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Comment by farnsworth | Hacker News Reader

Cool, it's not just a portable coffee stand, it's a company that sells cheap portable coffee stand franchises and (appears to) make franchising really easy - http://www.wheelyscafe.com

I want to know whether there are any in Seattle. It would be nice if there was a map of active Wheelys on their website.

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My question is this, once someone buys the franchise what prevents them from just using their own cheaper coffee? If they have not figured that part out then they will need to soon.

same logic as any franchise, right?

From article:

>If buyers operate under the Wheelys brand, they need to ascribe to the product line, which is all fair-trade and organic.

This is a typical franchisee arrangement to ensure quality uniformity across the franchise [1]. Not following this would be a breach of contract with potentially grave consequences.

[1] This can seriously hamper a franchisee's ability to make profit / be creative, as is the case for Family Mart convenience store franchisees in Japan.

Plus, the franchisor can penalize the franchisee, or revoke the franchise outright. Years ago, I overheard a conversation in a Baskin Robbins in which the owner complained about getting dinged for using his own chopped walnuts.

While that sounds very good on paper, in reality it's going to be an issue unless they have a good way of keeping track of the sales of the franchises. If you buy into McDonalds you have Millions of dollars on the line and performance metrics to keep up with and thus it's easier for the parent company to keep you in line. If you're only investing $3000, it's easy enough to just mix in 50% beans from other/cheaper sources and claim your selling 50% less then you are. This is a solvable problem but to think the agreement they sign will be enough is naive.

McDonald's was way ahead of everybody in this element of franchising strategy. Almost everything is McDonald's branded and must be purchased from Martin-Brower, their wholly owned distribution arm. (This is back in 1980, but back then the only food elements not McD-branded were the mustard, produce, eggs, and milk... and even those items had to be purchased from and delivered by Martin-Brower).

Maybe minimums for monthly ingredient purchase by the franchisee? I believe this is not uncommon.

You can still make a lot of money selling picks and shovels.

Selling picks and shovels is only viable for the small entrant if there's an actual gold rush.

I assume they can infer from order volume and replenishment, mapped against cashflow and supposed inventory turns, whether someone is selling their approved products. From there, they can audit franchisees with unusual patterns.

Example: My revenues are strong, yet my orders from Wheelys are suspiciously low relative to what sort of inventory you'd expect me to be turning. Red flag.

solution: under-report your revenue as well! bonus: you pay less royalties

You seem to feel very strongly that businesses should optimize for pathological cases. Most people are not thieves.

People will optimize to cut costs and not consider themselves thieves, but savvy business owners.

Sure, but now our hypothetical system-gamer is dipping a pinkie toe into the muddy waters of tax fraud. He has to wonder if taking on that kind of risk is worth getting slightly better margins on sales from a coffee cart.

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