Ottawa’s most prominent local coffee retailer is turning to new ownership with deeper pockets in a bid to jumpstart its plans to expand beyond the National Capital Region.
Second Cup, which is changing its name to Aegis Brands, said Thursday it is adding Bridgehead to its portfolio in a deal worth $9.5 million. The acquisition price includes $6 million payable in cash and the rest in shares of Second Cup.
If Bridgehead’s 19 existing locations hit profit goals in the next two years, Aegis will pay out an additional $1.5 million. The transaction is expected to close before the end of the year.
Bridgehead will remain an independent brand under its new owners. Tracey Clark, Bridgehead’s president and CEO since 2000, is staying with the company in the new role of chief culture officer. Current chief operating officer Kate Burnett will assume executive leadership of Bridgehead and the company will enter into new agreements with “key employees.”
Although Bridgehead has become an institution for local java junkies, Clark told OBJ she has long harboured ambitions of growing the chain’s footprint beyond Ottawa.
She said Aegis – which announced last month it was changing its name from Second Cup as part of a plan to diversify its operations beyond coffee shops – will give Bridgehead access to real estate and capital the company couldn’t have accessed on its own.
“We really liked the new structure and the new strategy that they’re developing,” Clark said.
“There’s lots and lots of stories of acquiring companies that gut the companies they buy, and there’s a real kind of recognition that, ‘No, this is an opportunity to really do it right.’”
Bridgehead’s roots can be traced back to the early 1980s, when a group of local United Church ministers and social activists formed Bridgehead Trading as a means of purchasing fair-trade coffee from small-scale farmers in Nicaragua. Today, the company buys its coffee beans from small farming operations around the world.
Aegis CEO Steve Pelton said Bridgehead’s strong sense of social purpose and deep-seated brand loyalty in the Ottawa region made it a natural choice to be the Mississauga-based company’s first acquisition.
“I think it’s the (Bridgehead) story,” he said. “That’s important to people. People like to connect with brands that make them feel good about what they’re doing. We’re excited to see what we can learn from them and grow our respective businesses.”
In her new role, Clark will focus on finding expansion sites and ensuring that new stores in the chain “still have the magic of the original Bridgehead locations in Ottawa, no matter what location or city they’re in,” according to Pelton.
Clark, who bought the company from Oxfam Canada 19 years ago and grew it into one of the city’s best-known retail brands, said her next goal is to establish a foothold in the Greater Toronto Area. She said Second Cup, with its 45-year history in the GTA, will be a valuable partner in helping her scout locations and negotiate leases with landlords.
“The team is really ready for growth, and I think our values resonate now more than they ever have,” she said. “We’ll have access to real estate and to capital and to some shared services, and we’re really looking forward to it.”
Pelton said Aegis has no plans to convert any of Bridgehead’s stores to Second Cups, and the chain will remain in charge of its own operations.
“We’re not going to get in their way,” he said. “We’re gonna just kind of give them a list of things that we can offer them – potentially real estate, legal, accounting (expertise), things that smaller companies might not have as much access to. It’s kind of a ‘take what you want, leave what you don’t’ approach, so that we don’t mess with their DNA and who they are.”
Experts see opportunities in acquisition
Marketing experts say the deal makes sense for both sides.
Ian Lee, a professor at Carleton University’s Sprott School of Business, called the acquisition a “ready-made growth opportunity.”
He said Bridgehead now gets access to much-needed cash to bankroll its expansion plans, while Aegis gains new stores with a loyal following in one of the country’s largest markets.
The new partners can now share costs, which should boost their bottom lines, but the acquisition is about more than just money, he added.
Both companies target customers with a social conscience, Lee said, noting that Second Cup’s website prominently mentions the chain’s commitment to ethical supply partnerships and organic products, among other social and environmental pledges that Bridgehead also promotes.
“There are a lot of similarities between the two companies,” he said. “It’s not just (that) they’re using fair-trade coffee – it goes way, way beyond that. There’s a synergy between their philosophies and their mode of operation.”
University of Ottawa marketing professor Mike Mulvey said Bridgehead has “always had a very clear, distinct value proposition” that’s helped it stand out in a hyper-competitive industry.
“They’ve acquired a lot of brand meaning, a lot of goodwill over the decades,” he said.
“Honestly, if you were to offer me a franchise, would you prefer to have a Bridgehead or a Second Cup? I’d take Bridgehead hands down. And it has nothing to do with the coffee or the pastries or decor or anything like that. It’s just the brand meaning seems to be much richer and (more) distinctive.”
Still, Lee is not convinced Aegis will stick with its pledge to keep the Bridgehead name and branding, which he said don’t resonate with coffee aficionados outside of Ottawa.
“Keeping them separate (brands), I don’t quite get the logic,” he said. “It’s yet to be seen if they will stay with that strategy. They may announce it today, but once they’ve bought the company and taken it over, they can do what they want.”
Mulvey, however, said he thinks Bridgehead's brand has the potential to “translate pretty well” outside its home base.
Noting that Starbucks was a purely local chain in Seattle for nearly two decades before it blossomed into a multinational retail giant, he said he likes Bridgehead’s chances of becoming the bean of choice for coffee lovers in other parts of the country.
“A lot of Canadians have travelled to Ottawa … which means there’s a great opportunity given there’s 19 locations, for them to have sampled Bridgehead coffee,” Mulvey said. “If that experience was positive … then they will be predisposed to trying this out – especially if they’re not happy with their current offering.”
The Telfer School of Management professor wondered aloud if Aegis might even look at converting some local Second Cups into Bridgeheads to capitalize on the Ottawa chain's brand power.
“I don't know if they'd do that, but certainly Second Cup would have to have a close look at their outlets and say which ones are underperforming, and they may want to really consider a relaunch under the Bridgehead banner and really adopt that culture wholesale,” he said.