Posted: August 3rd, 2022
The Course Project Part 2 assignment is the integration of all the sections including the Introduction and Sections E through K. Part 2 should be completely integrated and presented in a logical order, written professionally and free of spelling and grammar errors, and updated with any changes that occurred along the way, including corrections and advice provided by your professor.
Section E: Target Market and Segmentation: (30 points)
Describe your market. Where is it? How big is it? What is the growth rate? What are the unique features or dynamics of this market? What causes people to buy? What are the demographics and psychographics of your target customer?
Section F: Value Proposition (40 points)
Specific evidence that people will buy your product or service. What is your “hook?” Describe your primary research, and explain how the results validate the value of your product or service to your target audience. Primary market research is the key to this evidence. Prove that if you make this investment, customers will buy what you are selling. What is your competitive edge?
Section G: Pricing Strategy (25 points)
Describe your pricing strategy and specific prices. How did you arrive at these prices? What are competitive prices? Why are yours different? How do your prices relate to costs and your development investment?
Section H: Marketing Promotion Strategy (25 points)
Describe the role, the strategy, and the execution of your total communications plan. What is your message? What are your specific communication vehicles, such as advertising, literature, promotion, the Internet? What type of scheduling or timing will you use? Show your budget by year and type of expense.
Section I: Day-to-Day Operations: (25 points)
Describe how your business will “operate.” If you make a product, describe the production. If you offer a service, describe each step of that service. If you are a retailer, location, product mix, and suppliers are important. Think through your business’ daily operation and explain it in detail. Then, think about who, what, and how each of those steps will happen. Realistically, how much of this can one person do? Strategically, how will you plan for growth?
Section J: Facilities and Equipment Plan (25 points)
Describe and cost your capital assets, such as production lines, office equipment, and buildings. If you plan to have a physical location, include a floor plan if possible. Address your build-out strategy. Are you leasing a location that meets your specs (fairly unusual); if not, include a build-out plan with high-level milestones, dates, and costs? What are your startup timelines? Expansion timelines?
Section K: Technology Plan (20 points)
Describe your company’s IT needs and how much they will cost and how you will implement. Will you have a web presence, and if so, what type of functionality will it include? If you need a particular software program, explain its function. Will you need licenses for each employee? Will you handle your IT requirements with “in-house” or outsource to IT consultants—explain your decision.
Paper/References (10 points)
Properly formatted with APA format paper, citations and sources.
Course Project Part 1
BUSN 460 Senior Project
Dr. Michael Reitzel
Section B: Industry Analysis 3
Section C: Regulation and Legal 3
Section D: Competitive analysis 4
Course Project Part 1
Section A: Business Concept
Java café is a coffee opened in 2021 with seven employees. Three employees are part-time employees, while four are full-time employees. The business thrives on technology, leveraging social media as the technology of choice. Currently, the business runs an Instagram page that has 20 thousand followers. Constant interaction with clients on social media makes the business rather unique; however, one of the most district features of the business is its high-grade coffee, especially the African varieties harvested on the African continent. Africa has one of the best varieties of coffee, especially regions of east Africa. The sweet aroma and fine texture of coffee differentiate Java Café from other cafés. The business also donates a cup of coffee to the homeless for every ten cups sold, which has seen many people flock to the café, with the desired goal being to see as many cups of coffee donated to the homeless. Java Café’s marketing approach is based on the market-based pricing approach. Java analyzes the price of coffee in other cafes that offer quality coffee in the region and examines far much wider areas that face unique business challenges and issues such as Java’s. The café maintains its process should be half a dollar cheaper than its closest competitors. This helps set the price of a cup of coffee.
The pricing approach employed by Java Café of half a dollar cheaper has seen the café target entire groups from both the lower class, middle and upper class. Each class receives tailor-made products that suit their tastes and preferences (Abrams, 2014). Consumer tastes and preferences change based on social class, which is why java café produces a variety of coffees. Vanilla and cinnamon coffee flavors are the most favorite amongst the middle and upper class and are the fastest moving coffee flavors at Java. The most expensive cup of coffee costs $2.20, while the cheapest is $1.20. Most Java customers are working-class people with a small group of students and another distinct group of coffee lovers. This last unique group of individuals loves indulging themselves in a good cup of coffee, which is why Java has allowed them to even propose their recipes and have Java prepared for them. Direct coffee sales are the current major driver of sales; however, the business has recently witnessed a revenue increase from personalized orders. Social media is one of the best areas for the business to engage with most of its clients and potential clients. Constant updates are made on the newest services, products, and employees. For clients who reach Java café over social media to try to solve problems, the company prefers to handle the problems through telephone classes or face-to-face meetings as they are seen to have the greatest impact. Paid advertising on social media, such as the use of ads on YouTube, Facebook, and Instagram Social media influencers are also another beneficial channel, especially when targeting youth aged 22years to 38 years old. The Java café website is the other avenue of promotions and advisements. The website also supports chatbots where artificial intelligence chatbots Maggie helps customers make online orders, reserve tables, and even make payments online (Waghmare, 2019).
The company plans on expanding across fifteen states within three years. Further, the next five years are planned to boost e-commerce revenues for Java café. The company website has been optimized to support online shopping for various Java café products. Further expansion to Europe has been envisaged in the long term with a ten-year goal set.
Section B: Industry Analysis
Even though the majority of adults consume coffee daily, it is unlikely that operating a modest coffee shop will result in financial success. The 50 largest coffee shop chains are responsible for bringing in 70 percent of the industry’s total profit (Gartenstein, 2019). However, modest coffee shops typically have an average operating income of only 2.5 percent of gross sales, even though gross margins for cafes can reach as high as 85 percent. The profit margin of a firm or business is a measurement of how much additional money will be made once all expenses have been met. A typical coffee shop will have a profit margin of 12 percent of all the coffee items they sell. This indicates that the business will keep 12 percent of the money for every cup of coffee after deducting all of its operating costs (Gartenstein, 2019). Most of a small coffee shop’s revenue goes toward overhead expenses because direct costs account only for approximately 15 percent, on average (Gartenstein, 2019). A small cafe can improve its profitability by increasing its sales volume.
However, the average operating income for small cafes tends to be quite low, even though the average gross margin in the coffee sector is quite high. This apparent contradiction draws attention to the high cost of running expenses distinct from the cost of goods supplied. Direct costs include the price of coffee and cups and the labor that runs straight into manufacturing the food and drinks a business sells. Indirect costs include things like rent and utilities. Rent, advertising, utility costs, and supplies are the other expenses that cut the average profits and bring them down to just 2.5 percent (Gartenstein, 2019). These expenditures are considered fixed costs, which means that their overall cost does not change in proportion to the number of goods sold. As you create and sell more units, you will notice that the overall cost of these expenses stays relatively the same, which means that the cost per unit will decrease.
To put it another way, the coffee sector reaps significant benefits from economies of scale, which helps to explain why the most profitable companies are the largest ones. In 2018, the average cost of a coffee drink made with espresso was $3.45, while the average cost of a cup of brewed coffee was $2.38 (Gartenstein, 2019). Contrast this to the restaurant business, where a single item on the menu might cost anywhere from $10 to $15, even at establishments that are considered more affordable.
Compared to my projections of 13% per cup as the expected profit margins, I think I am on the right track. For every cup, I expect 0.286 USD as the profit margins. The expenses include paying my license fees, paying my employees, and every other expense the business may incur. Profitability within this industry appears to be varied, with some coffee shops registering profits margins as low as 2.5%. For each cup, I would expect profits between $0.278 and $0.286. This depends on other factors such as demand and supply and macroeconomic principles such as inflation. For a coffee shop to attain profit margins of up to 12%, there need to be concerted efforts to cut costs. First, sourcing quality coffee at lower prices is one of the best ways to cut costs. Operating a small roasting machine to help run our coffee in-house will help reduce costs drastically. Further, the adoption of technology such as our chatbots Maggie will also help in the reduction of costs. High reliance on technology will help java café attain high-profit margins both in the short and long term.
Section C: Regulation and Legal
Java café is housed in Newyork city mainly due to the high number of professionals across multiple sectors such as entertainment and Wall street. In Newyork city, most coffee shops open as Limited Liability Corporation. The advantages of having the business as an LLC are that it protects the business from personal liability and helps usher in its essential elements, such as EIN. In the City of New York, various health regulations must be observed. The City does this in line with the FDA food code, which provides businesses such as coffee shops with a model on which the business will update its food and safety rules. Healthy and safety regulations are important to reduce the risk associated with food hazards. The FDA health and safety regulations include aspects such as standards for commercial dishwashers and refrigerators, the extent of training needed by health inspectors, the number of times that the coffee shop will be inspected by health inspectors, cooking temperatures for meals such as eggs and meat which will not be offered at Java café. The hot holding temperatures for prepared foods are the final health and safety regulation. Inspectors will generally inspect Java café for issues such as temperature monitoring, level of cleanliness, ingredients, cold storage, which includes freezers and refrigerators, storage methods, kitchen equipment, cooking and heating, and produce prep.
When setting up a coffee shop in Newyork, it is paramount that the business is registered through the New York Secretary of State. After this, the coffee shop is registered with the City of New York. Every coffee shop needs a variety of licenses and permits when operating in New York. The city business license, NYC Resellers license, Employer Identification Number (EIN), New York State Business License, Certificate of Occupancy, Fire Department Permit, Health Department Permit, and the Retail Food Establishment License (Coffee Shop Startups, 2022, June 3).
Insurance is also an important aspect of the business. Java café will need multiple insurance covers, which will help mitigate the risk associated with the business. The business will also need insurance for its employees, especially medical insurance, in line with the Affordable Care Act. Finally, two lesser types of licenses are still needed. Sign permits, this is a permit that is needed when putting out signs to attract customers. Java café must apply for a sign permit from the City of New York. The City will provide various regulations regarding the size of the signpost lighting and the location of the signpost. A music license is needed if the business plans on playing music in the shop. A music license is needed to avoid fines associated with playing copyrighted music whose fines can exceed $30,000 Coffee Shop Startups, 2022, June 3). The license can be obtained through Broadcast Music Inc., The American Sociei8ty of Composers, and Authors and Publishers.
A myriad of changes has come into effect ever since the Covid 19 pandemic struck across the world. The need for ventilation, spacing, and covering of face using masks; however, the amendment made in March to end the Key to NYC guidelines, which called for mandatory proof of vaccination at the door for businesses and dropping of mandatory use of facemasks means that Java café will start witnessing a business growth (Staff, 2022, July 1). It is anticipated that business levels will increase by at least 67% through August, as people are still fearful of the Covid 19 pandemic. However, by the end of the year, with all factors remaining the same or constant, businesses will resume fully to levels even much higher than pre-pandemic levels.
Section D: Competitive analysis
Java café faces key competition from established players such as Starbucks, McDonald’s, costa coffee, Dunkin Donuts, and Subway. These established brands have multiple franchises across America, which pose a major challenge to the business due to their ability to access quality coffee at cheaper prices. The level of competition across America is also growing due to the rise of other much smaller coffee shops. Coffee shop owners particularly love the City of New York due to the potential prospect of quick growth and business level in New York. It is estimated that between 2017-2020 4,000 coffee shops opened their doors in Newyork alone. This can be attributed to the vibrant economic prospects in Newyork to a highly dynamic economy. These companies have various strengths, which include:
Strong financial performance where companies such as Starbucks make profits upwards of $4.2 billion. With huge amounts of cash reserves, established coffee companies can aggressively expand across the world and also across North America, posing a major challenge to the expansion of Java café. Secondly, these brands have a strong image, which has contributed to strong growth in size, volume, and brand image. Extensive supply chains aid the companies in sourcing products cheaply and help quickly sell their products. AA chain of global suppliers highly supports a strong logistics supply chain. Moderate diversification where major competitors such as Starbucks have managed to diversify their businesses by reducing food items and innovative merchandise. Aided by strong financial performance, Starbucks, Subway and McDonald’s, and other global brands specializing in coffee have managed to have a strong reinvestment strategy, which has aided in further growth.
The company’s strong financial performance also means they can pay their employees well. This means they have strong starting wages, and guaranteed wage increases for coffee baristas are guaranteed high salaries at $12/hour in 2021.
Some of their major weaknesses include
High prices: offerings at Subway, Starbucks, McDonald’s, or even Costco Coffee are extremely high for the working-class community. Their coffee prices are much higher than those at other coffee outlets. This plays a critical role in reducing the affordability of their products to the consumer.
Imitability of products: major coffee brands and even much smaller competitors do not own most of the unique products available in the market. This means that the imitability of products is much easier
Generalization of product standards: some of the products owned by Java Café’s major competitors are not aligned with the cultural standards within the global market. At times most of the crafted beverages do not even align with consumer preferences. Procurement practices: most global brands have been accused of sourcing their coffee from impoverished farmers in Third World nations at extremely cheaper costs. These companies acquire their coffee in bulk for extremely cheap costs and do not care about the labor standards practiced on the farms from which they fetch their coffee.
For Java café to take the market share from major established brands such as Starbucks there is a need to make coffee that reflects ideal consumer preferences. The continuous need to constantly offer quality coffee at a much cheaper cost will help java cafés take market share from their competitors. Due to the strong financial performance of major established brands, these brands will try to initiate a takeover of java café to reduce competition. These brands offer java café prospects cheaper coffee and a range of other products such as bread, the foods that can accompany coffee. This huge product line is a major challenge for java café.
Abrams, R., (2014). Successful Business Plan: Secrets and Strategies (6th Edition). PlanningShop (US).
Coffee Shop Startups. (2022, June 3). How To Start a Coffee Shop in New York City – Licensing Requirements. https://coffeeshopstartups.com/how-to-start-a-coffee-shop-in-new-york/
Gartenstein, D. (2019). The Average Profits for a Small Cafe. Small Business – Chron.Com. https://smallbusiness.chron.com/average-profits-small-cafe-30768.html
Staff, C. (2022, July 1). Travel to New York City during Covid-19: What you need to know before you go. CNN. https://edition.cnn.com/travel/article/new-york-city-travel-covid-19/index.html
Waghmare, C. (2019). Business Benefits of Using Chatbots. Introducing Azure Bot Service, 147–165. https://doi.org/10.1007/978-1-4842-4888-1_6
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