Port City Java offers a coffee break

Port City Java is giving potential franchisees an unusual break -- the opportunity to keep their royalty fees in their pockets until 2011.

The program, which was announced Monday, is good for the rest of this year and applies to new franchisees and existing franchisees who sign an agreement to open a new store.

It allows them to keep their royalties for those stores, which are 5 percent of their sales. They will still have to pay other fees, such as the initial franchisee fee.
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News & Observer File Photo - The Wilmington-based Port City Java has 35 stores in five states, plus two more internationally.
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Steve Schnitzler, CEO of the Wilmington-based coffee shop chain, said that the loss of a year's worth of royalties is worth it to continue the company's momentum.

Recently the company has been expanding on college campuses, including N.C. State University, and opening new stores in other locations.

There are now 35 Port City Java stores in five states, plus two internationally.

"[Royalties] are the ongoing and major source of revenue," Schnitzler said. "But if [franchisees] can't get out of the gate and they can't get started, you can talk all you want about royalties down the line, but they have to get there first."

Schnitzler wouldn't say how much a franchise cost or how much franchisees are required to pay in other fees. He also declined to say how much the company's stores make in sales each year.

However, Chicago food industry research firm Technomic says that other coffee shops average between a few hundred thousand dollars a year to more than $1 million per year for large stores like Starbucks.

For 2008, Technomic estimates Port City Java stores averaged $450,000 each.

Based on that figure, that means that the company would be giving up $22,500 for each store that qualifies for the deal.

Schnitzler said it's too early to know how popular the program will be, although some existing franchisees have already expressed interest.

The move is a bold one for any business that relies on a franchise model, Technomic executive vice president Darren Tristano said.

But, he added, it could be very smart.

"It's very unusual, but not unusual for the times," he said. "I would be surprised if other franchises didn't follow suit."