Business Management: Coffee Shop Business Expansion
Introduction
In the world of business management, the most basic aspect influencing development of business idea to the final commencement of operations is the guarantee of returns on capital invested . The core ideology of business lies on the objective of investment and utilization of available resources in an operational manner to produce commodities of value, which will generate returns for an organization in the future . This is the prime ideology leading to the presentation, which will highlight important aspects related to business operations of a planned second coffee shop outlet of Paulos’, whose flagship outlet was established in Cherokee and has been running successfully for 4 years now.
This presentation focuses on the key aspects related to the launch of second coffee shop of Paulo’s and the following sections will exhibit the same. Accordingly, it needs to be highlighted here that the key areas covered are (1) store location and other details, (2) financial specifications i.e. financial plan outline and sources of debt financing, (3) pricing strategies and finally, (4) guerrilla marketing strategies and their utilization for enhancing the potential of the planned outlet.
Store Location and other details
The first store of the organization had come up in Cherokee and has been pretty successful for the last four years, thanks to the prime location of right in the center of downtown Cherokee in Iowa. It operated as an 88-seater coffee shop with seating arrangements in combinations of two, four and six. The operational hours for Paulo’s at Cherokee is from 7 a.m. in the morning to 11 p.m. at night. As far as the operations of the second Paulo’s outlet are concerned, it is planned to be built on a prime 2100 square feet plot in an upcoming commercial complex located approximately 300 feet away from Northwestern University. The location has been secured as a five year lease and does have the option of extension in the future.
Operations will involve management of a 126-seater coffee shop as compared to 88 seats in Cherokee. The planned increase in the number of seats is due to the fact that Chicago is the third highest populated city of North America, and the location is very promising owing to the commercial locality and also proximity to the Northwestern University campus which has more than 20,000 students. The surrounding area is known to be very busy and it is largely expected that the footfall will be much higher as compared to Cherokee, thanks to the location. The operational hours will also differ as the plan is to operate round the clock and not be limited to 7:00 a.m. to 11:00 p.m. as is in the case of the Cherokee Outlet.
There will be some differences in the menu and food and beverages offered as well. In case of Paulo’s at Cherokee, the food and beverages menu is cyclical, which means that it changes every week of the month, and the patrons have the option of selection of food and beverage items from the menu running for the rest of the week. The difference in case of Paulo’s at Chicago is that the menu will be slightly different and it will accommodate fixed menu and a-la-carte items. More popular food and beverage items will be on the fixed menu and a-la-carte items will be available for order as well, along with Paulos’ regulars.
In contrast to the outlet at Cherokee, the coffee shop at Chicago will feature a show kitchen whereby patrons and food production staff can interact with each other. It will also incorporate a little differentiation from Paulo’s Cherokee on seating arrangement. Two-seater and four-seater tables will be set up around the show kitchen which will also give the feel of a kitchen bar. It needs to be highlighted that due to the reason the outlet at Chicago will be open for 24 hours, a-la-carte orders will be entertained from 7:00 a.m. to 11:00 p.m., and from 11:00 p.m. till 7:00 a.m. the patrons would only be able to order from the fixed menu.
Financial Implications I – Outline of Financial Plan
It needs to be highlighted that before commencement of business operations, the planning process should very critically include the various aspects associated with the running of the business outlet . As far as the operations of the second Paulos’ outlet are concerned, the primary focus deemed necessary is that of financial implications. A business expansion plan is particularly challenging to the leadership, as unfavorable circumstances and results will not only adversely affect the new establishment, but will create an impact on the financial outcomes of existing units also . Also, especially in case of upcoming business units, correct assumptions in terms of financial planning become highly important. In this particular case, the following assumptions and facts need to be highlighted:
(1) During operations, raw materials worth $ 30,000 will be required each month.
(2) During operations, monthly salaries and wages to be paid will not exceed $ 40,000 a month.
(3) On an average, the coffee shop will be able to sell 200 covers every day.
(4) The average revenue per cover is expected to be upwards of $ 20.00.
(5) It is expected that there will be an increase of 10% in terms of sales figures over the previous year annually.
(6) The premises and restaurant is available to the organization for operations at an agreed amount of $ 1,337,500 for a period of five years.
In light of the above assumptions and specifications, it is now important to produce the calculated (a) budgeted annual revenue, (b) projected revenue for three years @ 10% annual increase and (c) projected cash flow for three years. They are as under.
(a) Budgeted Annual Revenue
Budgeted Annual Sales = US$ 1,440,000
(b) Projected Sales for Three Years @ 10% annual growth in sales
The important aspect that needs to be mentioned here is that the annual rate of growth of sales for the coffee shop outlet at Chicago has been ascertained at 10% per annum, just as in the case of Paulo’s at Cherokee. However, in Cherokee it was observed that the annual growth was more than what had been ascertained and it is expected that the situation will be very likely in Chicago too, with a much larger market and more crucial location.
(c) Projected Cash Flow for 3 years
Financial Implications II – Sources of Debt Financing
The other crucial aspect to be considered in this case is that of sources of Debt Financing. It has been determined that since the business is relatively new but has the ability to generate high returns, loan will be the primary source of debt financing. Had there been substantial business volume or even a nomenclature of public or private limited company associated other sources such as debentures could have been considered. However, having only one operational entity which is running profitably, banks and equity from the owner will constitute the source of capital.
Pricing strategies
With respect to pricing strategies, it needs to be highlighted that the organization is very much aware of the implications associated. Poorly constructed pricing strategies will have an adverse effect , so careful consideration has been given to menu pricing. Combining requirements of pricing element of marketing and also, food cost and markup percentage, the pricing will be highly competitive yet profitable. Adhering to costing techniques in specialized hospitality businesses, it has been decided that food cost will constitute maximum of 25% for beverage item selling prices and a maximum of 30% for food item selling prices.
Guerrilla Marketing Strategy
Given the small size of the organization and possible budget constraints it is highly likely that for advertisement and promotions of the upcoming Paulo’s Coffee Shop in Chicago, guerrilla marketing techniques will be applied. After consideration of several options, viral marketing using social media and variations of Street Marketing techniques (distribution of flyers and human animation) are being considered to be the most likely means of marketing to be adopted. However, there are two factors – advantage and limitation – of these two types of marketing means which are influencing final decision making. Though both these forms of contemporary marketing techniques are economic and effective, it is not guaranteed that they will give the coffee shop a very exclusive brand image in the market. For the time being, these are considered the best techniques to create the maximum impact.
References
Bovée, C.L., and Thill, J.V. (2008). Business communication today (9th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.
Dlabay, L.R. and Burrow, J.L. (2011). Business finance. Chicago, IL.: South-Western Cengage Learning.
Farese, L.S., Kimbrell, G. and Woloszyk, C.A. (2012). Marketing essentials. Columbus, OH: Glencoe/McGraw-Hill.
