Business Plan for the Caffeinated Beverage - Assignment Example

business plan for the caffeinated beverage THE STARcafe Business plan Prepared by: MOHAMMAD ALGHAMDI ID: S0187750 Executive Summary This business plan is aimed at showcasing the potential of the Star Café enterprise to potential investors such as Investcorp as well as giving employees a bird’s eye view of how the operation is supposed to work and the company vision. It outlines every aspect of the business and gives an understanding of the company’s goals and objectives for the next three years. The Star Café aims to establish a series of coffee cart kiosks located at first at the Heriot-Watt campus in the Dubai academic city and then spreading out to other campuses in the locale. The business will partner with Eastern men and Co to source for the best coffee, and acquire training in recognising the best coffee and making it available to consumers. Eastenmen will also provide us with coffee making equipment on an instalment plan and provide training for staff at a fee (Yousef, 2011). This will assist The Caffeinated Beverage to start off at an advantage from other coffee carts because we will be acquiring the best coffee at a reasonable price, the goal being to develop a reputation for the best coffee around campus. Contents Background 3 Mission Statement 3 Company History 3 Company Ownership 4 Start-Up Summary 4 Company Locations and Facilities 7 Product Description 8 Competitive Comparison 8 Sourcing 9 Future Products 9 Market Segmentation 10 Business Goals 11 1.1Objectives 11 1.2Mission 11 1.3Keys to Success 12 Management Team 15 Target Market Segment Strategy 15 Market Trends 15 Market Growth 16 Market Needs 17 Financial Projections 17 Funding Requirements 18 Financial Projections 19 General Assumptions 20 Key Financial Indicators 20 Break-Even Analysis 21 Staffing and Operations 24 Implementation Timetable 25 Table of Figures Table 1: start-up requirements 6 Table 2: start-up assets 6 Table 3: breakdown of assets 7 Table 4: Map outlining the area of Dubai Academic City 14 Table 5; general assumptions 20 Table 6: Break-even analysis 22 Introduction The residents of the UAE drink an equivalent of 3.5kg of coffee annually (Yaqoob, 2009). This is almost twice as much as that drank in other Gulf States according to experts. According to RicRhinehart, executive director of Specialty Coffee Association of America, the coffee boom could be due to the number of multi-national coffee chains that are in operation in the UAE as well as a high disposable income. There are also large expatriate communities who have imported their western habits into the UAE and are imitated by the locals. This is a factor in my decision to set up coffee carts outside the Heriot-Watt campus to begin with. The carts will be located at the entrances and exits as well as the student quad. Business Framework/ Outline This business plan will cover the following areas: Purpose of the plan Product or service and its advantages Market opportunity Management team Track record, if any Financial projections Funding requirements -Purpose of the plan: this outlines the concept behind The Caffeinated Beverage and how we intend to go about the business. -Product or service and its advantages: examines the popularity of coffee in the UAE and how this can be used to advance our business model. -Market opportunity: examines the current market for coffee in the UAE as well as the advantages of operating from campus grounds. -Management team: lists the stakeholders in the Caffeinated Beverage coffee cart business. -Financial projections: gives a broad overview of the finances that will be required to get the business off the ground and how much we are slated to profit from it. -Funding requirements: this is the financial outlay required. Background Coffee is one of the most highly consumed beverages in the United Arab Emirates (Yaqoob, 2009). Furthermore, it is an important tool for students on campus who study long hours and require an energy boost. The Caffeinated Beverage Coffee Cart is a concept that was incepted to provide 24 hour access for students and other on-campus as well as off-campus consumers to high quality coffee at a reasonable price. The concept is a brainchild of Mr.Alghamdi and has been brewing for a long time. We recently acquired funding from a private investor that has enabled us to make this dream a reality. Mission Statement To provide high quality caffeinated beverages to a wide range of consumers based around academic institutions at a reasonable price. Company History The Caffeinated Beverage has existed on paper for five years and is just now coming to fruition. It is registered as a limited liability enterprise. The Star Café is a speciality beverage dispenser dealing in the coffee kiosk market and catering to the academic communities on various campuses in Dubai and their environs. The Star Café joins the limited number of coffee carts that supply this beverage in the city and aims to be the go to choice for hot and cold caffeine beverages offered at the customer’s convenience in a manner that is time efficient. The customer is able to walk by on their way to class, or the library or work and order from the Easternman-trained barista their choice of caffeinated drink, from espresso to cappuccino or any other beverage in that line. This is a high quality alternative to fast food joints or institutional coffee. Company Ownership The Star Café is a limited liability corporation registered under the name Star Café with majority shares held byMohammad Alghamdi with the aim of using some shares as a way to raise capital. This will be achieved by selling 100 member ship units to interested parties such as Investcorp. Each membership would be worth 100 USD with each member buying a minimum of five units per membership certificate or 500 USD per investor. Should all memberships be sold, and all funds raised, based on the projections in the financial section, Mohammad Alghamdi will maintain 51% of the company’s ownership. Start-Up Summary The start-up expenses and funding for the Star Café are listed in the table and chart below. Start-up capital will mainly be used for purchasing the first carts, paying for training, and deposits on equipment, and providing operating income for six months, licenses, inventory and other contingency expenses that may come up. We anticipate that the Star Café will require operating capital for at least the first six months of operation. Figure 1; breakdown of startup Table 1: start-up requirements Start-up Requirements Start-up Expenses Legal $1700 Equipment $2000 Coffee Kiosk Labour (6 months) $30,000 Coffee Kiosk expenses (6 months) $4020 Administration Labour (6 months) $25,000 Website Development & Hosting $1500 Identity/Logos/Stationary $1000 Other $5,000 Total Start-up Expenses $70220 Table 2: start-up assets Start-up Assets Cash Required $25,500 Start-up Inventory $16,500 Other Current Assets $0 Long-term Assets $99000 Total Assets $141,000 Total Requirements $211220 Table 3: breakdown of assets Start-up Funding Start-up Expenses to Fund $70220 Start-up Assets to Fund $141,000 Total Funding Required $211,220 Assets Non-cash Assets from Start-up $16,500 Cash Requirements from Start-up $25,500 Additional Cash Raised $0 Cash Balance on Starting Date $25,500 Total Assets $141,000 Company Locations and Facilities The Star Café will open its first coffee carts at the Herriot-Watt University located at Dubai International Academic City. This is a suburb about twenty minutes from the Dubai business district that is dedicated solely to universities and colleges. There is a large vibrant academic community in the area. Herriot-Watt University has capacity for 4500 students and attendant staff as well as support staff (The Scottish Government, 2011). The demographic and physical requirements for a coffee cart are: Constant foot traffic Visibility from the pathway. The Star Café aims to supply its customers with a fine blend of hot and cold caffeinated beverages. Product Description The Star Café is a convenient amenity for foot traffic on campus to access their coffee beverages that will be blended to their exact specifications. Every Star Café employee will be trained as a Barista by Easternman in the fine art of preparing, blending and serving hot and cold drinks with attention to detail. It will offer a wide variety of coffees accompanied by suitable snacks. Through social media, flyers and message boards, The Star Café will market themselves so that they are the go to place for coffee. Competitive Comparison The Star Café is a new business under the coffee kiosk concept. The main competition on campus stems from soft drinks, milk shakes and other beverages dispensed from various academic outlets. The Star Café’s main competition comes from: Multi-National coffee houses. Locally owned and operated coffee houses. Fast food chains and convenience outlets. There feature of the Star Café that distinguishes it from its competitors is the quick and efficient serviceswhere patrons just walk up and get their coffee. Sourcing The Star Café will be sourcing its coffee from Easternmen and Co. Fulfilment equipment suppliers include PJ's Coffee, City Stations, Talbert Ford, and Retail Image Programs. The Star Café’s computer equipment and Internet connectivity is provided by Elisatat. Future Products As seasons change, The Star Café will be offering products that will enhance sales and satisfy its customers' desires. During summer months, we will subsidize lower hot beverage sales with frozen coffee drinks, as well as soft drinks, and other cold beverages. The Star Café will also have special beverages during holiday seasons, both Christian and Muslim. The Star Café’s primary desire will be to listen to its customers to ascertain what they are looking for most, and provide it. Market Analysis Summary The Star Café will focus on two markets: The academic either studying or working within the university community. The surrounding community which lives or works in the Dubai academic city Market Segmentation The Star Café will focus on two different market segments: Academics and the surrounding community. These two market segments will be serviced by the coffee carts conveniently located. Academics are defined as any individual who is preoccupied with the business of university life either as a student or a lecturer, support staff or other individuals working within the community. The surrounding community consists of family, other business vendors and incidentals. Captive Consumers would include those who are tethered to a campus environment, or in a restricted entry environment that does not allow free movement to and from. There are well over 100,000 pedestrians in the academic city, as well as visitors, and others. It can also be assumed that these commuters do not make only one purchase in a day, but in many cases, two and even three beverage purchases. Business Goals The Caffeinated Beverage Coffee Carts Café aims to be the mainstay in coffee and other caffeinated beverages within the city. It aims to begin small at just one campus but expand gradually to cover all other campus grounds in the city. 1.1 Objectives The Star Café has identified three solid objectives that they aim to achieve in the next three years. These are: Three coffee kiosks located in each campus in Dubai by the end of the third year. A gross margin of 45% or over. We should post a Net After-tax Profit of over 15% of sales. 1.2 Mission The Star Café has a three pronged approach to success. It involves: Product Mission: which involves ensuring that the customer accesses the best quality beverage in the timeliest manner Community Mission: giving back to the community by giving students the opportunity to access part time jobs at the coffee carts in shifts. Economic Mission: involves operation and growth of the business in a profitable way through making economic choices that are robust. 1.3 Keys to Success Three keys to success cut across the breadth of the food service business but there is one, the community mission that makes us stand out from the crowd and gives us an edge over the competitors. We have other virtues which will help us to succeed. These are: Advantageous locations – our visibility is high located at the gates of the campus and other high traffic walkways. Plus, we have convenient access. We will serve only the best products with the freshest coffee beans, hygienic, clean equipment, serving containers at premium and consistent flavour. Our staff will be friendly, cheerful, articulate, skilled and professional. We intend to perpetuate a fine reputation through word of mouth advertising. Market Opportunity The culture of coffee drinking is currently on the rise in the UAE. Coffee is perceived as a drink for those with high income, who are westernised and is associated with habit. Due to the relatively high income levels of the average UAE resident, this is not a problem. Consumption of coffee in UAE is slightly higher than that in Britain but lower than in the US whose average consumer drinks 4.17kg of coffee according to Mr.Rhinehart (Yaqoob, 2009). The only problem is a lack of variety which Easternman and Co. will assist with since they are distributors of coffee sourced from Brazil, Nicaragua, India, Yemen, Indonesia, Guatemala and Ethiopia (Revels, 2000). They also provide education on the different coffees as well as providing them at a reasonable price (Morgan 2011). Heriot-Watt is a subsidiary of a British University and therefore has a westernised atmosphere on campus that would be a conducive environment to start up our business in (Jenvey, 2011). Table 4: Map outlining the area of Dubai Academic City Management Team The management team consists of Mr.Alghamdias well as an outside investor group known as Investcorp that is providing a majority of the capital. The day to day running of the carts will be done by Mr.Alghamdi with employment of coffee vendors working in 24 hour shifts (Morgan, 2003). Target Market Segment Strategy The Star Café’s target market is the individual on the move who has no time to sit down for a refreshing beverage but is in need of one anyway. They have good taste in their caffeinated beverage but lack the time to sit down in a café. By situating the coffee cart in high traffic, high visibility areas of the campuses, then the targeted consumer is sure to find the cart and become a regular visitor. In order to capture the target market for coffee kiosks, the carts will perform as intended and take the café to the customer. By sourcing staff from the very community we wish to serve i.e. students, we are able to have a built in word of mouth system. Market Trends Consumption of coffee and tea in the Arab world has tripled in growth within the last ten years with the UAE showing an 85% increase in only the last three years according to Khawaja (2012). The International Coffee Organisation (ICO) released statistics which show that 1.4 billion cups of coffee are poured daily and the UAE has come to the fore as the fastest growing market when measured by volume. The ICO also reported that coffee volume sales are slated to show an 80% rise in growth between 2009 and 2014 or CAGR of over 12% annually during this time. The population in the UAE already drinks double the amount of coffee consumed in other parts of the GCC and these consumption levels are still projected to rise by the 12% per year up to 2014 (Khawaja, 2012). The market is therefore primed for a company that offers coffee that is superior quality, specially blended in a way that is efficient and convenient at a price that is reasonable and competitive. Market Growth The UAE has been dominated by franchised coffee shops for many years with four top coffee chains permeating all populated areas of the UAE. In the past five years independent coffee roaster have emerged and grown in popularity. These new coffee roasters do go out of their way to encourage the use of locally roasted coffee and thus affect the quality of the product but they also use westernised or international methods of roasting coffee that appeals to the significant expatriate populations (Aldalou, 2012). The market segment that we are targeting is composed of a mixture of locals and expatriate students with a bias towards westernised habits such as coffee drinking. Market Needs According to a Kippreport that carried out a survey on the needs of UAE consumers, 72% would want the quality of delivery of products and services to be augmented. The main areas needing improvement according to a survey carried out by UAE Coffee Events are presentation, preparation and product knowledge (Aldalou, 2012). Other areas that require improvement include hygiene, storage and cleanliness according to 97% of the respondents of the survey. Barista skills and product knowledge are in need of improvement according to 84% and 91% of respondents respectively. 87% of those surveyed registered their impressment with having latte art included in their coffee (Aldalou, 2012). Financial Projections Revenue Sources The venture will be financed by Investcorp investment group with 10% coming Mohammad personal savings. Sales Strategy The Caffeinated Beverage carts will be placed at strategic locations on the school grounds in order to have a high visibility. Flyers will also be made up to be distributed to dorm rooms and message boards. An electronic marketing campaign will be carried out using social media sites favoured by the students such as twitter and Facebook (Surowieck, 2003). Pricing The pricing of the beverages will depend on our buying price from Easternmen and Co. the mark-up will be 30%. Funding Requirements Funding is necessary for various undertakings. This includes: ITEM COST Carts Dh100,000.00 Coffee making Equipment Dh. 500.00 Ingredients Dh. 50,000 Uniforms Dh. 50.00 Training Dh. 50,000.00 Financial Projections The Star Café has good financial prospects especially since we will be operating a cash business and therefore start-up costs are not prohibitive. The process requires a good amount of labour and the quality of Baristas chosen is paramount. The amount of financial investment the Star Café will put in its employees will make the difference between it and what its competitors are doing. The coffee carts and their equipment has been sourced and financed and are filed under capital expenditures. Minimum inventory will be kept on hand in order that the coffee is fresh and any market fluctuations leading to price drops can be taken advantage of should they occur. The Star Café projects that the initial investment will carry it for at least six months at which time, we should be making enough to break even without additional equity or loans aside from the possibility of having to purchase more coffee carts. Growth might be slow but sure, robust and based on a stable financial foundation dictated by customer request and product demand. Important Assumptions The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are: The Star Café assumes that the economy will have slow-growth, without a bigdownturn. The Star Café assumes of course that there are no unanticipatedvariations in public health views of its overall products. The Star Café assumes that it will be able to access equity capital and financing enough to maintain its financial plan as shown in the tables. General Assumptions Year 1 Year 2 Year 3 Plan Month 1 2 3 Current Interest Rate 11% 11% 11% Long-term Interest Rate 9% 9% 9% Tax Rate 0.00% 0.00% 0.00% Other 0 0 0 Table 5; general assumptions Key Financial Indicators The chart below shows key financial indicators that are sales, gross margin, operating expenses, collection days and inventory turnover. The Star Café will attempt to keep the gross margin above 38% as projected in the first year with a cap of 46%. Payroll expenses are expected to increase significantly as we expand into other campuses and face competition from other coffee carts. Figure 2: Benchmarks Inventory turnover projections show the Star Café needs to keep a relatively constant amount of inventory which comes to no more than two weeks’ worth of goods in order to ensure that the product is fresh and not tie up too much cash on the shelf. This would be the general policy unless there is a major event that leads could lead to a significant rise in the price of coffee. Break-Even Analysis In order to determine what the average fixed costs would be per month, it was necessary to first identify the fixed costs for the coffee cart. This was then computed as average price per unit less average cost per unit to obtain this fixed cost of the operation. The following table shows the least number of units that must be sold in order to break even. Break-even Analysis Monthly Units Break-even $15,817 Monthly Revenue Break-even $29,580 Assumptions: Average Per-Unit Revenue $1.87 Average Per-Unit Variable Cost $0.64 Estimated Monthly Fixed Cost $19,457 Table 6: Break-even analysis 7.4 Projected Profit and Loss The Daily Perc is expecting some dramatic growth in the next three years, reaching healthy sales and Gross Profit Margin by the end of the first year. Expenses during the first year will, however leave a Net After-tax loss. This loss will provide TDP with a tax loss carry-forward for the second year. Aside from production costs of 60%, which include actual production of product and commissions for sales efforts, the single largest expenditures in the first year are in the general and administrative (G&A) area, totaling 23% of sales. G&A includes expenses for rents, equipment leases, utilities, and the payroll burden for all employees. Sales increase by nearly 400% in the second year, due to the addition of two more Drive-thrus and two more Mobile Cafes. Although operating expenses double in the second year, The Daily Perc will be able to realize a Net After-tax profit. In that same year, TDP will make substantial charitable contributions. The third year is when The Daily Perc has the opportunity to break into markets outside the metropolitan area. TDP will see nine additional Drive-thru facilities open in the third year, which will drive sales, increase in production costs, and help improve Gross Profit Margin. Several expenses take substantial jumps this year--advertising increases and donations increase as well--and TDP will be adding several key management team members. These increases, as well as those for increased equipment leases and rents, raise our operating expenses, leaving a respectable Net After-tax profit. The single largest expense sector in the third year, outside of production, is still G&A costs, but it is down from 23% in the first year and 18.5% in the second year to just 15.02%. Pro Forma Profit and Loss Year 1 Year 2 Year 3 Sales $558,043 $2,348,900 $6,022,950 Direct Cost of Sales $190,977 $732,350 $1,783,010 Production Payroll $144,874 $646,050 $1,425,250 Total Cost of Sales $335851 $1,378400 $3,208260 Gross Margin $220,776 $935,267 $2,724,346 Staffing and Operations Organisational Chart Training Opportunities Training on all aspects of the business will take place at the Easternmen and Co. where we shall learn about the different types of coffee available and their pricing, the competition and how to go about starting a coffee business. Easternmen will also provide the coffee making equipment on an instalment plan (Yousef, 2011). Implementation Timetable Actions Points Timeline Comments In-Charge Gathering investment funds November 2012 Get investors on board as well as ensure that all cheques have cleared in time. Mohammad Alghamdi Purchase Equipment November, 2012 The equipment has been sourced online and ordered with 50% deposit and 50% cash on delivery. Mohammad Alghamdi Hiring of Support Staff/Vendors December 2012 Staff will be trained by Easternmen and co. and therefore need to be consolidated in one place. Mohammad Alghamdi Identification of Advantageous location December 2012 A survey of high traffic areas must be done in order to identify the right spots to put the coffee carts Mohammad Alghamdi + advisors. Opening date 31st December 2012 An opening ceremony to be held with fanfare at the location of the first coffee cart. All staff. . References Aldalou, M. (2010). Wake up and Smell the Coffee. Kippreport.MediaQuest Corp. Dubai. Jenvey, Max. (2011). Think Drinks. British Baker; 7th Jan, p24  Khawaja, M. (2012). UAE Coffee Consumption Twice as Much as other GCC States. Arabian Gazette, July 15th. Dubai. Morgan, M. J. (2011). Coffee Prices Hit 34-Year high.  African Business; Jun, Issue 376, p46 Morgan, M. J. (2003). Better Everyday Coffee. DSN Retailing Today; Dec 15th 42 Issue 23, p20 Revels, C. S. (2000). Coffee in Nicaragua; Introduction and Expansion in the Nineteenth Century. Conference of Latin Americanist Geographers Yearbook; Vol. 26 Issue 1, p17  The Scottish Government. (2011). New £35m Heriot-Watt campus in Dubai. Viewed 19Dec. 12 from: http://www.scotland.gov.uk/News/Releases/2011/11/03100444 Surowiecki, James. (2003). The Tastemakers. New Yorker; 1/13/2003, Vol. 78 Issue 42, p31 Yaqoob, T. (2009).UAE consumes more coffee than anywhere else in Gulf. The National. Nov. 12th. Yousef, D.K. (2011) .Transforming the coffee market with affordable quality brews. Gulf News viewed 22/11/2012 from: http://gulfnews.com/business/retail/transforming-the-coffee-market-with-affordable-quality-brews-1.945177# Read More