How the husband and wife team of Brandon and Camrin Knudsen started Ziggi’s, and how the Knudsens transformed the business from a small cafe to a successful franchise that’s expanding across America. But that wasn’t enough for Jones and his wife to sign the Ziggi’s franchise agreement.
The company invited him and his family to take a closer look at Ziggi’s Coffee. Jones said the family would come to Colorado on one condition: ” If we don’t like it, we won’t sign.”
The Joneses were bowled over by their Ziggi’s experience, and in October signed an agreement for a double drive-thru in Citrus Heights, Calif., close to Sacramento. “Ziggi’s felt right,” Jones said.
Jones is confident about the “happening” brand. Once he finds the right location — a busy spot with good visibility — and the right crew, his business will be ready to rock, Jones said. His wife and daughter will be trained as baristas and shown the ropes by Ziggi’s.
He said he’ll pay a royalty to Ziggi’s and buy products from the company, and it could be a few years before he recoups his investment.
“I’m scared. I’m excited too. We have never done this before. But I have confidence in myself, my wife and the Ziggi’s team.”
Ziggi’s Coffee locations
400 Main St., Longmont (café) — Opened August 20041729 Hover St., Longmont (drive-thru) — Opened March 20101139 Francis St., Longmont (café) — Opened February 20111221 S. Main St., Longmont (drive-thru) — Opened June 2012Colorado Mills Mall, Lakewood (café kiosk) — Opened August 201410404 Belle Creek Blvd., Henderson (café and drive-thru) — Opened December 201410905 Colorado Blvd., Firestone (drive-thru) — Opened May 20154201 N. Taft Ave., Loveland (drive-thru) — Opened November 20173160 Village Vista Drive, Erie (café) — Opened March 201821900 Interstate 76 Frontage Road North, Hudson (drive-thru) — Opened June6533 S. College Ave., Fort Collins (drive-thru) — Opened September5815 W. 20th St., Greeley (drive-thru) — Opened October6134 S. Memorial Drive, Tulsa, Okla. (drive-thru) — Opened October8525 W. 100th Ave., Westminster (drive-thru) — Opened November519 S. Saint Vrain Ave., Estes Park (drive-thru) — Opened December2120 N. McQueen Road, Chandler, Ariz. (drive-thru) — Opened January7494 Westgate Drive, Windsor (drive-thru) — Opened March4771 Thompson Parkway, Johnstown (drive-thru) — Opened April
Ziggi’s Coffee locations coming soon
ColoradoLovelandBerthoudParkerThorntonWestminsterCaliforniaCitrus HeightsMission VeijioElsewhereVail, Ariz.Aloha, Ore.Ankeny, IowaElizabeth Town, Pa.
