Coffee Shop
Outline a Financial Plan for the Local Coffee Shop Business
The financial plan for the coffee will hinge primarily on securing fixed assets at low rates for long durations. Many of the coffee shop assets will be fixed in nature and as a result will require debt financing. Aspects such as coffee mix, machinery, property, plant and equipment are in many instances fixed. As such, the coffee shop could potentially achieve economies of scale thereby lowering the per unit cost of coffee. During the initial phase of business, the company may incur losses as it attempts to gain market share and establish its local footprint. In addition, the company must also be cognizant of the cost structure of the business. Too mush initial debt could be a detriment to the company as it struggle to make timely payments. As such the financial plan will focus first on high quality, recurring revenue generation followed with an emphasis on cost control.
Develop a Marketing Strategy for the Company
First and foremost, the coffee shop provides a product. However, the service component is critical for the establishment of this product in the marketplace. Exceptional customer service will establish the coffee shop as a viable competitor in the market. The company will be committed to delivering high quality consumer products, so it is critical that customer service be established as crucial components of this strategy. There are two components to this service function. The first is the ease of buying the product and the second is after-sales service. Both of which will be displayed in marketing content
Ease of buying is one of the most important factors for consumers when making purchases. When consumers find the buying process simple, they are more interesting in buying and are likely to purchase more (Kotler, 2011). To that end, the coffee shop brand needs superior channels. Purchases can be made easily through the company and they can be made easily through online channels as well, offering a high level of convenience. After-sales service is an especially critical component, and is going to be one of the key hallmarks of the coffee shop brand. By offering superior after-sales service, the coffee shop can build its brand name, which will help it when it wants to launch future products.
The marketing exchange process is defined as “the act of obtaining a desired object from someone by offering something in return” (Joshi, 2005). Distribution is key to this exchange. The marketing plan will highlight the ease between customer interest and purchase. That way, the coffee shop merchandise will not only be a superior product but will be easier to purchase. This is why online promotion is so important, because only online can the path from interest to purchase be so quick. Moreover, our target audience of young early adopters inhabits the online space for several hours each day. The key to winning market share where none currently exists is to make life simple for the customer. By offering product with real value, and making it very easy to purchase, the coffee shop has a strategy for delivering the best results to consumers, and that will deliver results for the overall business as well.
The vision for the coffee in 3-4-year’s time is to have created a company with a creditable service and establish a standard of quality that is popularly recognized with respect and security. This vision is paramount to the success of the company. By creating a brand that is immediately recognized for its service element provides the company with a sustainable competitive advantage relative to peers in its local markets. The food and beverage business is predicated on quality and trust. The company therefore must first establish this trust in its consumers, stakeholders and overall community. The marketing plan encompasses this ideal. The vision for both the company and the marketing plan will be identical. The marketing plan attempts to incorporate all stakeholders involved in a manner that is beneficial for the company and society as a whole. As such, the marketing plan uses the 6 P’s- People, Product, Partners, Planet, Profit, and Productivity (Swarming the shelves, 2006).
1) People: Be a great place to work where people are inspired to be the best they can be. Having consistently good services helps to better establish the brand
2) Portfolio: Bring to the world a portfolio of quality coffee and snack brands that anticipate and satisfy people’s desires and needs. This will further establish the brand in the minds of consumers
3) Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value, particularly in international markets. This could potential lower the overall cost profile of the business
4) Planet: Be a responsible citizen that makes a difference by helping build and support sustainable and secure communities.
5) Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities.
Business Objectives
Longer term business objectives of the coffee shop are to ensure modernization and to engage and keep customers and consumers interested in our services. The goal of modernization is to maintain up-to-date information that will be helpful to our customers. Coffee and snack products will continually need improvement to meet customer demands. The coffee shop, through this marking plan, intends to be at the forefront of the industry. Furthermore, as mentioned above, it is crucial for the coffee shop to become synonymous with quality and trust. It is through this “share of mind” in the consumer’s subconscious that the company can repel any threat from larger more entrenched competitors. It is also through this objective that the company can continue to maintain healthy operating and product margins. The coffee shop has the potential to be unique in the sense that consumers are willing to pay premium price for its innovative and broad array of products. By articulating a compelling value proposition to the consumer through this marketing plan, the company can charge premium prices while also garnering valuable market share.
Marketing Strategy
The company although small when compared with competitors has a very talented staff. We intend on pooling our resources together to establish the company as a strong presence within the local community. Our strategy is based on the following concepts and principles:
1) Create awareness of the brand within the Community, which will generate demand, desire, and purchase
2) Have a strong emphasis on quality. High quality performances, music, tours, and promotions. This will allow the company to be easily recognized while also disassociating itself from its competitors.
3) Leverage the company’s online website as a virtual store for coffee and snack items. This will separate the company from the competition while also allowing a potential consumer to learn more about the coffee shops product offerings.
Marketing Objectives
1) Increase views of the coffee shop online website by 100,000 per year
2) Increase mailing list subscribers by 2500 per year
3) Increase online purchases of Coffee and Snack related items by 500
Prospect for Growth
This area of the plan deals with the potential growth of the business and its competitive nature and advantage over others in the industry. It is important to visualize the possibilities of the online business and the website components. Below is a chart outlining 2010 U.S. e-commerce spending. Notice how the trend has increased over the later months. More consumers are conducting business online. Therefore, many large coffee products will be ordered online. Even more interested is the year over year growth line incorporated into the chart. For each month the growth from the preceding year is at least 8%. This bodes well for the industry as consumers continue to use online websites for their shopping and purchasing needs (Joshi, 2005).
The coffee shop must start by using its online medium to build its reputation and credibility in the industry. Once a customer base is established we plan on developing a larger scale growth plan involving large popularly e-commerce companies. Our vision is for the company to become a well-known logo for quality for e-commerce consumers.
Discuss the Most Appropriate Location for a Second Store
In regards to a second store location, the best location to place the store would be in close proximity to the original coffee store. However, the owners must be careful not to cannibalize sales within the original coffee stores market. As such the second store should be in the same demographic market but far enough as to not cannibalize sales from the original store. This is the most appropriate location for numerous reasons. First, the close proximity will provide cost savings due to economies of scale mentioned earlier. As the coffee business is predicated on fixed costs, it will be much easier to save on a per unit basis by having the coffee shops in close proximity to one another. In addition, resources and best practices can be shared in a more cost efficient manner. If an incident occurs in one store, it will be easier for management or owners to address the issue. Issues for example could occur if business in one coffee shop is unexpected good for the day. However, because this business was unanticipated, the shop may encounter difficulties with appropriate inventory. Due to the proximity to the store, goods and inventory could easily be transferred to satisfy unexpected demand. This is particular useful in the early stages of business as inventory control is critical to profitability and return on assets.
In addition, having the store in the same demographic marketing area will allow the owners to further build the brand and competitive advantages over peers in the industry. Due in part to the commodity like nature of coffee, brand allows the owners to charge premium prices. This occurs with many coffee shops such as Starbucks, or Dunkin Donuts. Their coffee in many instances is similar to competitors. However, due to the brand, and what it represents to the consumer, both locations are able to charge premium prices. By having the coffee shop near the original location, the owners and managers can continue to build the brand which ultimately will resonate with consumers. This will drive brand loyalty, heighten margins and increase profitability over the long-term.
Outline a Plan for Securing Debt Financing
Raising capital through debt is often compared to raising capital through equity. The major difference is that equity requires you to give up partial ownership of your company. Debt capital however, will allow the original owners of the coffee shop to maintain their ownership claims to the business.
A major negative with debt capital is that the owners will be funding from banks or other lenders. These institutions often look for low risk investments, something that many start-up businesses can not offer. As such it is important for the coffee shop to establish itself as a viable and thriving entity. For one, this will the company to access additional capital to expand operations, build stores, and the overall brand. In addition, being a viable option could potentially lower interest payments, saving the company valuable dollars. As such, the plan to securing debt financing will hinge primarily on the companies ability to operate profitably in a very competitive environment. Profitable operations make debt financing easier as oppose to lagging and struggling profitability. The plan will highlight the ability of the company to payback its obligations in a timely manner as not to cause undue harm to the financial institution.
In addition the plan will consist of time series ratios that display key metrics of business performance. Such ratios will give the funding institution key information as to the future growth of the business. Ratios such as return on assets, debt to equity, inventory turnover, quick ratio, and the acid test ratio provide extensive insights into the operation of the business. In particular the quick ratio will be very important in securing debt financing as it provides evidence as to the short-term nature of the business. The quick ratio measures short-term assets against short-term liabilities and is a good indicator of financial strength. In the event of a downturn, financing institutions want to know if the business will survive. Having the assets and liquidity necessary to navigate strong downturns is essential to obtaining debt financing. As such, the plan will allow the banks to easily determine the merit of the business. Many businesses in the startup stages of development often will have difficult times financing through debt because they cannot meet the immediate interest expenses. In other words, if you have no income because your product or service isn’t finished yet, it is less likely for you to be funded by a bank. Paying monthly interest on a loan can be very difficult for businesses without established revenue streams. As such the coffee shop must prove it can obtain recurring and viable revenue through its brand or service quality. Financial statements will be essential in this regard. Of particular interest will be the income statement and the cash flow statement which both can show the bank how strong the earning potential of the business is. Most banks ask for your old financial statements dating back at least three years. These documents allow the bank to evaluate how risky the business is and if you’ll be able to make the monthly payments. Depending on your business’ current position, this will either help ensure a loan if you have healthy revenue streams, or make funding through debt more difficult. As such the plan will provide the banks with proof of the viability of the overall business.
References:
1. Swarming the shelves: How shops can exploit people’s herd mentality to increase sales.” The Economist. 2006-11-11. p. 79-90.
2. Kotler, Armstrong, Philip, Gary. Principles of Marketing. (2011)Pearson education.
3. Joshi, Rakesh, (2005) International Marketing, Oxford University Press, New Delhi and New York ISBN 0-19-567123-6
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