Second Cup goes for diversification in restructuring plan

The renamed Aegis Brands will own a portfolio of coffee, food and cannabis brands.
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Coffee has been a tough business for Second Cup over the last few years, but the company believes a new corporate structure, name and portfolio of brands will help turn it around.

Pending approval from shareholders and the TSX, the publicly traded Second Cup company will be renamed Aegis Brands (not to be confused with marketing and media company Dentsu Aegis).

The parent company Aegis Brands will own the Second Cup coffee business – which it plans to turn into a wholly-owned subsidiary in the new year – and operate it as one business within a portfolio of brands.

Second Cup is currently the only brand within that portfolio, but Steven Pelton, who was named president and CEO of Second Cup in June, said the company is currently seeking acquisitions in the coffee, foodservice and cannabis categories, echoing statements it had previously made in the summer.

Last year, Second Cup established a partnership with National Access Cannabis to pursue licenses for cannabis retail, converting locations into dispensaries. The first two locations are expected to open in Calgary early next year, and the company says it will “more aggressively” pursue licensing opportunities in Ontario, a region where it has the biggest store footprint.

On the coffee front, Second Cup operates 246 locations (as of the end of Q3), down from 270 at this time last year. But while the cafe count is down and cannabis ambitions will result in offloading further cafes, Second Cup still sees opportunity to grow its presence: the company says it has been testing more cafes in “non-traditional” locations – such as school campuses, healthcare facilities and transportation centres – and plans for growth in 2020 will be weighted to these types of cafes.

The announcement was made alongside the release of Second Cup’s Q3 financial results, which shows the coffee chain is continuing to struggle – aside from some brief reprises, the company has routinely posted losses in quarterly reports in recent years. Same-cafe sales were down 2.9% in Q3, and are down 1.3% for the year-to-date. The company’s adjusted net loss for Q3 was $62,000, and sits at $492,000 for the year-to-date.

The company will seek shareholder approval for the name change at its annual meeting in May 2020. Pelton will become CEO of Aegis Brands, in addition to maintaining duties as president of Second Cup.

Last month, Vanda Provato, who previously spent more than five years leading marketing for the coffee chain, was named to the VP of marketing role at the LCBO.