Recipe for Franchising: A Vancouver-based bakery expands its business.

In April 2002, best friends
Heather White and Lori Joyce opened a small, pink Cupcakes by Heather
and Lori shop on Denman Street in Vancouver’s high-retail-rent West
End. With no baking background, and with financial assistance only from
their parents, their likelihood of success seemed slim.

Best friends Heather White and Lori Joyce are the creative force behind Vancouver’s Cupcakes by Heather and Lori. The pair just recently expanded into franchising – they’ve already sold two franchises. Photos courtesy of Cupcakes by Heather and Lori

In April 2002, best friends Heather White and Lori Joyce opened a small, pink Cupcakes by Heather and Lori shop on Denman Street in Vancouver’s high-retail-rent West End. With no baking background, and with financial assistance only from their parents, their likelihood of success seemed slim.

Luckily, they were not concerned by this – or if they were, it only made them try harder – because the business has not only been a huge retail success, it has now sold its first two franchises, to be opened in downtown Vancouver and in a Vancouver suburb shortly. The founders are still the only owners of the company and they see nothing that would stop them now.

The ingredients that catapulted the retro-inspired concept to success in 2002, are probably the same that later propelled the company into franchising. The two persistent, bright, young entrepreneurs were always open to all solutions, not just the ones known by the bakery industry. Theirs is a classic case of how lack of expertise can sometimes be a key ingredient to success. The lack of baking experience forced them to develop a clear, simple business model that they then kept perfecting and developing by trial and error. And a clear, simple, one-product concept is easier to clone than a complicated one. Franchising as a development model is all about systems and standardization.

The company has four divisions: retail, corporate, weddings and wholesale. Cupcakes employs 50 to 60 people depending on the season and has two corporate stores in Vancouver and one in North Vancouver’s Edgemont Village. It has just moved the original Denman-Street store to an even smaller (500-square-foot) but more appropriate location a block down the street and relocated the corporate office that used to be at this location. A separate cake-baking commissary is part of the store.

Each store bakes cupcakes fresh from scratch daily. The stores also sell retail cakes baked at the commissary, and Cupcakes-branded merchandise such as T-shirts. The scent of fresh cupcakes, the pink, beige and brown retro pastel colouring, and the happy staff ready to celebrate any occasion with a cupcake, are all part of the Cupcakes image. Quality is an integral part of the concept and all products are made from preservative-free, basic ingredients, such as real butter. More than 80 per cent of the company’s business is destination-retail, which means that customers come specifically to the store, rather than walk in by accident.

Besides a clear-cut business plan, what also was in place from Day 1 is the partners’ vision of expansion. “We always knew we were going to expand,” says Lori Joyce, the analytical partner who handles people, PR and business development. Joyce approached the challenge of franchising the same way the pair has approached everything: find out how it’s done, check that you understand what you have learned, adjust the lessons to your own vision – and then just do it!

Above: The Cupcakes concept includes Cupcakes-branded merchandise like these hoodies. Below: Pretty-in-pink: the retro-inspired concept first came into being in 2002.

“We did not know how we were going to expand, but we designed our whole concept around the premise that it must be repeatable,” she says. “Because of today’s job market, it is easier to find an invested owner-operator than a dedicated store manager, so franchising started to look like a good way to go although it was the last method we investigated because we hadn’t really met anyone locally that we looked up to. But franchising is a good way of expansion for us because we want to maintain the ownership of the company.
 Fundamentally, it is a great way to expand.” And what was the secret to learning how to franchise? Call someone who has done it and ask. Joyce called Brian Scudamore, founder of 1-800-Got-Junk? “I was fascinated by the fact that he has been able to create a really exciting culture around junk,” she says.

At some point, she Googled “guru of franchising” and George Naddaff’s name came up. He is the founder of Boston Chicken/Boston Market and developer of many other successful concepts. “I phoned him and we had a wonderful conversation,” says Joyce. “A year later, when I had most of our ducks lined up, I called him again and he invited us to Boston. Heather and I spent a full day with him.”

Also on the call list as someone who knew a lot about retail was Chip Wilson, founder of many successful Canadian concepts, including Lululemon. She also talked with several people at COBS because they are a successful retail bakery concept.

“These are all great entrepreneurs who are willing to mentor and talk to you because they know that sort of thing will come back many-fold,” says Joyce. “I received incredible insights. Each one of those people gave me specific, key things that I have really stuck with. I am so happy I did it this way. It was a challenge, but we developed the entire franchise package ourselves. Of course, we consulted a lawyer but I had him develop the actual agreement with us in basic English. I wanted the whole package and the agreement to be something that I understood completely and could sell. You do have all of the control and you do need to understand what you are doing.”

She also explains why she did not use the many consultants who offer to develop a franchise package for you. “That was not an option I wanted to consider,” says Joyce. “First, it costs a ton of money and second, I really wanted to understand what we were getting into and what I am selling. This is a totally new business venture for us and it has legal implications, so we both felt that at least one of us needs to be totally clear on every single aspect of it and to be able to answer every single question a potential franchisee might ask.”

Initially, Joyce and White envisioned that they would need five corporate stores operating before they could start franchising, but they knew they were ready and had the systems in place when they opened the third, the Edgemont Village store. “I knew we were ready to start franchising when that store did not require me and Heather to be present at all,” says Joyce. “It gave me the confidence. It is so easy to get caught up in the day-to-day and think you are indispensable in all of that, but how do you expand if you cannot let go?”

Spreading the word about the franchising opportunity has not been a priority – from the day Cupcakes opened its first store, it has received franchising requests. People love the concept and want to take it home with them, but Joyce and White are not going to be rushed, not even now when they actually do have a franchise package to sell.

They have now sold the first franchise in Vancouver and one in a Vancouver suburb. They also have a strong candidate in Calgary and are keen to expand further into the suburbs in the Vancouver area, but eastern Canada is not on the immediate development list.

“Before I’d go to east, I’d rather go south because that’s where the population is,” says Joyce. “The most important thing is population, demographics is what drives it. Los Angeles is much closer, in our time zone and the weather is better. Weather really affects our business – we sell more when the weather is good – so there’s far more incentive for us to go south.”

Entering the U.S. market will be another steep learning curve but Joyce says simply “that’s what we will need to learn next.”

But first she wants to learn what it is like to work with a franchisee. “By the end of this year, we will have a good understanding of that and then we can move on south.”  The big-picture plan includes being across North America and looking into Asia.

Although she has learned a great deal about franchising, Joyce is cautious about recommending it to others. “I cannot say right now that I would recommend franchising because I haven’t actually done it yet but once I have some experience, I’d be more than happy to talk to people about it.”

For Cupcakes franchise information, send an e-mail to franchise@originalcupcakes.com .