Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Are Using Co-Working Hybrid Models
Transcript
- Lucas: So earlier this week I was looking at foot traffic data from Placer.ai, and one number jumped out: a franchisee who runs a regional coffee chain added a co-working space to one location and saw average dwell time go from twenty minutes to ninety minutes. Luna: Ninety minutes? That's a whole different customer. They're basically becoming a third place, not just a pit stop. Lucas: Exactly. And what's interesting is this isn't a big corporate experiment—it's a single franchisee who decided to turn a seating area that was empty most afternoons into a paid co-working lounge. Twenty desks, decent WiFi, power outlets, a separate entrance. Luna: Did they have to get permission from the franchisor? I imagine brand guidelines don't exactly cover 'co-working annex.' Lucas: They did. The franchisee worked with the franchisor's innovation team—which, by the way, is a trend in itself. More franchisors are creating these 'innovation sandboxes' where franchisees can test new concepts without violating the ops manual. Luna: Smart. Because if a franchisee just builds a co-working space without approval, they risk termination. But if the franchisor blesses it, you get data that could roll out system-wide. Lucas: Before we dive deeper, I want to mention something. These conversations take time to research and produce—we dig into actual numbers, talk to franchisees, look at the data. And we deliberately keep the show ad-free because that lets us be honest about what works and what doesn't. If you've gotten value from these episodes and want to support that independence, you can find us at buy me a coffee dot com slash fexingo. It's a simple way to keep this going, and we appreciate anyone who chips in. Luna: Yeah, it's a small gesture that makes a big difference for us. Now, back to that coffee shop—what was the revenue impact? Lucas: The franchisee reported an eighteen percent revenue increase at that location within six months. Most of it came from incremental sales: people buying a second coffee, a pastry, or even lunch because they were there for hours. Luna: That makes sense. But what about the flip side? Does having people camp out all day reduce table turnover for regular customers? Lucas: That's the tension. The franchisee solved it by designating a separate zone—the co-working area is behind a partial wall, and those customers pay a five-dollar hourly fee or a fifteen-dollar day pass, which includes one drink. The front area remains for quick-service customers. Luna: So they're monetizing the space that was already there, but they had to invest in the buildout. What was the upfront cost? Lucas: About thirty-five thousand dollars for that location. That covered furniture, electrical upgrades, a dedicated router, and a small sign. They broke even in about seven months, which is pretty fast for a capital improvement. Luna: And the franchisor? Did they adopt it elsewhere? Lucas: They're piloting it at five more locations in different markets—two suburban, three urban. Early data suggests the suburban locations perform better because there's less co-working supply. In dense cities, you're competing with WeWork and local coworking spaces that have better amenities. Luna: Interesting. So the franchisee's competitive advantage isn't just the space—it's the coffee and food. A full-service café attached to a co-working lounge. Lucas: Right. And that's a model we're seeing pop up beyond coffee. There's a franchisee in the quick-service sandwich segment who added a small co-working area in their largest location—eight seats, power strips, a printer. Their average ticket for co-working users is forty percent higher than the regular lunch crowd. Luna: Because they're ordering more items when they stay longer. But I wonder about operational headaches: WiFi reliability, noise complaints, people who abuse the space. Lucas: Those are real. The coffee franchisee had to upgrade their internet to a business-grade connection—that added about two hundred dollars a month. They also set clear rules: no meetings longer than thirty minutes in the co-working zone, and they have a staff member check in hourly. Luna: So it's not a passive revenue stream. It requires active management. Lucas: Absolutely. But the franchisee told me the co-working members have become some of their best regulars. They bring in outside clients, they host informal meetups, they basically become brand ambassadors. Luna: That community-building aspect is huge for local franchises. If you can make your store a hub, you reduce churn and increase word of mouth. Lucas: And it's not just food and beverage. I've seen franchisees in the fitness space do something similar—converting a portion of their studio into a co-working lounge for members to use before or after classes. They charge a monthly add-on fee. Luna: That's clever because it increases membership stickiness. If you're paying for both the gym and the co-working, you're less likely to cancel. Lucas: Exactly. The data from one fitness franchise shows that members who use the co-working space have a thirty percent higher retention rate after twelve months compared to members who don't. Luna: Is there any risk of cannibalizing your core business? If someone comes for co-working but doesn't buy anything except the day pass, that's low margin. Lucas: It can happen. But the franchisee I spoke to tracks conversion: about sixty percent of day-pass users purchase something beyond the included drink within their first three visits. The key is making it easy to buy—placing the pastry case near the co-working entrance, having a QR code menu at each desk. Luna: So it's a funnel. The co-working space is a lead generation tool for higher-margin sales. Lucas: That's a good way to frame it. And the numbers support it. Across the five pilot locations, the average co-working user spends an extra four dollars per visit compared to the average customer. That adds up quickly. Luna: What about franchisors who are resistant? I can imagine some saying 'We're a coffee chain, not a co-working company.' Lucas: That pushback exists. But the more forward-thinking franchisors are realizing they need to adapt to how people use space. Post-pandemic, a lot of people work remotely at least part of the week, and they want a place that's not home but not a traditional office. Franchises with existing real estate and food service are uniquely positioned to capture that demand. Luna: It also helps with real estate economics. If you're paying rent for a 2,000-square-foot space but only using 1,500 square feet efficiently, the co-working zone turns dead square footage into revenue. Lucas: Exactly. The franchisee I talked to calculated that the co-working area generates about twenty-two dollars per square foot per year in incremental revenue. Their total rent is about forty dollars per square foot, so it's covering more than half the rent on that space. Luna: That's a compelling pitch to a franchisor: let me test this, and if it works, it improves your unit economics. Lucas: One thing to watch out for: insurance. If you're inviting people to stay for hours, your liability exposure changes. The franchisee had to get an additional rider on their policy, which cost about six hundred dollars a year. Luna: Relatively small cost for the potential upside. But what about the staffing model? Does the co-working area need dedicated staff? Lucas: Not in this case. The existing counter staff handle it—they check people in, answer questions, and do the hourly walk-through. The franchisee added about five hours of labor per week for the extra cleaning, which is minimal. Luna: So the marginal cost is low. That's the kind of experiment that can scale. Lucas: I think we'll see more of this in the next year. The International Franchise Association is actually hosting a session on hybrid retail models at their annual conference this fall, which tells me it's moving from fringe to mainstream. Luna: And for franchisees listening who are curious, what's the first step? Should they survey their customers, or look at their real estate? Lucas: Both. First, look at your floor plan: is there a corner or a mezzanine that's underutilized? Second, talk to your regulars—ask if they'd use a co-working space. The coffee franchisee said they got the idea because customers kept asking for WiFi passwords and staying for hours anyway. Luna: Listening to your customers. Sometimes the best innovation is just formalizing what's already happening. Lucas: Exactly. And then take that data to your franchisor. If you can show demand and a small pilot, you might be surprised how open they are. The worst they can say is no, but more and more they're saying 'let's try it.'