BUSINESS REPORT ON REAL COFFEE LTD
BUSINESS REPORT ON REAL COFFEE LTD
INTRODUCTION
Coffee consumption in the United Kingdom has been on the upward trend in recent times. Currently, there are over 15000 coffee outlets and more are still being opened. Out of this number, there are at least 5000 coffee shops that are branded. In the year 2012, there was a drop in the retail sales volume of coffee. The last time this happened was in the year 2003. The decline was attributed to the global economic and financial meltdown. This was a serious setback to the coffee industry which had exhibited significant growth in the United States over the ten year period. Coffee consumers had to reduce their consumption majorly because of the increased unit prices. The competition for coffee lovers is very stiff. Potential and existing companies have to increase the effectiveness of doing business if they want to reap the profits from the expanding coffee industry.
This entailed an analysis of external factors that influenced the operation of Real Coffee Limited. The macro environment of the nation was analyzed together with the industrial trend.
Analysis of the Macro Environment
This report analyzed the general macroeconomic mood of the United Kingdom and how it impacted on the operations of Real Coffee Limited. In 2012, the retail volume sales of coffee diminished. Previously, this type of situation had been experienced in the year 2003. This was attributed to the recession experienced in 2012. The effect of the global economic and financial crisis in 2012 cut across all sectors of the economy. The coffee industry too was not spared. High coffee prices in the international market provoked coffee companies to increase their selling prices. However, the high substitutability of coffee made it very difficult to pass on the increase in price to their customers. While coffee consumers love to have their drink, they would easily opt for other available substitutes if they consider the price increment too much. It was noticed that most coffee consumers reduced their expenditure on the drink irrespective of their preference for the product. This posed a problem for coffee companies in determining the consumer surplus; the highest amount of money that coffee lovers were willing to spend for the commodity. Consumers also experienced ‘money illusion’. They had difficulty in determining the real value of money due to volatility in the exchange rate system.
Industry Analysis
Real Coffee Limited is a small company that operates in the coffee industry. It operates a chain of six coffee outlets located in different areas of the United Kingdom. Due to its small size, it is not able to compete favorably against large coffee companies such as Starbuck and Costa which have superior resources. However, the company can improve its performance by making some adjustments to its operational structure. The management of the company as it currently stands is highly inefficient and ineffective. It should be noted that the profitability of the entire industry does not imply profitability of individual coffee companies. Companies in the coffee industry are adopting intensive mechanisms to ensure that they enjoy a significant share of the market. In general, diversity seems to be the most effective strategy. In order to attract customers into their coffee shops, they are offering a variety of products to lure them into their shops.
INTERNAL ANALYSIS
This section covered those forces that influence the business and are within the control of the company. It took a look at the current issues that affect the internal operations and structure of Real Coffee Ltd and potential solutions. The decisions of the company are made by only one individual who bears the responsibility for success or failure. This means that the system of management is centralized; there is no delegation of any of the business functions since Adam makes all the decisions pertaining to the business. This exposes the company to high level of risk of failure. The company is however doing little to improve its competitive edge in the market. This is evidenced by the fact that there is no promotional budget for the company. There also exists poor communication as evidenced by the apparent disagreements between Adam and his children.
MARKETING ISSUES
The marketing function of the company is directly related to the profitability of the company. The market for coffee can be categorized into two main groups: young and old consumers. It has been observed that old consumers tend to prefer coffee shops located in quite areas that are clean and comfortable. In contrast, young consumers prefer coffee shops that are situated in busy areas. Overall, all consumers appreciate a good quality cup of coffee. Real Coffee has been able to stay in business largely because of Adam has constantly and consistently insisted on quality coffee. The company also offers a variety of products such as crisps and snacks. This increases the number of customers who visit its coffee shops and this increases the sales of the company.
HUMAN RESOURCE ISSUES
Human resource management involves the management of all issues pertaining to staff affairs. The employees of a company are the immediate representatives of the business. This is because they frequently interact with the customers in the process of ensuring service delivery. Real coffee ltd has an employee turnover rate of 100%. This is not a good indication. If the company is unable to maintain its employees, then this means that it may also find it difficult to maintain its customers. There is no training scheme for employees implying that the quality of service delivery is also very poor. Adam argues that this situation can be justified by the fact that most of these employees work on a part time basis. Top cadre positions are given to Adam’s for friends. He does not see the need to advertise for filling of vacant positions and this limits the company from acquiring expert human resource.
OPERATIONS ISSUES
Real Coffee Limited is a family business. Its management has remained in the hands of the family since it was set up. It owns a total of six coffee shops. The business is owned by Adam Franklyn who acts as the figure-head. He allows his two children Alice and Ross to assist him in managing the company. The three family members manage two coffee shops each but Franklyn is responsible for the overall management of the entire company. Adam’s son Ross manages the coffee shops in Aylesbury and Witney, and Alice the ones in Cowley and Summertown. Adam manages the remaining two shops in Oxford town centre and at the same time takes an overview of how the business is doing which in reality means they have to check most things with him. The two siblings are frustrated by their father’s totalitarian approach to managing the business. They have proposals about the expansion of the company but Adam remains rigid and inflexible about their ideas. The company as it currently is has no growth prospects because Adam is comfortable with the status quo.
FINANCIAL ISSUES
The company availed some relevant information about its financial performance that was used to analysis its financial issues. Information was also provided on anticipated cash flows of a project proposed by a partner (Susan). While the financial rates and ratios show that the company is well able to meet its financial obligations, the company’s profitability remains relatively very low. This is indicated information provided by the company revealed some important details about the business performance. The company has recorded a very low mean revenue growth rate of 4% between the years 2008-2013. The net profit margin is 2% and the promotional budget is a meager 0.05% explaining the low sales revenue thus low profitability.
CONCLUSIONS AND PROPOSALS
It is evident that Real Coffee Company Limited has not realized its actual growth potential. With its management remaining in the hands of a single individual who makes all decisions pertaining to the business, the likelihood of incorrect decisions being made is very high. Adam should consider delegating some of his responsibilities to his children who are well-educated. Furthermore, his health condition does not allow him to effectively manage the affairs of the business.
PROPOSED STRATEGY SET
The company enjoys good relations with the community around it. This makes marketing strategies that focus on the community very effective if they should be adopted. The reputation of the company will be greatly boosted and the company be fulfilling its social responsibility. This enables the company obtain a good image in the eyes of its customers. Promotional activities are important for any business. Through promotional activities, the company is able to inform potential customers about the existence of their product, convince existing customers to continue visiting the company’s outlets, and clarify information that is not clear to the customers among other important information. Promotional expenditure often boosts the sales volume of a business.
The company should adopt more aggressive promotional stance if it is to grow its sales revenue and thus profitability. Substantial rise in promotional expenses for the company can lead to increased in profitability. Real Coffee Company should increase its promotional expenditure. Word of mouth alone is not a reliable mode of increasing the profitability of the business.
PROPOSALS FOR THE STRATEGIC DIRECTION OF THE BUSINESS
In order to give the company a sense of direction that it currently lacks, the management of the company needs to be delegated. When important functions of the business are put in the hands competent people, the goals of the organization are likely to be achieved with relative ease. Decision-making should also be made more inclusive and consultative. This can be achieved by involving all stakeholders such as staff, suppliers and other stakeholders because they can lead to the achievement of the company’s growth. It should be well comprehended that the company needs to include other stakeholders especially employees and customers if it is attain its growth capability.
PROPOSED IMPLEMENTATION SET
The company needs to implement the various strategies that it has identified in order to realize its growth potential. To start with, a decentralized form of control needs to be initiated where decisions of the company are delegated to competent members of staff. This will ensure quality management in all aspects of the business. Community based events should be organized to ensure that the business keeps a close profile of their customers as well as ensure corporate social responsibility on the part of the business.
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