Alix Box, former CEO of Second Cup Ltd., is photographed during an interview at the the chain's King St. West and John St. location in downtown Toronto on Dec 3 2014.Fred Lum/The Globe and Mail
Second Cup Ltd. has parted ways abruptly with its chief executive officer, Alix Box, as the high-end café chain struggles to make gains in an increasingly intense market.
The Mississauga-based company said on Wednesday that Ms. Box, who took the top job about three years ago, was stepping down immediately as CEO and from her seat on the company's board of directors, and is being replaced on an interim basis by Garry MacDonald, a new board member and franchise-food consultant.
"It's not a great story," said Bob Riche, a former Second Cup franchisee and executive who was once its single largest franchisee, but went into bankruptcy at the end of 2014. "I don't know what they're going to do. It's almost too hard to turn around."
Second Cup hired Ms. Box, a former executive at luxury-fashion chain Holt Renfrew & Co. Ltd. and Starbucks Corp., to breathe new life into the fading Second Cup. But her blueprint for change, including an upscale redesign of the company's cafés, failed to show signs of a dramatic revival over all and faced some franchisee resistance.
At the same time, Second Cup grappled with a growing array of rivals, from Starbucks to McDonald's Corp. and Tim Hortons Inc., which recently relaunched its espresso-based coffees.
Second Cup's shares have been falling from close to $5 a share when Ms. Box arrived in early 2014, to finish on Wednesday at $1.58 a share, up more than 4 per cent on the day, on the Toronto Stock Exchange.
"The company right now is in a very difficult position," said Douglas Fisher, president of food services consultancy FHG International. "They have not managed to do much, in terms of the turnaround."
Franchisees have complained that Ms. Box's "café of the future" required them to sometimes spend hundreds of thousands of dollars on a model that was failing to attract enough customers.
Robert Carter, executive director at researcher NPD Group, said its data show Second Cup continues to lose market share. The chain is shedding its core baby-boomer customers while failing to replace them with enough younger millennials, he said.
Last year, Ms. Box acknowledged she was already a year behind in meeting her targets for her three-year turnaround plan. "It's taking a little bit longer than I'd like," she told The Globe and Mail, adding she'd set ambitious goals.
She said in a statement on Wednesday: "When I joined Second Cup, I committed to a complete ground-up reorganization, including reducing expenses and overhead, because I felt strongly that if we could fix the foundation, we could move forward to transform what I believe is an iconic Canadian brand. Now the time has come for me to move on to my my next challenge and I wish all my colleagues at Second Cup the very best as that transformation continues."
Ms. Box did make some progress. In its fourth quarter, Second cup's profit rose to $147,000 from $94,000 a year earlier, while revenue dropped to $7.5-million from $9.6-million. Same-store sales, a critical retail measure, fell 1 per cent.
But in another setback, the chain last month lost its two-decade-long partnership with Air Canada when the airline replaced Second Cup as its in-flight coffee with Lavazza. "As Canada's only remaining specialty-coffee company, Second Cup is proud of our 20-year partnership with Air Canada and disappointed that our all-Canadian brand will no longer be available in-flight," Vanda Provato, Second Cup's vice-president of marketing, said in an e-mail on Wednesday.
Michael Bregman, chairman of Second Cup, said it is a much better company than it was three years ago. "At this time, we are focused on capitalizing on the considerable potential to build value at Second Cup. Garry MacDonald has identified areas for improvement and he has the background, knowledge and experience to lead the way."
Mr. MacDonald does consulting for franchise chains such as Yogen Fruz World-Wide Inc. and Pinkberry and has served as president of Country Style Donuts and Buns Master Bakeries.
Second Cup (SCU)
Close: $1.58, up 7¢