Business Plan for the Encore Specialty Coffee Shop - Essay Example

THE ENCORE SPECIALTY COFFEE SHOP BUSINESS PLAN The Encore Specialty Coffee Shop Business Plan The Business Opportunity The Encore Specialty Coffee Shop is a company that gives visitors an experience that is both exciting and complemented with excellent customer service. Executive Summary The Encore Specialty Coffee Shop is a unique café found in Middlesex near the London Liverpool Street station. It is 1500 square feet cafe. It is in Batten Square Plaza on the southwest corner of Queen Elizabeth Street. Fresh Greens grocery store was the first tenant on this excellent location and is already attracting over 3,000 shoppers daily. The Encore Specialty Coffee Shop was named for its goal to return to the roots of coffee making. Therefore, it fills the cavities left by cafes that formerly existed in the area. Also, it is unique from its competitors who have fast food joints and fast services also to coffee. The Encore Specialty Coffee shop is a substitute to other coffee shops because it offers its customers a refined and calmer environment. The café does not have televisions or radios. There is subtle music that plays in the background. Also, the pictures of local musicians are displayed on the walls. The café has overstuffed leather seats and sofas that are like a library. While it pays homage to past times, the café is at the technological cutting edge because it has Wi-Fi and the most modern espresso machines. The Encore Specialty Coffee Shop measures its success based on whether its market share increases, leading to a rise in earnings. Currently, it has a local market share valued at £40 million. Its success arises from the fact that it offers quality coffee and leverages on its small workforce. The café selects the best coffee beans from the distributors in Middlesex. Encore enjoys larger profits because of its small size and, thus, lower overhead. Its management handpicks the baristas and offers them salaries that equal other chains. Research Strategy The research was aimed at determining the market size, competition, business opportunity and market analysis of the coffee industry in the UK. Several research tools were used. First, all the coffee cafes in Liverpool were profiled. Particulars that were studied included their size, the number of employees, and the array of products they offer. Other information that was collected included their annual revenue, business philosophy and anticipation for the future. A lot of traveling was done to different parts of the city. Questionnaires and interviews were created to get the most relevant information on the interviewees. They included the customers that frequented this coffee house, the employees, and the management. Questions regarding the products that were stocked other than coffee to carry out co-marketing were asked. The internet was used to find companies that offered support to the coffee industry. They include schools that train baristas and managers. The internet also showed how small coffee houses utilized social media and pay-per-click advertising to compete with larger chain stores that operated at a regional, national and multinational level. All these data were collected for three months before the analysis began. During the study, a Likert point scale was adopted, and the businesses under review got scores based on their aggregate totals of critical factors. The total score was 100 for each business. Those that got the highest scores were deemed the main competitors to Encore Specialty Coffee Shop. The Business Opportunity Since coffee drinkers look for something special, they will purchase products from a company that gives them a unique feeling. Todays many coffee houses have neglected the art of making excellent coffee. Besides, they focus on making profits, which makes them forsake quality. Most of them are large and hope to capitalize on the economies of scale. This results in an impersonal atmosphere for the customer. Some of the coffee houses in the Liverpool are yet to identify their target customer and tailor their cafes to suit such individuals (Reinecke 2012). The Encore Coffee Specialty Shop will use the neglect of both its major and minor competitors as an opportunity. It will offer its customers something they have never experienced before. First, it will create a personal and calm environment where there is subtle music in the background. It is different from other coffee houses that have loud music and television sets. Besides, Encore will only offer products that are to the coffee drink instead of stocking espresso machines and other gadgets. Encore will maintain the small size of its café so that the customer can enjoy coffee without any distractions. They can fill out crosswords and do other activities that will keep them in the restaurant for longer, increasing their chances of ordering another cup. Encore will hire qualified staff to ensure that customers get the best service. Baristas will be hired based on their integrity and past performance. If they have a secret coffee recipe that is likely to attract more customers, then they will have a higher probability of getting hired. Encore believes that what will make the difference between its successes or failure is the focus on customer service. A satisfied customer is more likely to visit the business next time and also tell their family and friends about their products. Encore will capitalize on marketing itself on social media and using its website to attract new customers. Therefore, Encore Specialty Coffee Shop will develop its brand name and use it to show the coffee industry how coffee should be and how customers should be treated. Feasibility: Micro-market analysis Liverpool is one of the most popular working and tourism city in the world. Many companies and international publications recognize it for its livability and business environment. Liverpool is the center of one of the most rapidly changing markets in the UK. It gives its dwellers access to the most advanced social amenities in the country. No point across all of Liverpool is more than 4 miles from a freeway. Also, it has an advanced arterial network of streets, and there are plans to increase the number of roads as the city grows (Reinecke 2012). Several airports serve Liverpool. Besides, it has some of the most educated workers in the whole of the country. At least 97% of all adults in the city hold a high school diploma and above. Middlesex, which is where Encore Specialty Coffee Shop is, is among the most populated places in the UK, with an excess of five million inhabitants. The city also ranks first in the proportion of adults who hold a bachelors degree in the UK. Also, it ranks fifth in the percentage of people with a professional and graduate degree (Reinecke 2012). The target customer of the business is a 24-year-old college graduate who is single and with no children. They will be mostly unemployed, and they will adore the outdoors. The ideal customer will often travel as he/she looks for employment and will be an individual who loves exploring new things. Based on the VALS framework, the target clients will be innovators and based on the Myers-Briggs personality indicator, they will be Artisans (Reinecke 2012). It is that sales of the business will double every year. Encore also acknowledges the seasonality of its products sales as some periods will be peak seasons while others will be slower. Another assumption is that the owner takes a much smaller salary than his employees and that he can withdraw business funds at his discretion. Moreover, sales are made on a cash basis, meaning that the accounting system is non-accruing. The number of baristas hired will triple in the coming six months, and their average yearly salary will be £50,000. Most coffee cafes have a net profit margin of 3% and a gross profit margin of 85% (Reinecke 2012). Feasibility: Macro-market analysis The UK coffee industry has approximately 15,000 stores. Combined, they boast an annual revenue of around £15 billion. Major players include Starbucks Coffee Company, Café Nero, and Costa. The industry is concentrated as the top 40 companies produce more than 60% of the sales. Within 6 miles from Encore Coffee Specialty Shop, there are fifty businesses that deal in coffee. They include tea houses, chains and restaurants that have a monthly revenue figure of £10 million. The figure is similar to 50% of the market share (Reinecke 2012). The remaining ten coffee houses are franchises that have a market share of 18% and £5 million. The businesses that will directly compete and are comparable with Encores business hold 15% of the total market that is equivalent to £4.5 million in annual revenues. Therefore, Encore will have to work hard to get customers that are loyal to its brand. It will also have to acknowledge that it has substantial direct and indirect competitors (Reinecke 2012). Feasibility: Competitive Environment and Direct Competitors The main drivers of demand in the coffee industry are the personal income and consumer taste. Therefore, what makes a company successful or not is its ability to secure great locations with tremendous traffic. They also have to deliver products of unparalleled quality. Bigger companies enjoy economies of scale in purchasing, marketing, and finance. However, smaller companies like Encore can compete by offering products to a particular clientele, offering better customer service and serving their local communities. Coffee shops are under specialty eateries. Their average yearly revenue per barista is approximately £50,000, and they are labor-intensive. They compete with gas stations, convenience stores, gourmet food stores, donut shops and fast food restaurants (Reinecke 2012). Encores direct competitors include Taylor St. Coffee Shop, Curators Coffee Studio, Association Coffee and Nude Espresso Roastery. Its indirect competitors are Café Nero, Starbucks, and Costa. The primary products offered by Encore Specialty Coffee Shop include brewed tea and coffee, juices, soft drinks, cold blended beverages and bottled water. The food offered consists of bakery items, pastries, sandwiches, desserts, and candy. It also sells whole and ground coffee for consumption at home. However, Encore does not sell coffee-making equipment, mugs, grinders and other accessories. Taylor St. Coffee Shop This competitor has been working in Middlesex from 2000. It is a 3,300 square foot café that offers its customers cookies, bagels, and pastries. It also offers beverages such as Sons teas, Harney, specialty drinks, espresso and signature blends. Since 2000, the café has had a maximum of 12 employees. In 2014, it generated revenues of £10 million. Encores advantage is that it has a smaller and more comfortable environment. Curators Coffee Studio This competitor has a 3,300 square foot café with Wi-Fi. The restaurant offers not only smoothies and coffee, but also food. It has a complete kitchen service that offers wraps, sandwiches, and light breakfast. It also has a small stage on which local musicians perform in the evening. It has a full liquor license. Due to the broad product offering by the Curators Coffee Studio, they are not a real threat to Encore. Association Coffee Association Coffee has a 6,500 square foot café within a shopping center. The business was established in 1996, and 2013 generated £2 million in revenues. It has eighteen employees and offers its customers music on weekends. Encore has the advantage of being more comfortable, smaller and with a calmer environment. Nude Espresso Roastery Nude Espresso Roastery is equal in size to Encore Coffee Specialty Shop with 900 square feet. It is in a shopping center. This cafe has been in operational since 2007 and had five employees. In 2014, it reported £250,000 in revenues. It is operational for six days every week, and it also offers breakfast. It has a full kitchen and offers traditional breakfast besides to pastries. Nude Espresso Roastery is on sale, and this could affect the market share in Middlesex. Feasibility: Sustainability Customers of coffee shops naturally seek something special. That explains why they are ready to pay so much money for a cup of coffee. Although the customers of large coffee chain stores are satisfied with the product and service, they would appreciate if they found a local coffee shop that was unique. The coffee shop industry has witnessed some trends that predict what the future could look. For example, there has been the introduction of individual products such as local ingredients, specialized roasts, locally named or themed drinks and custom drinks by the chief barista among others (Reinecke 2012). Also, the industry has witnessed the introduction of mind benders, puzzles, and games that among others motivate the customer to take extra cups of coffee and consume other products sold inside the store. Coffee shops have also begun sponsoring and hosting local events that include readings, entertainment and book clubs among others. Besides, modern coffee shops wisely use technology to compete favorably with larger chains. These include Google Places, Yelp and FourSquare that can boost the visibility of the business in the local market. Knowledgeable baristas have been known to offer clients incredible services. Consequently, coffee houses are spending a lot of money to train their staff. They are even using online training services such as Barista School and American Coffee (Reinecke 2012). Besides, coffee houses have begun selling items that are to coffee. As a result, they can leverage any co-marketing opportunities within the local community or student-related groups in the area. Regardless of the economic crisis, 45% of all the coffee consumed in the UK was classified as Gourmet. It suggests that consumers were visiting their local coffee shops and drinking coffee despite the bleak hope regarding the economy. In the hot beverage category, coffee is best-selling with 83.3% of the entire UK hot beverage market. Through 2016, coffee consumption is expected to rise at a mean yearly rate of 3%. Tea consumption is also supposed to increase at a rate of 3.5%. Positive anticipations in the growth in coffee sales arise from its status as a mature product in the market and current innovations in products derived from premium coffee. These include single-serving instants, pods, and others. Encore will price its products at 30% increment over their purchase price (Reinecke 2012). Feasibility: Managerial Capability The Encore Specialty Coffee Shop is an S-Corporation. John Green entirely owns it. Mr. Green is a graduate of the London School of Economics. He holds an undergraduate degree in Economics and Statistics. While in elementary school, he worked on a part-time basis as a waiter in a local coffee shop, which bought its beans from a local roaster. He is a frequent coffee drinker, and his job at the coffee shop enabled him learn about the first business hand. In University, Green worked at the campus coffeehouse for three years before becoming the assistant manager. After he graduated, he became a business developer for a multinational restaurant chain, which added to his experience. He learned a lot from these experiences, especially how to start a new company in alien locations. Gaps in the Management Team The Encore Coffee Specialty Shop will depend on its point of sale system to produce cost activity and daily accounting reports. Mr. Green will issue these reports to an external accountant to prepare yearly income tax reports. For the personnel, the café will first hire two part-time servers, five baristas, and one manager. In the second year, the coffee shop intends to hire an additional full-time barista. The business does not have a board of directors. Reflections The writer had never done research through interviews and questionnaires. Designing the questions to be issued to respondents was a challenge because they had to be correctly organized to elicit the correct responses. Also, the writer had to travel to different coffee houses in Middlesex to find out their history. He also needed to know the number of employees, the products they sell, the size of their cafes and the amount of revenues that they have been generating. In the compilation of this document, the writer had to turn all the pieces of information collected from questionnaires, reports, books, journal articles and others into a comprehensive report. He had to find the connections in the different variables and how they would influence the outcome of the sales and revenue figures for businesses in the UK coffee industry. Moreover, the writer had to look at the market from both a micro- and macro- perspective. Writing the document took six days because of the number of words, proofreading and checking for the correctness of the used grammar. The writer typically learns by doing. It was imperative for him to travel around, measure the café sizes, and ask questions because they offered first-hand experience. Also, conducting the research enabled the writer to appreciate the working of the economy in its totality and the contribution of individual businesses in various industries. It was also educative because the author learned the role of the government in business as well as other institutions like the tax collection body. The writer enjoyed compiling the bits that he had researched into a single report. Very many methods were used to collect the data. After collection, the writer analyzed the data and tried to get inferences. The research enabled the author to see beyond the superficial layer of how coffee houses and the coffee industry operate within the economy. The other enjoyable part of the process was the peer review where fellow students and instructors discussed the writers paper. The author enjoyed critiquing the reports done by other students in different industries. The most demanding part of the module was the analysis of competitors for the Encore Specialty Coffee Shop. Middlesex is a large town, and it has hundreds of coffee houses. All of them are either major or minor competitors of the subject business. The writer had to analyze all of them using metrics such as the size of the café, the annual revenues and the number of employees. He also studied their products and services and the future prospects of the management teams of these businesses. As a result, the writer could rank these companies based on an aggregated score. References Reinecke, J., Manning, S., & Von Hagen, O. (2012). The emergence of a standards market: Multiplicity of sustainability standards in the global coffee industry. Organization Studies, 33(5-6), 791-814. Appendices Appendix 1 Questionnaire for Coffee Shops in Middlesex, London 1. What is your favorite coffee shop near the Liverpool street station? ________________________________________________________________ 2. What do you like coffee taste flavors? A. Black chocolate B. Passion fruits C. Candy D. Blueberry 3. Which region of coffee beans is your favorite? A. Ethiopia B. El Salvador C. Kenya D. Brazil 4. What is the priority factor for you to choose a coffee shop? A. Service B. Price C. Taste D. Environment 5.  What do you typically order to drink? A. Latte B. Americano C. Caramel Macchiato Mocha D. Cappuccino 6. The fact that a coffee shop served only fair-trade coffee and locally grown food would influence my decision to go there: A. Greatly B. Somewhat C. It would not D. I do not know what fair trade coffee is 7. What would be the maximum price you would be willing to pay for a quality coffee? A. £2.5-3  B. £3-3.5 C. £3.5-4  D. £4-4.5  Appendix 2 Break-Even Analysis Item Amount Average Selling Price per Unit 20 15 Sales 500,000 Costs (Direct) 150,000 Investment 160,000 PV Ratio 50% Costs (Fixed) 400,000 (Volume-Unit) BEP 20,000 (Sales) BEP 900,050 Income Statement Item Amount Revenue from Sales 500,000 Cost of Sales 150,000 Direct Expenses Gross Profit 350,000 Administrative Expenses 400,000 Operating Profit 50,000 Loss 50,000 Read More