Saxbys Coffee Emerges From Bankruptcy

Bright Future Brewing for Philadelphia-Based Coffee Brand

May 11, 2011 // Franchising.com // In hindsight, Saxbys Coffee's declaration of Chapter 11 bankruptcy is the best thing that could have happened. Of course, Joe Grasso and his partner, Kevin Meakim, had no way of knowing it at the time, but the more than 20-month process from which they've just emerged has afforded them the chance to finally mold the coffee-shop franchise into exactly the kind of powerhouse they always imagined it would become.

"The first thing that attracted us to purchasing Saxbys in 2007 is that the company is a franchise model, whereas Starbuck's is corporately owned," said Kevin Meakim, Principal of Saxbys Coffee Worldwide. "And now that we've reorganized and gotten past all the hurdles of the bankruptcy proceedings, we've been able to craft it to fit the vision we always had." He added, "We've always believed in the neighborhood, owner-operator style, where the stores are connected the community, to the little league teams and the artists that play live or hang their art on the walls. No connection is more important than the one between the customers and the person who's brewing their coffee every day."

And it goes even further than that. Each franchise works with local food and ingredient purveyors to stock the best fresh ingredients that that particular area has to offer. At the same time, owner-operators also benefit from Saxbys corporate buying power when it comes to dry goods.

Much of Grasso and Meakim's success in implementing their vision — they opened up eight additional Saxbys locations during the bankruptcy proceedings, bringing the total to 32 units in eight states and the District of Columbia right now — has been as a result of relationships they've forged with Bancorp., whose SBA loans have been so critical to the company's growth.

"Bancorp. has been instrumental in Saxbys emergence from bankruptcy," Grasso said. "And now that we're out of Chapter 11, their lending arm, which focuses exclusively on franchise lending through the SBA, is going to play an even bigger role in our future. They have half a billion dollars in capital to be invested in franchises, and we've just structured a deal to afford us access to all that they have to offer."

The timing couldn't be better, as Saxbys is clearly a company on the rise. For despite the publicity and headaches that naturally come along with any Chapter 11 proceedings — Saxbys' bankruptcy was a result of litigation costs around the time of Grasso's purchase, Meakim points out that 25 franchise locations have seen consistent same-store year-over-year rises in sales. This would be a remarkable achievement for a company that hadn't gone through what Saxbys has, and it is a strong indication of the overall health and promise of the brand.

"We believe that Saxbys has tremendous potential," Grasso said. "Our ultimate goal is to grow responsibly. In the next two or three years we'd like to have over 100-units, which we believe is where companies become noticed in the franchising industry. It's going to take a lot of hard work, but I really think we're at the stage right now where we're ready to do that, especially considering our financing backing from Bancorp."

"We have very, very happy franchisees," he concluded, "and they're making money, which obviously is the barometer in any franchise operation. We recently met with one of our franchisees near the University of Delaware, and I said to him, 'Good news, we're out of bankruptcy!' And he just looked at me and said, 'I'm not surprised, I knew you were going to do it.' "As I was leaving, I had to walk out past a line of students that snaked all the way to the door, and I thought, this is what all of our hard work has been for. They believe in our system, they stuck with us. And now things are really going to start paying off."

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