“You have to understand the numbers, the food costs, the business of running a foodservice operation,” says Melissa Mueller, proprietor of 2 Cups Coffee in Miamisburg, Ohio, another community café. “I wish I had understood the business on a broader spectrum.”
Adding a layer of complexity is the decision of whether to operate as a nonprofit or a for-profit restaurant. Rooster Soup, for example, will be run as a for-profit concept, though there is talk of applying for 501(c)(3) status. The process can be labor-intensive; pages of paperwork and fees are involved. However, as a nonprofit, a restaurant would be eligible for federal and local grants. And because of the flexible pricing model central to the community café concept, those extra dollars are often needed.
“We would be closed if we were a regular business,” SAME’s Birky says.
Vimala’s Curryblossom Café in Chapel Hill, North Carolina, runs as a for-profit community café. Anyone can eat, regardless of their ability to pay, though there is a menu with fixed prices. Those who eat free on the “Community Card” have a choice between two entrées—one vegetarian and the other meat-based. The card is funded by donations from paying guests and profits from Curryblossom.
“Even those who eat free sometimes give change,” says Curryblossom founder Vimala Rajendran. “Some guests will give an equal amount to the tip jar and the Food For All fund. Sometimes I eat the cost of the plates. On a busy day, we’re giving away $45 worth of food, on a slow one $5–$7.”
Pyngle’s, a One World–affiliated fresh juice truck based in Santa Monica, California, also operates as a for-profit. While juice is never free, owner Ryan Trainor puts the financial decision in the hands of his guests. All drinks are 16 ounces. Market value is somewhere between $7 and $10, but guests typically pay $4–$6.
“My approach is, ‘Here’s the product. What is affordable for you?’” Trainor says. “A homeless man might give me $1, and I’m losing money on that deal. But someone else might give $8. It eventually averages out. Generally people are good people.”
Volume accounts for Pyngle’s and Curryblossom’s ability to make a profit. Trainor’s truck parks at high-traffic areas throughout Los Angeles—the Santa Monica Pier, near the University of Southern California, office parks. Curryblossom Café is located on Chapel Hill’s main thoroughfare, Franklin Street, and pulls in guests from nearby businesses and the University of North Carolina at Chapel Hill.
Nonprofit community cafés like SAME and FoCo are less likely to be located in prime areas. Rent is too high, and the populations in need of their services are less likely to be nearby.
“One of our biggest obstacles was finding the right location,” FoCo’s Baumgardner says. “We are in the exact area where we needed to be to help the people we want to help.”
Keeping things simple allows nonprofit cafés to offset the nonpaying customers. Operating hours are limited. Most cafés are only open for lunch, though some also offer breakfast. Creative budgeting and sourcing is employed. Ingredients are bought locally in season. Volunteers supplement paid labor hours. Menus are basic. Soups and salads are popular; high-quality versions are inexpensive to make in-house and nutritious.
Balancing business with mission is not for the faint of heart, though.
“This is so much more intense than just a kitchen job,” Birky says. “Part of this job is relating to people on a deep level. Many of our customers need support in an emotional and social way.”
Still, for those who make it work, the rewards are great.
“We’ve found that if cafés follow our values, they’ve seen great success,” One World’s Pearson says. “This is a different idea. It’s not a traditional restaurant or soup kitchen. It takes a while for people to wrap their heads around it.”
Nonprofits as Franchisees: A Convergent Path
There are fewer than 200 nonprofit-owned franchisees in the U.S., says Dr. Ben Litalien, founder and principal of Franchise Well, a Virginia-based franchise consultancy. The notion of a nonprofit acting as an owner-investor in a for-profit business, he says, is mostly foreign to both sides of the conversation.
“The idea is in its very, very formative stages of development,” Litalien says. “But the investor side of franchising is growing. The two sectors are on a convergence path. They need to better understand each other.”
Four percent of the 1.6 million U.S. public charities with operating budgets of $10 million or more account for 85 percent of all charitable spending, according to the National Center of Charitable Statistics’s Nonprofit Almanac 2012.
Many organizations are looking to diversify revenue streams. That is what led Affordable Homes of South Texas to become a Blimpie franchisee in 2013.
“We’re a 40-year-old daughter living at home with mom and dad,” says Robert Calvillo, executive director of Affordable Homes, to describe the nonprofit’s dependency on city and federal funding. “At some point, you’ve got to start earning money to ensure sustainability.”
Affordable Homes operates its Blimpie under Esperanza on Fifth LLC, a subsidiary of its TuCasa Investments. The parent company loaned Esperanza on Fifth the roughly $200,000 needed to open, including build-out. The store is housed in a building owned by Affordable Homes. Two experienced restaurant managers, one of whom is a Blimpie veteran, run it.
Calvillo expects the restaurant to be operating in the black by this summer. Its catering sales are among the best in the system. “The community has been very supportive,” Calvillo says, citing a recent order for catering service for 1,200 people.
That type of support, Litalien says, is one of the advantages nonprofits have over traditional franchisees.
“Their local share of influence is in the thousands,” he says. “Those ready-made relationships are a clear competitive edge.”
Both Blimpie and Esperanza on Fifth are pleased with their partnership. But both sides say initially putting the deal together took time.
“We worked together to find creative solutions when the situation arose,” says John Wuycheck, senior vice president of franchise development at Blimpie’s parent company, Kahala Corp.
Many franchise agreements call for a personal guarantee. That is not possible when partnering with nonprofits. Having information like that going in can make the process less painful for both partners.
“These are very complicated models,” Litalien says. “There can be a huge disconnect unless they take the time to be educated.”
For nonprofits, that means learning about the foodservice business and hiring from the industry whenever possible. For franchisors, it means understanding that nonprofits are businesses with the same corporate rights and reporting responsibilities as for-profits.
Also important for franchisors to keep in mind is the mission behind their nonprofit partners’ operations.
“The success of these franchises impacts real lives,” Litalien says. “There are real consequences at stake.”
The five times weekly e-newsletter that keeps you up-to-date on the latest industry news and additions to this website.