The Pudong Coffee Shop

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

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Resources

Table 1: Judging Criteria for Coffee Shops

(not listed in order of importance)

  • Beverages/food provided must be of good quality
  • Décor, temperature and noise levels
  • Free WiFi
  • Friendly staff
  • Excellent customer service
  • Presentation of food and food offering
  • Cleanliness and overall hygiene
  • Availability of space
  • Overall value for money

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 ShopSummarised 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

Figure

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

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