sun after storm a case study on pudong coffee shop dream chasers sun yat-sen university manager:liu...

Sun after storm

A Case Study on Pudong Coffee Shop

Dream ChasersSun Yat-sen UniversityManager: LIU MengningConsultants: ZHANG Wei

HUANG PeilongPENG Weijian

Outline

Goal: To help Pudong Coffee Shop weather the STORM.Goal: To help Pudong Coffee Shop weather the STORM.

A. Case OverviewA. Case Overview

• D1 Learning & Growth • D1 Learning & Growth

• D2 Internal Process Perspective• D2 Internal Process Perspective

• B1 A STORM Framework• B1 A STORM Framework

• D3 Customer Perspective • D3 Customer Perspective

• D4 Financial Perspective • D4 Financial Perspective

B. Current Situation AnalysisB. Current Situation Analysis

C. Strategy AnalysisC. Strategy Analysis

D. Utilization & ImplementationD. Utilization & Implementation

E. Net Cash Flow Forecast E. Net Cash Flow Forecast

• C1 Strategy Positioning• C1 Strategy Positioning

• C2 Strategy Map • C2 Strategy Map

• A1 Storm before Sun• A1 Storm before Sun

BSC

BSC

• E1 Income and Cash Flow Forecast• E1 Income and Cash Flow Forecast

• E2 Break-even Point• E2 Break-even Point

• E3 Overall Valuation• E3 Overall Valuation

Current Situation Analysis

Strategy Analysis

Case Overview

Utilization & Implementation

Net Cash Flow Forecast

A1 Case overview

Strategy Analysis

Utilization &Implementation

Net Income Forecast

Strategy Analysis

Utilization &Implementation

Net Income Forecast

Social Conditions

Technical Conditions

Organizational Conditions

Revenue Conditions

Market Conditions

Social Conditions



Revenue Conditions

Market Conditions

A STORM Framework Analysis A STORM Framework Analysis

A SUN Solution A SUN Solution

B1 Social Conditions

Strategy Analysis



Case Overview STORM FrameworkSTORM Framework

Industry Retrospect: Growing Coffee Consuming in China

Broad Prospect: Coffee: A symbol of fashion, elegance and noble

Huge gap in the market: Chinese: 3 cups per year American: 500 to 700 cups per year

Coffee has a blooming future in China.Coffee has a blooming future in China.


B1 Technical Conditions

Strategy Analysis




Common

Satisfied

Comfortable

Joyful

Invalid

Bad

Awful

12 3

4

5

9

7

8

6

1.Wonderful environment

2.Warm welcome

3.Decoration

4.Less flavor and background music

5.Little waiting time

Higher price

Positive feelings

Negative feelings

7. A variety of coffee

8. Employees, who are friendly , familiar with coffee and professional in service

9.Long time waiting for coffee

1010.Taste and appearance

11

11.Relax and watch the world go by

12

12.magazines

13

Customer Experience Flow- Process of Pudong Coffee ShopCustomer Experience Flow- Process of Pudong Coffee Shop


B1 Organizational Conditions

Strategy Analysis




Training and development of employee are urgent.Training and development of employee are urgent.

FatherFather

SonSon

Full-timeEmployeesFull-time

EmployeesPart-time

EmployeesPart-time

Employees2 Persons

• Company Structure • Current situation

• No training for the employees.• No adequate performance evaluation.

•Owned the coffee shop

•Managed the shop without salary and bonus from it


Average expense of each customer

Accessible

Time of ConsumptionAgeOccupations

1.Professionals2.International students3.Residents

Average quantity of customers every day

RMB 50

About 50

Lunch-time is the busiest period.

Young customers are the majority

Strategy Analysis



Case Overview STORM Framework

B1 Market Conditions – Customer Characters

Target MarketTarget Market


GE Matrix of Judging Criteria

Sustained advantages Region

high

highlow

low

Customers’ satisfactionOf Pudong Coffee Shop

Importance of the criteria

Needed improvement Region

3

8

2

9

14

6

7

5

Judging Criteria for Coffee Shops(not listed in order of importance)

1. Beverages/food provided must be of good quality2. Décor, temperature and noise levels3. Free WiFi4. Friendly staff5. Excellent customer service6. Presentation of food and food offering7. Cleanliness and overall hygiene8. Availability of space9. Overall value for money

Judging Criteria for Coffee Shops(not listed in order of importance)

1. Beverages/food provided must be of good quality2. Décor, temperature and noise levels3. Free WiFi4. Friendly staff5. Excellent customer service6. Presentation of food and food offering7. Cleanliness and overall hygiene8. Availability of space9. Overall value for money

Strategy Analysis




Certain attention should be paid to Free Wifi, Cleanliness and overall hygiene, & Presentation of food offering.

Certain attention should be paid to Free Wifi, Cleanliness and overall hygiene, & Presentation of food offering.

B1 Market Conditions – Service Evaluation


Strategy Analysis




Wages and remuneration

Depreciation of tangible assets

Advertising and promotions

LOW

LOW

HIGH

Region Local of Average

Shop Coffee PudongRatio

LOW

HIGHBeverage/drinks

Food sales

Wages , Advertising and Food sales is weak compared with average of Local Region

B1 Market Conditions – Competitors


Liquidity

Profitability

Solvency

▪ 1.225▪ 1.026▪ 43000

▪ 1.169▪ 0.957▪ 35000

▪ Current ratio▪ Quick ratio▪ Net working capital

▪ Inventory turnover▪ Asset turnover

▪ 20.464▪ 0.951

▪ 10.244▪ 1.047

Ratio Year 2008 Year 2009

▪ Times interest earned▪ Debt service coverage

▪ 2.125▪ 0.61

▪ 0.422▪ 0.1

▪ 0.035▪ 0.575▪ 0.034▪ 0.075

▪ Net profit margin▪ Gross margin▪ ROA▪ ROE

▪ -0.015▪ 0.548▪ -0.015▪ -0.033

Activity

Analysis

▪ Inventory turns over at fairly high rate

▪ Current ration and quick ratio are near 1

▪ Has adequate net working capital

▪ Made small profit in 2008, but net loss in 2009

▪ Decreased profitability

▪ Interest payment was quite large compared with net income

Good

Good

Poor

Poor

B1 Revenue Conditions

Strategy Analysis





Financial Situation: Poor profitability but good liquidity.

IntratypeIntratype

IntertypeIntertype

C1 Strategy Positioning


Case Overview


Strategy Analysis

Starbucks

UCC

Pudong Coffee

Others

Italian-style restaurant

Ice-cream Café

In the intertype, Pudong Coffee Shop has to compete with various coffee shop. Thus, Pudong Coffee Shop should cut down its cost to jostle for the similar demanders.

In the intratype, Pudong Coffee Shop has to satisfy the local customers. Thus, to compete with other local family-owned cafes, Pudong must find its own features

Cost Leadership Differentiation

Enhance ProfitabilityEnhance Profitability


FOCUS STRATEGY


Case Overview


Strategy Analysis

Financial Perspective

Customer Perspective

InternalPerspective

Learning & GrowthPerspective

Balance Gross Margin Rate

Boost Sales Growth

Enhance Asset Utilization

Retain Customer

Loyalty

Enhance Service Level

Enhance Customer

Satisfaction

Budgeting Control

Adjust Employee Structure

Improve Employee Competence

Enhance Employee Satisfaction

Increase Labor Productivity

Continuous Improvement of Internal Process

Boost Market Shares

Wider Product Range

Use Balance Scorecard to Implement the strategyC2 Strategy Map

Enhance Profitability

Cost LeadershipDifferentiation


Measure Level KSF Indicators Actual Average in Industry Target*

Finance

Gross Margin RateBeverages/Drinks 28.5% 21.9% 22%

Food sales 26.3% 32.9% 33%

Sales Growth Sales Change from Prior Year 1.6% 5% 5%

Adverting Intensity 3.2% 5% 4.8%

Customer

Customer Value Revenue Per Customer 5- 43.2 50

Satisfaction Satisfaction Survey >90% 87.2% 95%

Market Shares Revenue/Total Consumption in the Local 33.3% 33.3% 43%

OperationBudgeting control

Utilities as % of Total Revenue 5.2% 5% 5%

Utilities change from prior year 23.1% 15% 15%

Service Required Revenue of take-away/total >1% N/A 10%

Learning &Development

Employee Structure Part-time staff/full-time 4 N/A 4

Employee Competence Revenue/per employee 232,500 N/A 320,000

Employee Satisfaction Satisfaction Survey >80% N/A 90%

Strategy Analysis

Case Overview




To transfer KSF into targets using Benchmarking ApproachTo transfer KSF into targets using Benchmarking Approach


D1 Learning and Growth Perspective – Action Plan

Strategy Analysis

Case Overview



1.SalaryBasic Wage:2700Use the Proportionate Commission related to every customer serviced (3%)

2.Work HoursFull-time employees: 8h is required.Arrange them to 2 shifts:

Part-time employees: 6.5h is required. Arrange them to 4 shifts:

Employee training planTrain employees for at least 10 hours per month and invest ￥ 300 per month.

Performances recordingRank the performance results and give the best one 10% bonus

Improve Employee CompetenceImprove Employee CompetenceEnhance Employee SatisfactionEnhance Employee Satisfaction

To employ one more full-time employee Keep the current structure

Adjust Employee StructureAdjust Employee Structure


Morning 8:00---12:30

Noon 12:30---14:30

Afternoon 14:30----18:30

Evening 18:30----21:00

8:00---16:00

14:00---21:00

D2 Internal Process Perspective - Action Plan

Strategy Analysis

Case Overview



Save Utility

Utilities as % of Total Revenue:

Utilities change from prior year:

Boost Take-away Rates

• Redesign layoutsadditional expense of ￥ 3000

• Bio-material and lower-wattage bulbs

• Energy-saving idea

• Personal responsibility system

• Encourage Take-away Service • Reduce Customers’ Waiting Time

Check the waiting time though observing

• Provide Take-away Service to Passers-bySet an employee particularlyIn the morning (8:00-9:00)

Take-away Rate:

Service required

Budgeting Control

Purpose Targets Action


5.2%5.0%

23.1%15%

<1%>10%

Enhance Customer Satisfaction

Strategy Analysis

D3 Customer Perspective - Action Plan


Case Overview



Found a member club

Develop campus agent at the cost of ￥ 300 per month

Set ￥ 1000 to hold coffee culture competition once a year

5% off for old patrons’ bringing new customer.

Provide light music

Do customer satisfaction survey of 200 samples every 3 month

Decorate the walls and bar counter with ￥ 2000 to ￥ 3000

Customer retention and absorption

Boost Market Shares Enhance Profitability

Develop 3 new types of coffee flavor every 6 month

Provide 3 special offers every week

Strategy Analysis

D4 Financial Perspective


Case Overview



Balance Gross Margin Rate

Beverages/Drinks

Decrease the drinks’ price lightly to 3% to expend its sales. Pay attention to the invest, develop 5-7 different types of blend coffee Encourage take-away service with the budget of ￥ 2000 for packaging

Food salesIncrease the price to 5% Develop 3 types of coffee every 6 monthsEnhance the variety of breakfast, add 3-4 kinds of food

Boost Sales Growth

Sales Change from Prior Year

Consider all aspects when starting a renovation

Advertisement and promotions

as % of Total Revenue

Increase invest in marketing promotion and advertising to 4.8% Irregular preferential price with 20% off

Enhance Asset Utilization

Depreciation of tangible assets

Keep the depreciation rate

Enhance ProfitabilityEnhance Profitability

E1 Forecast Income Statement for year ended: 31st December

2010 31st December

2009 31st December

2008

　 ¥ ¥ ¥ Revenue (beverages/drinks) 427,800 485,000 465,000 Revenue (food sales ) 641,700 445,000 450,000 Total revenue (food and beverages) 1,069,500 930,000 915,000 Cost of sales (441,000) (420,000) (389,000)Gross profit 628,500 510,000 526,000 Less Operating expenses: Depreciation of tangible assets (82,000) (82,000) (82,000) Wages and remuneration (155,520) (130,000) (110,000) Rental (200,000) (200,000) (200,000) Utilities (lighting and heating etc.) (53,475) (48,000) (39,000) Garbage collection (11,100) (10,000) (9,000) Advertising and promotions (51,336) (30,000) (25,000) General and administrative expense(training and development) (14,400) 0 0

Total operating expenses (567,831) (500,000) (465,000)Operating profit for year 60,669 10,000 61,000 Interest payable on loans (18,368.7) (23,710) (28,700)

Profit (loss) for year 42,300.3 (13,710) 32,300

Strategy Analysis


Case Overview


With all the implementation mentioned above, Pudong Coffee Shop will have promising net income in 2010With all the implementation mentioned above, Pudong Coffee Shop will have promising net income in 2010


The forecast of these accounts is based on the assumption Li has made for 2010, and other accounts are predicted based on the set targets mentioned before.

The forecast of these accounts is based on the assumption Li has made for 2010, and other accounts are predicted based on the set targets mentioned before.

E1 Forecast Balance Sheet

　 31st December 2010

31st December 2009

31st December 2008

　 ¥ ¥ ¥

Goodwill 400000.00 400000.00 400000.00

Furniture and fittings (net) 164000.00 246000.00 328000.00

Inventories 42100.00 44000.00 38000.00

Cash at bank 227700.00 198000.00 196000.00

Total assets 833800.00 888000.00 962000.00

Owner’s equity 460890.30 418590.00 432300.00

Bank loan payable 180778.70 262410.00 338700.00

Trade payables 192131.00 207000.00 191000.00

Total liabilities and owner’s equity 833800.00 888000.00 962000.00

With the increasing profitability, total assets and owners’ equity will enlarge fast, especially after 2012 when depreciation of tangible asserts finishedWith the increasing profitability, total assets and owners’ equity will enlarge fast, especially after 2012 when depreciation of tangible asserts finished

The forecast of these accounts is based on the assumption Li has made for 2010.The forecast of these accounts is based on the assumption Li has made for 2010.

E1 Forecast Cash Flow statement for year ended:　 31st December

201031st December

200931st December

2008　 ¥ ¥ ¥

Operating cash flow Operating profit (loss) for year 60669.0 10,000 61,000 Add: depreciation 82,000.0 82,000 82,000

142,669.0 92,000 143,000 Changes in working capital: Less: Increase in inventories 1,900.0 (6,000) (38,000) Add: Increase in trade payables (14,869.0) 16,000 191,000

111,331.3 102,000 296,000

Investing activities Nil Nil Nil

Financing activities: Repayment of loan including interest (100,000.0) (100,000) (100,000) =Overall cash flow (deficit) for year 29,700.0 2,000 196,000 Add: Opening bank balance 198,000.0 196,000 Nil

Equals: Closing bank balance 227,700.0 198,000 196,000

Keeping positive net working capital is of importance, which guarantees the healthy operation of the companyKeeping positive net working capital is of importance, which guarantees the healthy operation of the company

The forecast of these accounts is based on the forecast income statement and forecast balance sheet.The forecast of these accounts is based on the forecast income statement and forecast balance sheet.

Strategy Analysis


Case Overview


E2 Break-even Point Analysis


Cost Behavior Analysis

Fixed cost: Depreciation, Rental, Utilities and Ad & PromotionsVariable cost: Cost of sales, Garbage collectionMix cost: Wages and remuneration,

Assumption: Unit cost 35 yuan(According to the case, The average cost of a cup of coffee in these international chains amounts to between Yuan 30 and 40.)Thus, sales volume should be counted as :The Year 2008: Sales Volume= ￥ 915,000÷35= ￥ 11,114.27The Year 2009: Sales Volume= ￥ 930,000÷35= ￥ 12,000.00

Assumption: Labor Equivalent : 1 part-time = 0.5 full-time

• In the year 2009, half of the sales volume comes from part-time employees, and the other half comes from part-time ones.•Half of the wages and remuneration is fixed cost. The graph of cost behavior of wages and remuneration is shown below:

The formula of wages and remuneration :

BEx= TFC/(p-VC)Based on the assumption and the analysis above ,we can calculate:

Total Fix cost(TFC)=82,000+65,000+200,000+48,000+30,000= ￥ 425,000 Break-even Sales Volume(BEx)=425,000.00/(50-35)= ￥ 28,333

Total Fix Cost(TFC)=82,000+65,000×1.2+20,000+53,475+51,336+14,400= ￥ 479,211

Break-even Sales Volume(BEx)=479,211/(50×1.05-35)=27,383

Year 2009

Year 2010

E3 Overall Valuation of Pudong Coffee Shop

Assumption: Assumption: 1. Free from going concern;1. Free from going concern;2. Run at the same growth rate of 2010 in the next five years.2. Run at the same growth rate of 2010 in the next five years.

Strategy Analysis


Case Overview



Period Net Cash Flow Discounted Rate

• n=5 Make forecast cash flow statement in the next five years.

Choose the interest rate of long-term bank loan 7% as the discounted rate.

Strategy Analysis


Case Overview



E3 Forecast Income Statement for the Next Five Years Year 2010 2011 2012 2013 2014

　 ¥ ¥ ¥ ¥ ¥

Revenue (beverages/drinks) 427800 491970 565766 650630 748225

Revenue (food sales ) 641700 737955 848648 975945 1122337

Total revenue (food and beverages) 1069500 1229925 1414414 1626576 1870562

Cost of sales (441000) (463050) (486203) (510513) (536038)

Gross profit 628500 766875 928211 1116063 1334524

Less Operating expenses:

Depreciation of tangible assets (82000) (82000) (82000) 0 0

Wages and remuneration (155520) (189734) (235271) (296441) (374112)

Rental (200000) (200000) (200000) (200000) (200000)

Utilities (lighting and heating etc.) (53475) (61496) (70721) (81329) (93528)

Garbage collection (11100) (12321) (13676) (15181) (16851)

Advertising and promotions (51336) (61496) (70721) (81329) (93528)

General and adminstrative expense (14400) (16560) (19044) (21901) (25186)

Total operating expenses (567831) (623608) (691432) (696180) (803205)

Operating profit for year 60669 143267 236779 419883 531319

Interest payable on loans (18369) (12655) (6557) 0 0

Profit (loss) for year 42300 130613 230222 419883 531319

Increasing total revenue and profit.Increasing total revenue and profit.

E3 Forecast Balance Sheet for the Next Five Years

Year 2010 2011 2012 2013 2014

　 ¥ ¥ ¥ ¥ ¥

Goodwill 400000 400000 400000 400000 400000

Furniture and fittings (net) 164000 82000 0 0 0

Inventories 42100 48339 50756 58370 70044

Cash at bank 227700 368978 565449 1012969 1544100

Total assets 833800 899317 1016206 1471339 2014144

Owner’s equity 460890 591503 821725 1241608 1772927

Bank loan payable 180779 93433 0 0 0

Trade payables 192131 214381 194481 229731 241217

Total liabilities and owner’s equity

833800 899317 1016206 1471339 2014144

Total assets rapidly increase as well as the owner’s equity.Total assets rapidly increase as well as the owner’s equity.

E3 Forecast Cash Flow Statement for the Next Five Years

　 2010 2011 2012 2013 2014

　 ¥ ¥ ¥ ¥ ¥

Operating cash flow

Operating profit (loss) for year 60,669 143,267 236,779 419,883 531,319

Add: depreciation 82,000 82,000 0 0 0

142,669 225,267 236,779 419,883 531,319

Changes in working capital:

Less: Increase in inventories 1,900 (6,239) (2,417) (7,613) (11,674)

Add: Increase in trade payables (14,869) 22,250 (19,900) 35,250 11,487

129,700 241,277 214,462 447,519 531,132

Investing activities Nil Nil Nil Nil Nil

Financing activities:

Repayment of loan including interest (100,000) (100,000) (100,000) 0 0

=Overall cash flow (deficit) for year 29,700 141,277 114,462 447,519 531,132 Satisfying cash flow for the next five years.Satisfying cash flow for the next five years.

2009￥

2010￥ 29700

2011￥ 13429

8

2012￥ 243277

2013￥ 476569

2014￥ 612014

1/(1+7%)-1

1/(1+7%)-2

1/(1+7%)-3

1/(1+7%)-4

1/(1+7%)-5

￥ 27,757

￥ 117,301

￥ 198,586

￥ 363,572

￥ 436,357

Total PV: ￥ 1,143,574

E3 Overall Valuation of Pudong Coffee Shop

NPV= ￥ 1143574Though the shop experience a financial storm this year, it has a profitable future.

NPV= ￥ 1143574Though the shop experience a financial storm this year, it has a profitable future.

Strategy Analysis


Case Overview



Uncertainty

New Entrants in the local region Mitigation:Use CRM system to enhance customer loyalty

Increasing Price of the Materials Mitigation:Develop new non-coco products

Rapid InflationMitigation:Increase the price

Strategy Analysis


Case Overview



Summary A STORM framework Analysis

A SUN Solution

A. Case OverviewA. Case Overview

B. Current Situation AnalysisB. Current Situation Analysis

C. Strategy AnalysisC. Strategy Analysis

D. Utilization & ImplementationD. Utilization & Implementation

E. Net Cash Flow Forecast E. Net Cash Flow Forecast

Social Conditions



Revenue Conditions

Market Conditions

Social Conditions



Revenue Conditions

Market Conditions

Learning &Growth Perspective

Internal Process Perspective



Learning &Growth Perspective

Internal Process Perspective



Management Accounting Approaches such as Benchmarking and Balance Scorecard are applied to help Pudong Coffee Shop go from storm to sun.Management Accounting Approaches such as Benchmarking and Balance Scorecard are applied to help Pudong Coffee Shop go from storm to sun.

Thank You for Your Time!

Dream ChasersSun Yat-sen University

sun after storm a case study on pudong coffee shop dream chasers sun yat-sen university manager:liu...

Documents

coffee shopsnot

coffee shopmanaged

variety of coffee

pudong coffee shop weather

current situation analysisc

growing coffee consuming

long time

overall value