Starbucks Corporation (Nasdaq:SBUX) may currently be the largest coffee house chain in the world, but it lacks in “star” power. A new player has arrived. Hollywood Espresso, founded by film industry veterans Roberta Pacino and her husband, Mark Oliver Richman. The couple aims to inject a little “Hollywood” into your daily coffee consumption.

If the name Roberta Pacino rings a bell, it is because she is the sister of Al Pacino, the movie Actor. That may not be enough to excite you, but then maybe the concept and ground floor investment opportunity will. Think “Planet Hollywood” the next time you have a cup of cappuccino.

The initial rollout will be 5 company owned stores in Hollywood, Chicago, New York, Miami and Houston to act as distribution centers 366 planned franchises in the coming 60 months. Each company store is an LLC where 49% is available to investors via private placement (DPP).

“It’s Not Just Coffee It’s Entertainment, is not only our company’s service mark, it’s our credo. We believe that coffee is not only the best way to start your day, but also a great way to entertain. Roberta Pacino’s Hollywood Espresso is dedicated to providing the finest coffees and coffee related products found anywhere in the world, offering a unique source for your social tastes.” – Hollywood Espresso

Among publicly traded companies in the same sector, the coffee retailing industry offers a PE ratio in the range of 28-56 operating at 85% margin. Once Hollywood Espresso gets its’ foothold, their exit strategy may include a buyout, IPO or reverse merger. They also plan to grow internationally with the first company store in Tokyo.

The combination of Hollywood glamour with the local coffee house has an interesting appeal and may be a great business for those that have always dreamed of owning their own coffee shop. Here is their opportunity to become part owners with one of the most recognized “Hollywood names” in the world.

Accredited investors interested in this venture can contact the company for more details.
As always, do the due diligence before investing or starting a business.

Contact Info:

Hollywood Espresso
849 S Broadway
Ste 202
Los Angeles, CA 90014
954-850-7750

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It is a known fact that franchise owners usually have a better chance of success as a business operator than an independent start up owner. The likelihood of success can be attributed to a proven and tested business model, existing market brand, support and training from the franchisor. The question is, are there advantages to investing in the public stocks of franchises?

Comparing the actual ownership and operation of a franchise to owning the stocks is like comparing apples to oranges. In terms of just an investment hypothetical, there are some clear advantages. We will take McDonald’s Corporation (NYSE:MCD) as an example.

The start up capital requirement for owning a McDonald’s franchise ranges from $500K-$1.6M. It would take a number of years to break even and turn a profit on the money invested. Since it is a franchise business, there are royalty payments to be paid and the time expenditure of running a business can be hefty.

On the other hand, you do not need much to really own a piece of McDonald’s; in fact you can be an “owner” for $54.10 (current share price). If you are independently wealthy and just happen to have an extra $500K at your disposal and bought MCD five years ago at $13 per share, today you are sitting on at least a cool $2M in profits assuming proper trailing stop loss management and you got out at the $63.69 high.

Not a bad ROI for about 20 minute’s worth of work placing trades and without all the hassles of running a brick and mortar business. Ok, ok I hear what you are saying. This was an ideal situation, hindsight is 20/20 and no one in their right mind would plop down half a million on just one stock.

The point of this exercise is to demonstrate the potential of publicly traded franchises as a unique class of stocks to invest in. Entrepreneur magazine just recently released their “2008 500 Franchise Rankings” of both private and public franchises. McDonald’s and Yum! Brands (NYSE:YUM) were among several of the many publicly traded franchises which made the top 20 on this list. Owning a carefully chosen basket of these stocks would have performed well.

The University of New Hampshire’s Rosenberg Center compiles an index that tracks the market performance of the top 50 U.S. public franchisors every quarter. Over 98 percent of the market capitalization of corporations involved in the business of franchising is represented by the RCF 50 Index. This composite index of franchisors has beaten the S&P 500 in the past 5 years as shown in the published 2007 3rd quarter report.

Professor Udo Schlentrich, director of the University of New Hampshire’s William Rosenberg International Franchise Center has this to say about the performance of the RCF 50 Index during and interview with Blue MauMau:

“Although the Fran 50 companies have out-performed the S&P 500 companies for the past 5 years, there is no guarantee that they will continue to do so in the future. We believe some of the reasons we have seen this growth is that franchising, as a business model, has become better understood and valued by the investment community. For example, franchised companies are, by their very nature, less capital intensive. In addition, the financial risk is largely borne by the individual franchisee. Also, franchisee-owned stores are seen to operate more effectively in a retail environment than corporate-owned stores — however, there is still some controversy on this subject. Finally, many franchise systems have been able to effectively penetrate international markets, thus achieving additional growth and spreading economic and political risk.” –Udo Schlentrich

Fourth quarter 2007 and this year may see an overall drop in the index because of recent franchisor consolidations, market volatility and uncertainty, but if past performances are of any indication, the trend in the RCF 50 Index may continue to outperform the S&P 500 –even in this downturn.

For more info on the RCF 50 Index: Senior Research Fellow Hachemi Aliouche and Director Udo Schlentrich of The William Rosenberg International Center of Franchising at the University of New Hampshire are available to discuss the latest Franchise 50 Index. Aliouche can be reached at 603-862-1884 or hachemi.aliouche@unh.edu. Schlentrich can be reached at 603-862-0137 or udo.schlentrich@unh.edu.

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