3. TO BREW OR NOT TO BREW? Ray Alwani Voilen Chu Kelli Dawson Tammy Hall
Jill Johnson
Carmen Yau

4. AGENDA THE WORLD OF COFFEE industry overview HOW TO SELL YOUR BEANS
the marketing plan
HOW TO MAKE A CUP OF COFFEE
operations and human resource analysis
THE PRICE OF COFFEE
financial and sensitivity analysis
TO BREW OR NOT TO BREW?
summary and recommendations

5. THE WORLD OF COFFEE AGENDA Established in 1975 Partners
Charitable work
Royalty Income Fund

6. THE WORLD OF COFFEE
SECOND CUP FRANCHISE TERMS

7. THE WORLD OF COFFEE INDUSTRY OVERVIEW
coffee consumption continues to grow
wholesale and retail prices on the rise
increased trend to younger drinkers
increased media attention to potential health benefits

8. THE WORLD OF COFFEE SASKATOON MARKET
3.5 percent projected real economic growth in Saskatoon in 2008
downtown condominium expansion
construction of new office towers

9. THE WORLD OF COFFEE
LOCATION, LOCATION, LOCATION
King George condos

10. HOW TO SELL YOUR BEANS THE WORLD OF COFFEE STRONGFIELD’S COFFEE
COMPETITION
STRONGFIELD’S COFFEE

11. HOW TO SELL YOUR BEANS CUSTOMERS home drinkers
price-sensitive drinkers; don’t value specialty coffee
non-price sensitive drinkers; coffee connoisseurs
TARGET MARKET = NON-PRICE SENSITIVE COFFEE CONNOISSEURS

12. HOW TO SELL YOUR BEANS NON-PRICE SENSITIVE COFFEE CONNOISSEURS
high disposable income
value convenience over price
value customization and variety in beverages

13. HOW TO SELL YOUR BEANS PRODUCTS & SERVICES
premium blend coffee and blended coffee drinks
focus on organic and free-trade coffees

14. HOW TO SELL YOUR BEANS
PRODUCTS & SERVICES
specialty teas and lattes

15. HOW TO SELL YOUR BEANS PRODUCTS & SERVICES
fresh fruit smoothies and desert-style beverages

16. HOW TO SELL YOUR BEANS PRODUCTS & SERVICES
friendly and efficient service in a clean and inviting atmosphere

17. HOW TO SELL YOUR BEANS HOW TO MAKE A CUP OF COFFEE Barista JOB ROLE
THE HUMAN RESOURCES PLAN
JOB ROLE
Barista
RESPONSIBILITIES
SKILLS & REQUIREMENTS
address customer needs
prepare beverages
cleaning duties
follow cash handling procedures
no previous work experience
necessary
customer service oriented, friendly
communicate well with others
accurately communicate orders
$9.25 per hour (minimum wage in Saskatoon)
$0.20 raise every year

18. HOW TO MAKE A CUP OF COFFEE
THE HUMAN RESOURCES PLAN
JOB ROLE
Supervisor
RESPONSIBILITIES
SKILLS & REQUIREMENTS
address customer needs
prepare beverages
cleaning duties
follow cash handling procedures
opening and closing the store
reconcile daily cash receipts and
bank deposit
three months barista work
experience
customer service oriented, friendly
communicate well with others
accurately communicate orders
$11.00 per hour
$0.30 raise every year

19. HOW TO MAKE A CUP OF COFFEE
THE HUMAN RESOURCES PLAN
JOB ROLE
Owner
RESPONSIBILITIES
SKILLS & REQUIREMENTS
address customer needs
prepare beverages
hire and train new employees
manage finances
opening and closing the store
reconcile daily cash receipts and bank deposit
create and maintain employee work schedule
ordering and purchasing inventory and supplies
pay suppliers / franchise fees
compile information for the accountant
customer service orientated, friendly
communicate well with staff
accurately communicates orders
managerial abilities to organize staff
knowledge and skills of franchise regulations
$25,000 each per year
$1,250 benefits each per year

20. HOW TO MAKE A CUP OF COFFEE
THE HUMAN RESOURCES PLAN
STAFFING CONSIDERATIONS OVER THE PROJECTION PERIOD
no seasonality
staffing requirements consistent
planned sales growth in revenue
no supervisor in the first year

21. HOW TO MAKE A CUP OF COFFEE
THE HUMAN RESOURCES PLAN
HIRING PROCESS
print ad or on-line
review resumes
interview
selection

22. HOW TO MAKE A CUP OF COFFEE
THE HUMAN RESOURCES PLAN
TRAINING PROGRAMS
OWNERS
3 week training program for new franchise owners
NEW EMPLOYEES
Trained by owners
Process and procedures
Knowledge of products, finances, and profitability
8 hour training day
3 shifts of shadowing an experienced Barista

23. HOW TO MAKE A CUP OF COFFEE
THE HUMAN RESOURCES PLAN
EMPLOYEE TURNOVER
2 times per year
6 to 8 employees on staff at any given time
12 to 16 workers throughout the year
costs

24. HOW TO MAKE A CUP OF COFFEE
THE HUMAN RESOURCES PLAN
HUMAN RESOURCE STRATEGY
inexperienced employees
minimum wage
key traits

25. HOW TO MAKE A CUP OF COFFEE
THE HUMAN RESOURCES PLAN
MANAGEMENT TEAM
KEN – experience as a supervisor
MARY – front-line experience

26. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
BUSINESS HOURS
Weekdays
Saturday
Sunday
6am – 9pm
6am – 5pm
6am – 3pm

27. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
DAILY ACTIVITIES
opening shift
TIME
half hour before opening
PERFORMED BY
Ken/Mary, or Supervisor
TASKS
grind coffee, start up coffee/espresso machines, receive food/merchandise delivery, place food in display case, set out milk/cream on tables

28. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
DAILY ACTIVITIES
day shift
TIME
throughout the business day
PERFORMED BY
owner / supervisor plus one Barista at all times
TASKS
take orders, receive cash payments from customers, make customer orders, clean-up, restock inventory when low

29. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
DAILY ACTIVITIES
closing shift
TIME
half hour before closing
PERFORMED BY
Ken/Mary, or Supervisor
TASKS
restock inventory for next morning, clean machine and shop, reconcile cash register, prepare bank deposit

30. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
WEEKLY ACTIVITIES
inventory count
inventory from Second Cup
order food
other inventory

31. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
BI-MONTHLY ACTIVITIES
updating staff schedules
payroll

32. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
MONTHLY ACTIVITIES
pay bills and suppliers
prepare month-end statements
compare month-end statements to budget
identify budget variances
analyze significant variances
risk analysis

33. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
SEMI-ANNUAL & ANNUAL ACTIVITIES
SEMI-ANNUAL
hire and train new employees
ANNUAL
prepare year-end financial statements
Compare and analyze financials to budget
prepare forecast budget
income taxes

34. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
SUPPLIERS & SERVICE PROVIDERS
SECOND CUP PARENT COMPANY
Supplies
Coffee, Espresso Beans, Cups, Lids, Sleeves, Napkins, Second Cup Merchandise, Syrups
Risk
Low. Quality and delivery of products is ensured. Biggest risk is fluctuating price of coffee beans
Mitigating Factor
A fixed price contract to ensure fix price for the year

35. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
SUPPLIERS & SERVICE PROVIDERS
CHRISTIE’S BAKERY
Supplies
Food and other bakery items
Risk #1: Cannot guarantee quality of food
Mitigating Factor: Locally well-known and reputable establishment – known for consistent high quality of fresh food and baked items
Risk #2: Price
Mitigating Factor: Fixed price contract for the year, in return we will order a minimum quantity from them per day

36. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
SUPPLIERS & SERVICE PROVIDERS
COSTCO
Supplies
Cream, Milk, Stir-sticks, Sugar, Honey, Syrup, Bottled Drinks
Milk and Cream are Purchased weekly to ensure freshness
Other inventory will be purchased as items are running low

37. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
SUPPLIERS & SERVICE PROVIDERS
SASKATOON MAINTENANCE SERVICE EXPERTS
Machine maintenance required for coffee and espresso machines
SASKATOON LAW GROUP
Franchising of the business and other legal requirements
LOCAL ACCOUNTANT
Bookkeeping, financial statements, income tax returns

38. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
WORKING CAPITAL
Cash: $10,000
Accounts Receivable: none
Inventory: Average turnover days of 30
Accounts Payable: Average turnover days of 30
CAPITAL BUDGET
Capital Expenditures: $200,000

39. A = Espresso Machines B = Chiller Machine C = Coffee Machines
DOOR
COUNTER
DISPLAY CASE
Washroom
Stock Room
Pick Up Counter
Fridge A B C
Office
Cash Register
Sink D
Sitting Counter X
A = Espresso Machines
B = Chiller Machine
C = Coffee Machines
D = Dishwasher
X = Counter Chairs
E = Display shelves

40. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
COST OF GOODS SOLD
BARISTA-PREPARED COFFEE AND DRINKS
Coffee beans
Milk and creamer
Other (syrup, sugar, honey, etc.) 0.25
Cups, lids, sleeves
Total cost per unit
GROSS MARGIN: 183%
Avg Cost per Unit ($)

41. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
COST OF GOODS SOLD
OTHER
Pre-packaged coffee and drinks %
Average food cost per unit %
Merchandise %
Avg Cost per Unit ($)
Gross Margin

42. HOW TO MAKE A CUP OF COFFEE
THE OPERATIONS PLAN
OPERATING EXPENSES
Rent (1,000 sqft x $20 per sqft) $20,000
Insurance $4,000
Repairs and maintenance $5,000
Telephones $1,200
Utilities $9,600
Accounting $5,000
Miscellaneous $5,000

43. THE PRICE OF COFFEE HOW TO MAKE A CUP OF COFFEE FINANCIAL STATEMENTS
5-year projections
CASH FLOW ANALYSIS
business feasibility
RISK ANALYSIS
significant risk factors
FINANCING PLANS
debt versus equity

44. significant risk factors
TO BREW OR NOT TO BREW?
THE PRICE OF COFFEE
significant risk factors
A DROP IN SELLING PRICE
a 5 percent drop in selling price will reduce sustainable earnings by over 50 percent!
a reduction of selling prices is not likely
an increase in sales prices has a significant positive impact on earnings

45. significant risk factors
TO BREW OR NOT TO BREW?
significant risk factors
A DROP IN SALES QUANTITY
a 15 percent drop in sales quantity will result in nominal sustainable earnings
superior location
considerable expansion in downtown core – both residential and business capacity
growing population
a 15 percent increase in sales quantity will double sustainable earnings

46. significant risk factors
TO BREW OR NOT TO BREW?
significant risk factors
A RISE IN LABOUR COSTS
a 10 percent increase in minimum wage will cut sustainable earnings in half
Saskatoon minimum wage is above national average (is it?)
What else?

47. TO BREW OR NOT TO BREW? goals
TO ACHIEVE A TAKE-HOME SALARY OF $105,000 THROUGH SALARY AND DIVIDENDS
consistent salary of $50,000 built in to projections
average dividends of $20,000 over 5-year term
both are subject to income tax

48. TO BREW OR NOT TO BREW?
other considerations
CONSIDERATION 1 X

49. TO BREW OR NOT TO BREW?
other considerations
CONSIDERATION 1 X

50. TO BREW OR NOT TO BREW?
other considerations
CONSIDERATION 1 X