BUSINESS

Second Cup's Losses Top $27 Million In 2014

03/09/2015 09:51 EDT | Updated 05/09/2015 05:59 EDT
Calgary Reviews via Flickr
TORONTO - After another tough quarter, Second Cup hopes coffee drinkers chasing their java fix will also get behind the company's new loyalty card this spring.

The chain plans to expand "Perks from Second Cup" across the country in the coming months after a test run in Calgary. The program will allow users to accumulate and redeem points for every dollar spent through either a plastic card or smartphone app.

The rewards launch is part of a three-year turnaround plan that chief executive Alix Box expects will change the perception of the brand.

"We've taken it to a much more premium type of experience," she said in an interview on Monday, after the company reported a quarterly loss.

"I felt the brand was playing way too much in the middle, and too close to the McDonald's and Tim Hortons of the world."

Second Cup has been trying to overcome an identity crisis that stunted its growth just as a barrage of new competitors entered the market about four years ago in hopes of taking a share of the basic and premium coffee markets.

While McDonald's has chased the low-priced segment in competition with Tim Hortons, others like Starbucks have stepped up their Canadian expansions at the same time independent coffee shops see a resurgence in popularity.

But a recent study suggests the traditional bean has lost flavour to some Canadians.

An ongoing study of consumer consumption habits from research firm NPD Group says that Canadians drink about 2.1 billion cups of coffee per year, their out-of-home consumption declined by more than three per cent in 2014.

Even though coffee orders are down, the study found that consumer visits to coffee shops remain steady, which suggests more people order non-coffee items from the menu.

Box joined the top ranks of the Toronto-area coffee company a year ago as part of an effort to turn around its eroding market share in an already pressured coffee business. She previously held senior positions at Holt Renfrew and Starbucks.

When she arrived there was "no question the business needed a complete overhaul," Box said.

But those widespread changes will take time before any positive the impact is seen in the financial results.

During the fourth quarter, the Second Cup Ltd. (TSX:SCU) posted a net loss of $469,000 or four cents per share, as it booked a $391,000 provision for cafe closures and a $692,000 item for acquisition of some franchise cafes.

A year earlier, the franchisee operator turned a profit of $1.2 million or 12 cents per share in the same period, even with restructuring charges and a provision for store closures.

Fourth-quarter revenue was $8.4 million, up from $8 million a year earlier, while sales within its cafe network fell to $49.4 million from $51.9 million.

Same-store sales at locations open at least a year was down 3.9 per cent in the fourth quarter and down 4.7 per cent for the full year, while the number of cafes as of Dec. 27 was 347, down from 356 a year earlier.

In December, Second Cup launched a key part of that plan by opening a store in downtown Toronto that had a new look and notably different approach to making coffee.

The remodelled store featured a curved bar to encourage a more communal experience while an array of high-end brewing machines added character to the brewing process.

"Once we're really satisfied with it, then we will roll that (design) out to new cafes and cafes that are under renovation," Box said.

Second Cup aims to renovate 35 to 40 per cent of its franchised locations by the end of 2017, which amounts to as many as 139 stores across the country.

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