New Generation Coffee Houses Business Strategies - Example

New Generation Coffee House’s Business Plan Executive Summary The last two decades have seen an increase in the uptake of coffee globally. Despite the increase in the number of coffee joints in Sydney, these new establishments cannot meet the demand for coffee. Many people who would wish to meet their friends in places where non-alcoholic drinks are sold would prefer to meet at these cafes. Additionally, coffee is addictive in nature. Therefore, this gives an assurance of regular customers. With this increasing demand for coffee and such joints, the New Generation Coffee House will take the advantage of its proximity to the busy Uptown street linking the University of Technology Sydney and West Town suburbs to create a group of regular customers. Moreover, there is no such establishment within that street. New Generation Coffee House will provide the clients with well-prepared coffee and excellent service. This will be complimented with fast speed internet connectivity for clients who are mostly students to enjoy during their visit. The establishment will offer its clients variety of choices which include cappuccinos, espressos, lattes and regular coffees. This document is meant to give an outline of start-up of New Generation Coffee House. The plan is guided by the establishment’s mission, goals and objectives. Table of Contents 1.1 Mission Statement 4 1.2 Goal 4 2.0 Market Feasibility 4 2.1 Market Analysis 5 2.1.1 Strengths 5 2.1.2 Weaknesses 5 2.1.3 Opportunities 6 2.1.4 Threats 6 3.0 Technical Feasibility 6 3.1 Production and Operational Process 6 3.2 Items and Resources Needed 7 3.3 IT Systems Needed 7 3.4 Sale and Distribution 8 3.5 Promotional Activities 8 3.6 Laws and Regulations 9 3.7 Human Feasibility 9 4.0 Financial Feasibility 10 4.1 Start-up Capital 10 4.2 Estimated Cash flow 12 4.3. Financial Analysis 12 5.0 References 13 1.0 Introduction 1.1 Mission Statement New Generation Coffee House will aim at creating a unique relaxing environment where clients can socialize while enjoying a cup of coffee related brews. The establishment will engage in the business of providing quality service to clients and unique relaxation environment. 1.2 Goal The goal of the New Generation Coffee House is to be a café of choice for the residents of West town Suburbs and students of University of Technology Sydney. As a result, it intends to create and sustain profitability for the next five years. 2.0 Market Feasibility The target market for this establishment is any person who enjoys coffee but mainly students from the University of Technology Sydney. The café will take the advantage of the huge customer base. The location in itself is suitable because there are no such set ups in the vicinity. The area is heavily populated with young people who are majorly students from the University of Technology Sydney. Young people like socializing and this gives it an advantage over other set ups. This will be boosted by the availability of fast speed internet connectivity. Australians are among the best lovers of coffee (IBISWorld, 2016). Coffee use has increased immensely over the past few decades. This is evidenced by the increasing number of coffee shops and cafes. The coffee industry is expected to grow by 6.9% in 2016/2017 period (IBISWorld, 2016). At the same time, findings from research report indicate that the coffee shop and café industry is expected to grow by 2.6% annually for the next five years (IBISWorld, 2016). The rapid growth of similar establishments in other places of Australia is a strong indication of an industry growth phase within its life cycle. New Generation Café will take the advantage of its existence in an area where there are no coffee shops. This does not rule out the fact that there will be competition. Competition will be minimum because of the uniqueness and specialization in coffee. The target market will be college students who will form the majority group of 90% while 10% will be other people from the locality. Majority of these individuals are low income earners and mostly depend on parents. Therefore both quality and affordability will be considered in pricing of various beverages. As earlier mentioned, competition will be at its minimum. As a result, the market will not be at full capacity. However, efforts will be put to create a full capacity market through quality coffee and service. The clients currently get similar products from food kiosks which sell all food products and beverages. The absence of unused space along Uptown Street is a key barrier of competitors. As a result, there is a guarantee no similar café being established nearer to it. 2.1 Market Analysis SWOT Analysis 2.1.1 Strengths The establishment will reap heavily from its location which guarantees a large customer base and untapped market. This will guarantee constant clients and higher profitability. At the same time, the New Generation Coffee House will have an advantage of experienced staff and strong capital base. Previous experience of the manager will ensure smooth operations. In addition to this, the establishment is capable of being changed to big restaurant having all foods in future. 2.1.2 Weaknesses One major weakness that the establishment faces is operational space. The set up will operate from the second floor of Cliff Plaza which has an inadequate space of operation. Additionally, the establishment will major on sale of beverages and light foods compared to its competitors providing all meals. This in itself is a disadvantage because it limits the number of clients. 2.1.3 Opportunities The absence of a similar establishments in the locality in itself is an opportunity that the New Generation Coffee House can capitalize on. The community comprises of mostly students who are low earners. Therefore, they should be gathered for in terms of foods affordability and availability. The social pattern of these individuals in itself is also an opportunity. Young people in nature are more social than any other age group. Moreover, the largest population of the target market is people of this group. New generation Coffee House can capitalize on this and in future look for a more spacious area for more social activities such as camping. 2.1.4 Threats The establishment is likely to be faced with threats of new entrants and existing small food outlets. Currently the area has many outlets that do not specialize in coffee alone but in all foods and beverages. New Generation Coffee House will be under threat because it only specializes on coffee alone and light foods. 3.0 Technical Feasibility 3.1 Production and Operational Process Key processes include preparation of beverages, sales and promotion, inventory and service. Beverage preparation will take place at the facility. A small room that will act as a kitchen area will be created. Sales and promotion will also take place within the facility. Stock purchased will be stored within the café. A refrigerator has been purchased to store perishable goods such as the cakes. Refrigerated displays have also been included to store perishable goods on display. Storage of these perishable goods will be up to a maximum of four days. It is estimated that business re-stocking will be done once a week. Stock monitoring will be done with the help of stock control software. 3.2 Items and Resources Needed To operate the café successfully, various items are required to be purchased. Owing to the cost of acquiring these items, some of them will be bought in cash while others will be acquired on hire purchase. The total cost of acquiring these items is $60, 000. Items worth $30,000 will be acquired in cash while the remaining will be acquired on hire purchase terms. These items will be subjected to routine maintenance and this will be based on the condition of the items. The table below is a list of these items that will be acquired. Item Description Quantity Method of Acquisition Chairs and tables 40 chairs 8 tables cash Fridges 2 Hire Purchase Coffee maker 2 Cash Cupboards and drains 2 Cupboards 4 drains cash Dishware and cutlery 80 sets cash Signs 4 cash TV screens and audio system 4 TV screens 1 Audio System Hire Purchase Software 2 Hire Purchase 3.3 IT Systems Needed Integration of ICT into the establishment is important for smooth functioning and accountability. IT systems will be needed especially at the pay points and inventories. One crucial system is the electronic funds transfer at point of sale (EFTPOS) system which is connected to the accounting software. This system helps in the processing of credit and debit card payment and cash payments to financial institutions and accounting software. The accounting software helps in payroll processing, stock control and maintenance of employee records. The IT systems will help in the reduction of paper work and make work easier and faster. They can help in giving timely financial reports on the progress of the establishment. 3.4 Sale and Distribution Coffee beverages will be sold to clients both who want take away and those who want to take the beverage within the café premises. The café environment will be made comfortable for those clients who want to relax. The café will be fully varnished and fitted with décor to project the quality and comfort of the café environment. Cleanliness will be observed at all times to ensure that the clients get value for their money. Servers will be provided with necessary training on how to attend the clients. They will also be provided with uniforms which will be ensured that they are always clean. Those who would wish to have takeaways will have their beverages packed in clean containers. Regular clients who wish to have their coffee delivered to their places of residence will be required to place their orders and state when they need the beverage delivered. 3.5 Promotional Activities Various promotional activities will be undertaken to attract as many customers as it is possible. A large placard will be designed and fixed at the entrance of the premise. In addition to this, discounted coffee will be offered for the first two weeks. It is estimated that this will be enough time for clients to get information about the newly opened café. Flyers will also be designed and fitted on strategic points where most of the clients pass. More importantly, quality service and coffee will be the best form of advertising. 3.6 Laws and Regulations To ensure smooth running of the setup, laws and regulations will be adhered to. This includes but not limited to proper documentation and registration of the premises. Registrations and licenses which will be acquired include Registration of company, business name registration, Australian Business Number and Food business License. Registration and acquisition of these licences will be done latest one month prior to the opening of the café. The set up however does not hold any intellectual property rights at start up. Therefore no permissions for property rights will be required. 3.7 Human Feasibility The business will engage a number of individuals who will be required to ensure smooth running. It will be headed by David and Eunice Brown who are the proprietors. The two individuals have equal share in the business. Eunice who is a hospitality expert will be at the forefront in the running of this business. She has enough experience in hospitality management. Therefore she will be overall leader of the business. Organizational Structure Team A will be headed by Eunice Brown because of previous experience in hospitality management. The team will comprise of three individuals and their roles will be generally management which include stock control, customer service and financial management. Team B will be headed by David and will have four members. Their roles will centre their activities to the kitchen and will engage in cooking. The business will require a total of seven employees (owners included). Two of these employees will be part-timers while the rest will be on regular basis. Skills required for smooth operation are food preparation, stock control, customer service and sales. All these staff recruited should possess all these skills and recruitment is competitive. In spite of this, they will be taken through an organized customer service and cooking induction before opening of the business. Importantly, two of them should always be there to serve the clients. It is estimated that their remuneration will total to approximately $200, 000 annually. Table of Staff wages Estimates Staff Category Total annual wages for the first year Administration $120, 000 Customer Service $80, 000 Various motivation mechanisms will be used to motivate employees. This will include paying for extra time worked during the day. Employees who display exemplary performance will be given higher ranked roles. This will help employees in their career development. In addition to this, employees will be offered with timely trainings to improve their competence. 4.0 Financial Feasibility 4.1 Start-up Capital It is estimated that the business will require $110, 000 during the start up. An estimated $66,220 will be required for the purchase of equipment, licensing, leasing of the premises and legal costs while $43,780 will be used as monthly expenses. The initial budget is as follows. Starting Budget Item Description Cost Lease of premises Promotion and advertising Equipment Licences and Permits Legal expenses Utility hook-ups and Installation fees Beginning inventory Utilities (Electricity, Internet and water) Salaries (All 7 employees) Leasehold improvements Computer and software Insurance Start-up Supplies Promotion Expenses Rent Supplies and postage Vehicle Expenses Telephone Travel Interest Maintenance Cash Other Miscellaneous expenses Total $2500 $150 $60000 $3200 $520 $400 $5000 $800 $17000 $2500 $500 $300 $2000 $350 $150 $120 $300 $50 $600 $480 $250 $11550 $1000 $4000 $110,000 Part of this budgeted amount will be a contribution from the owners. The total contribution by the owners is $70000. The other amount will be funded using a bank loan. The repayment period is three years and it will done from strong business cash flow. In case of poor cash flow, the two proprietors will repay the loan with their own savings. 4.2 Estimated Cash flow It is expected that the cash flow for this business will be healthy and will improve with time. The opening month is expected to have a cash flow of about $100,000 and by the end of the year, it would have reached $150,000. Suppliers would be paid at the end of every month for the goods supplied. However, this would not be documented because the agreement is expected to change with time to weekly payment for supply. Liquid cash of $11,550 has been set aside to take care of eventualities that might arise such as poor cash flow. The money will be used to pay suppliers and employees. 4.3. Financial Analysis The projected return on investment by the end of the year is 32.3%. The gross profit margin is expected to average at 45% for the one year period while the net profit margin is expected to be 23%. However, as earlier said, these figures are expected to improve for other periods. The improvement is attributed to stability of operations and creation of regular customers. Services are also expected to improve with time which will result to more sales. The current quick ratio acid test is high an indication of sound financial performance of the business. The current debt to equity ratio is 34.2% while the debt to total assets ratio is 24.3% an indication of sound financial position of the business. 5.0 References IBISWorld. (August 2016). Cafes and Coffee Shops in Australia: Market Research Report. [Online]. Available from < http://www.ibisworld.com.au/industry/default.aspx?indid=2015 > [Accessed on 12th October 2016] Appendix A Start-up Expenditures and Expenses Worksheet Item Total Cost Cash Required Capital Equipment _____$60,000_____ __________ Computer ____$500______ __________ Beginning Inventory ____$5000______ __________ Start-up Supplies ____$2000______ __________ Licenses and Permits _____$3200_____ __________ Leasehold Improvements ____$2500______ __________ Utility hookups & Installation ___$400_______ __________ Advertising (Preopening) _____$150_____ __________ Insurance _____$300_____ __________ Other ____$1000______ __________ _______________ __________ __________ Total Estimated One-Time Cash Requirements ____$75050______ __________ Start-up Operating Expenses Estimate No. of Months Total Cash Item Monthly Expense X Before Break even = Required Owners Salary ___$9000_______ __________ __________ Employee’s salary, wages, benefits __$8000________ __________ __________ Rent _______$150___ __________ __________ Promotion expenses ___$350_______ __________ __________ Supplies and postage ____$120______ __________ __________ Vehicle Expenses ___$300_______ __________ __________ Telephone ___$50_______ __________ __________ Travel ___$600_______ __________ __________ Interest ____$480______ __________ __________ Maintenance __$250________ __________ __________ Other ____$1000______ __________ __________ ____________ __________ __________ __________ Total Cash Required to Cover Operating Expenses ___$20300______ Plus: Total One-Time Cash Requirements (Previous Table) __________ Add 10% Safety Factor __$14650________ Total Cash Required for Start-up __$110,000_______ Read More