Case
Teaching Notes
Supplementary Resources
Abstract
This case describes a conveniently located but relatively small coffee shop in Pudong (Shanghai). It is a family-owned and managed business. During the previous two years overall sales and profit performance of the business has been disappointing in the context of increased popularity of coffee consumption in China. Thus the current position of the business presents a challenge and opportunity for the manager of this coffee shop. This case requires a coherent analysis of the current situation of the business together with clear recommendations for its future direction and profit improvement. In turn, an integrated set of performance measures should be identified, based on identified critical success factors. A financial forecast is also required, based on given assumptions, and candidates are also invited to provide general business advice including those relating to the current valuation of the business.
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved
Resources
Table 1: Judging Criteria for Coffee Shops
(not listed in order of importance)
|
Source: Various Websites
Table 2: Survey of Coffee Shops in Local Region
Table 2A: Analysis of Total Revenue Earned
% | |
Beverages/drinks | 40% |
Food sales | 60% |
100% |
Table 2B: Types of Food and Beverages Served in Coffee Shops %
Beverages | % |
Tea and Coffee | 100% |
Cold Drinks | 98% |
Smoothies | 24% |
Food Sales | % |
Sandwiches and Wraps | 100% |
Cakes and Desserts | 90% |
Biscuits, Muffins etc. | 70% |
Toasts e.g. Bread | 50% |
Salads | 30% |
Table 2C: Operating Costs as % of Total Revenue in Coffee Shops (average)
Percentage of Sales | % |
Food and beverages | 40% |
Wages and remuneration | 20% |
Rental | 20% |
Utilities (light and heat etc.) | 5% |
Depreciation of tangible assets | 5% |
Advertising and promotions | 5% |
Table 2D: Steps Taken to Encourage/Improve Business in Coffee Shops %
Activities | % |
Refurbishment of outlets | 70% |
Staff training | 60% |
Additional opening hours | 50% |
WiFi facilities | 40% |
Loyalty programmes for customers | 40% |
Wider product range | 35% |
Increased advertising | 30% |
Table 2E: Analysis of Customers by Age in Coffee Shops %
Age of customers | % |
Under 20 years | 20% |
21-30 years | 45% |
31-50 years | 25% |
Over 50 years | 10% |
100% |
Table 2F: % of Total Customers (Footfall) Served by Time of Day
Time of Day | Monday to Friday | Saturday & Sunday |
Morning (8am to 11am) | 23% | 20% |
Lunch-time (11am to 2pm) | 33% | 33% |
Afternoon (2 pm to 5pm) Tea-time and | 16% | 23% |
early evening (5pm to 9pm) | 28% | 24% |
100% | 100% |
Table 3: Draft (unaudited) Annual Financial Summaries
The Pudong Coffee Shop – Summarised Income Statement (unaudited) for year ended: | 31st December 2009 | 31st December 2008 |
¥ | ¥ | |
Revenue (beverages/drinks) | 485,000 | 465,000 |
Revenue (food sales ) | 445,000 | 450,000 |
Total revenue (food and beverages) | 930,000 | 915,000 |
Cost of sales | (420,000) | (389,000) |
Gross profit | 510,000 | 526,000 |
Less Operating expenses: | ||
Depreciation of tangible assets | (82,000) | (82,000) |
Wages and remuneration | (130,000) | (110,000) |
Rental | (200,000) | (200,000) |
Utilities (lighting and heating etc.) | (48,000) | (39,000) |
Garbage collection | (10,000) | (9,000) |
Advertising and promotions | (30,000) | (25,000) |
Total operating expenses | (500,000) | (465,000) |
Operating profit for year | 10,000 | 61,000 |
Interest payable on loans | (23,710) | (28,700) |
Profit (loss) for year | (13,710) | 32,300 |
The Pudong Coffee Shop – Summarised Balance Sheet (unaudited) at: | 31st December 2009 | 31st December 2008 |
¥ | ¥ | |
Goodwill | 400,000 | 400,000 |
Furniture and fittings (net) | 246,000 | 328,000 |
Inventories | 44,000 | 38,000 |
Cash at bank | 198,000 | 196,000 |
Total assets | 888,000 | 962,000 |
Owner’s equity | 418,590 | 432,300 |
Bank loan payable | 262,410 | 338,700 |
Trade payables | 207,000 | 191,000 |
Total liabilities and owner’s equity | 888,000 | 962,000 |
The Pudong Coffee Shop – Summarised Cash Flow statement (unaudited) for year ended: | 31st December 2009 | 31st December 2008 |
¥ | ¥ | |
Operating cash flow | ||
Operating profit (loss) for year | 10,000 | 61,000 |
Add: depreciation | 82,000 | 82,000 |
92,000 | 143,000 | |
Changes in working capital: | ||
Less: Increase in inventories | (6,000) | (38,000) |
Add: Increase in trade payables | 16,000 | 191,000 |
102,000 | 296,000 | |
Investing activities | Nil | Nil |
Financing activities: | ||
Repayment of loan including interest | (100,000) | (100,000) |
= Overall cash flow (deficit) for year | 2,000 | 196,000 |
Add: Opening bank balance | 196,000 | Nil |
Equals: Closing bank balance | 198,000 | 196,000 |
Figure 1: The Link Between Activities and Results
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved