University of Rizal System Binangonan, Rizal College of Graduate School

Business Plan: Establishment of Coffee Shop Caf-Box

Jhoanna Mary E. Pescasio MBA Student

Ariel Plantilla, MBA, DBA Professor

March 24, 2012

I.

Executive Summary

THE CONCEPT Caf-box is a special coffee shop is literally inspired by the number coffee shop around the world. 20 years the coffeehouse has become a familiar feature of American life. Every day, hundreds of Filipino stops for an espresso-based coffee drink. People spend 100 pesos or more for their cappuccino, mocha latte or vanilla ice blended drink. The specialty-coffee business is growing at a healthy pace. During the past 20 years, there wasnt been a single year, despite war and recession, in which specialty coffee sales have not grown. In many years the increase has been in double digits. In addition, no coffeehouse chains have failed during this time, although the list of casualties in other industries is quite long. Starbucks, The Coffee Bean, Settle best, and other major chains serve average quality drinks in establishments that have the same generic design appearance. Indeed, Starbucks and The Coffee Bean are often referred to as "fast food" coffeehouses due to their "cookie cutter" design. Now that Flipinos' coffee preferences have broadened and matured, many are asking for more from their coffeehouse. A niche exists that has yet to be filled for a high-volume, upscale, quality-driven coffeehouse with a warm, inviting atmosphere. Caf-box meets this need and fills this niche. We offer high-quality products in an upscale environment. Furthermore, the accessibility of the location in Teresa provides a mixed customer base that will maintain high levels of business in every season, at all times of the day, every day of the week. TYPE OF BUSINESS The Caf-box is a service and retailer type of business. It uses a system that is new to the industry, like using square shaped mugs with a free book shelf on the side that can be used by the customer who love o read, such book are collection of the proponent/ owner. This service industry is established to provide hot and cold beverages in a convenient and timeefficient way. The caf-box will target the young professional as its market.

MANAGEMENT Mobile caf located in heart of Teresa to be lead by the proponent and three other personnel such as Store manager, Barista, and Customer Specialist. PRODUCTS AND SERVICE COMPETITION Caf-box coffee shop provides its patrons the finest hot and cold beverages, specializing in specialty coffees and homemade pastries, salads and pasta. In addition, it will offer coffee bean who love to extent their coffee experience at their respective houses.

The Caf-box considers itself to be a player in the retail coffee house industry. Primary competition will come from following sources: Commercial coffee shop, Barista, Traditional coffee shop, Fast Food outlets and even from Convenience stores.

II. Description of the Venture 1. Type of business Caf-box is registered as a Sole proprietorship. It is wholly-owned by the Proponent, who was the author herself. The owner solely operates and run the business for profit. 2. Name of business The coffee shop was named Caf-box for its unique mugs, which is a square in shape. Although the product was available in market in any place, the owner adds twist to the product to make it different, and it is in the way of having it offered to customer in a unique package. 3. Product and Services Caf-box will offer its customers the best tasting coffee beverages in the area. This will be achieved by using high-quality ingredients and strictly following preparation guidelines. Along with coffee drinks, Cafe-box will also offer pastries, pasta and salads which are perfect partner for coffee. For the gourmet clientele who like to take prepares their coffee at home, the company will sell its coffee beans and likewise its instant coffee. The menu offerings will be supplemented by free books and magazine that the customer can read inside the coffee shop, to add attraction with the customer, the whole area of the coffee shop offers free Wi-Fi. The calm ambiance for the customer will likewise offer to the customers a new environment for them to think and relax while listening to classical and instrumental music. 4. The proponent The proponent of the business is the owner herself, her love and passion with coffee drives her to share her passion with Rizalenos. Her mission to share the zip of coffees with different tastes to her town mates make her to decides to establish a small coffee shop that caters and offers coffee in a calm ambiance. III. Marketing Plan 1. Market Description

Globally, coffee consumption continues to swell with an average growth of one percent every year. Coffee is the second most tradable commodity in the world next to oil. Coffee consumption in the country grows 5% annually, thus, specialty coffee shops in the Philippines are expected to continue growing in coming years. Specialty coffee shops grew in terms of number of outlets, transactions and value sales. With Starbucks gaining more popularity and other specialty coffee shops following suit, more such outlets are likely to appear. The strong growth is mainly attributed to good consumer demand, as coffee drinking has become a very popular social activity. Increasingly, Filipino consumers are settling for a good coffee instead of alcohol on a night out. Coffee shops have become a status symbol for younger consumers. Working people find these specialty coffee shops to be convenient places for afternoon business meetings. With the growing popularity of coffee drinking in the country, Filipinos have started to be more discriminating in their preferences for coffee, according to Euromonitor. The target market of Caf-box is the young professional of the town who like to skip the stress that corporate environment endowed. Likewise, that entire coffee lover can likewise enjoy the coffee that the company offer for it is affordable that everyone can have the cup of coffee. Since it is new to the area, there is a big chance to capture all the target market, with careful management and with customeroriented attitude, it is probable that the venture will reach its target and goal. 2. Demand and Supply Analysis a. Projected demand of product and services. Coffee is generally considered to be a household staple even among the lower economic classes. At present, soluble or instant coffee accounts for about 90 percent of all the coffee consumed in the Philippines. Domestic coffee consumption is estimated to remain relatively flat due to a predicted slowdown in overall food and beverage consumption, as well some shifting to other beverage substitutes such as teas by other consumers. Specialty coffee shops grew faster than other cafs/bars in 2007, as the former recorded a double-digit percentage increase. This was mainly explained by the growing popularity of coffee, especially with its advertised health benefits, such as being a powerful antioxidant, and also due to enhanced product offerings. The mushrooming Business Process Outsourcing industry, which mostly works on the graveyard shift, has also significantly enhanced coffee product sales as coffee serves as a powerful antidote to sleepiness. The additional benefits of dining in specialty coffee shops, such as wi-fi access, also attracted more customers to these outlets. There was an expansion in the product offering in 2007 as more specialty coffee shops started offering bread, cakes and cookies, which mostly contained less fat and less sugar to attract the health conscious buyer. New drinks like tea and bottled water are now sold in specialty coffee shops as well. As per survey and studied conducted, the demand for coffee shop in Teresa is about 65% of middle aged population. The study show that among respondents 90% love to drink coffee and 72% of it goes to coffee shop. b. Competitors and suppliers in the market

Competitors The market for coffee shop rapidly increasing and to cater the needs of consumers, it seems coffee shop mushroomed in various places, here in Rizal, there are few tried to offer such product and services in near towns. However, in Teresa, there still no established coffee shop in town, thus, there are no direct commercial competitors to consider. The only concerns that study reveal that there are consumer still prefer to have the coffee at house, thus, the proponent sees that the answer for this matter is to offer gourmets coffee beans to consumers who preferred to have coffee at their own houses. Figure 1.0 shows the market share of Caf-box in Teresa. It shows that 72% of sample is open to establishment of special coffee shop in the town.

Ca ox f-B Inhous Drink e er O thers

Suppliers What is one of the worlds most popular drinks? Coffee, thats what. In the Philippines, eight out of 10 adults drink an average of 2.5 cups of coffee every day. The popular drink comes from an evergreen tree, which was first discovered in Ethiopia, where its red, cherrie-like berries (generally containing 2 seeds per berry) was used for wine and food before AD 1000. Its beans are first grounded and roasted and made into a drink during the 15th century in the Arabian Peninsula. Coffee later spread throughout Europe since the 17th century. In the Philippines, coffee has a history as rich as its flavor, says the National Coffee Development Board (NCDB). The first coffee tree was introduced in Lipa, Batangas in 1740 by a Spanish Franciscan monk. From there, coffee growing spread to other parts of Batangas like Ibaan, Lemery, San Jose, Taal, and Tanauan. Batangas owed much of its wealth to the coffee plantations in these areas and Lipa eventually became the coffee capital of the Philippines. By the 1860s, Batangas was exporting coffee to America through San Francisco, the NCDB records. When the Suez Canal was opened, a new market started in Europe as well. Seeing the success of the Batangeos, Cavite followed suit by growing the first coffee seedlings in 1876 in Amadeo. In spite of this, Lipa still reigned as the center for coffee production in the Philippines and Batangas barako was commanding five times the price of other Asian coffee beans. The recent worldwide popularity of special brews and exotic blends of coffee gives a sliver of hope to the Philippine coffee industry. This new trend might be the

breath of life that the Philippine coffee industry needs to savor once again the taste of its coffees golden years. There are a number of coffee varieties, but the four most common are Arabica, Liberica, Excelsa and Robusta. The most important variety is Arabica, which accounts for 72 percent of world production. Arabica is an early bearer. Two years after transplanting, it produces berries. Caf-box major supplier for coffee beans and supplies will be Pythagoras Enterprises while pastries, salads and pasta are to be ordered at Red Label, a home based company. The same would be using Just in time inventory system and in consignment basis. Gross margin above the cost is equal to 30%. A contract would be provided between the company and the supplier for a continuous supplies and good relationship. 3. Projected Sales Revenues for the first year of operation are based on an almost 10% growth rate from month to month. This is an aggressive estimate, but we feel that our strong emphasis on marketing will have positive results. Annually, beyond the first year of operations, we're predicting a growth rate of roughly 10%. We'll have a better idea of potential growth rate beyond year one as we make our way through our first year.

3,000,000.00 2,500,000.00 2,000,000.00 1,500,000.00 1,000,000.00 500,000.00 0.00 1st Y ear 2n Y d ear 3rd Y ear 4th Y ear 5th Y ear P rojected S ales

4. Marketing Plan or Strategies Caf-box marketing strategy will be focused at getting new customers, retaining the existing customers, getting customers to spend more and come back more often. Establishing a loyal customer base is of a paramount importance since such customer core will not only generate most of the sales but also will provide favorable referrals. We will closely integrate all of our marketing and sales efforts to project a consistent image of our company and a consistent positioning of our products and services. We will build this image around our name "Caf-box, Inc." and emphasize to customers the high-quality service that is behind this name. To support our marketing initiatives and product knowledge, we will attend as many area conventions and trade shows as possible to ensure we are offering the most up-to-date market trend.

a. Pricing The price policy of Caf-box should serve to explain how flexible prices will be, what level they will be set over the stages of the product life cycle, and who gets the discounts and allowances. Caf-box should be profit oriented because the limited capacity of the organization will not be able to take advantages of economies of scale, at first. The flexible price policy should be based on membership level for cumulative quantity discounts. Since the business is new in the area and the target market segment is limited, above margin cost should be reasonably at level to its competitor. b. Distribution The distribution strategy for Caf-box would be direct to consumers, the latter can visit the coffee shop to experience calm ambiance while sipping a cup of coffee over pastries, salads or pasta, or even just reading books and browsing the net. For customers who want to extend their coffee experience at their respective houses can buy the beans and have a lax time. c. Promotion Cafe-box must make full use of all forms of promotion. First, it must engage its customers in personal selling of premium services. Mass selling through advertising and publicity must generate attention towards Cafe-box. Sales promotion techniques such as free trials will serve to stimulate the interest of the potential customers. Integrated marketing communications must focus all attention on the product features and entice potential customers to switch from their existing coffee shop while informing customers of the new unsought features the product provides to the target market. Finally, Cafe-box must engage its customers in personally selling of premium services. Targeting the early adopters within the college community through salespeople and mass media will help encourage opinion leaders to try the new Cafe-box shop. These opinion leaders will spread word-of-mouth publicity and may contribute in building selective demand for the product. Persuading the customers is another way tousle salespeople as a tool to build selective demand. Using a task method budget is the most appropriate way to generate a guideline for promotion activities for this new Personal selling of the Cafe-box product should be through its specially trained salespeople. The sales force must understand its role to help the customer buy. Cafe-box needs order getters to generate membership enrollments. Order takers will use the custom web application to process orders, as well as orders placed at the point of purchase. Supporting salespeople for Cafe-box must be missionary and technical. Team selling should be used to approach groups of people that may greatly benefit from the product Cafe-box provides. While sales people are important, there will be a great emphasis on digital self-service for the ordering process. Training the salespeople will consist of instruction on Cafe-box policies and best practices, detailed product information, preparatory information on how to best interact with the customer, and some basic professional selling skills to help generate new

membership and retain them. Salespeople on site of the company store should be paid an hourly wage, while missionary salespeople should be given commission based on the membership revenue they generate. Mass selling of Cafe-box coffee shop products through advertising should raise awareness and interest within the target market. Cafe-box is an innovative new product offering and as such demands 100% of the market. The use of competitive, indirect advertising will serve to highlight the differentiation of Cafe-box and should create attention, obtain interest, create desire, and inspire the action of purchasing a membership. The use of advertising allowances for context-based direct-response web ads will serve to introduce the product to target customers. Promotion efforts for Cafe-box should use free trial opportunity to entice customers to purchase a membership. IV. Production/ Operational Plan 1. Production and Service Process There are eight work stations to be implemented as part of business process, it includes, coffee machine, drip coffee cold station, pastry, merchandise, back room, lobby and cash register. The coffee machine station consists mainly of the different variances of coffee using espresso machine and all the paraphernalia goes along with it. The employee need to make sure the temperature is correctly set every day. They need to know what setting to grind the coffee, if the setting is wrong it will ruin the coffee and make the drinks taste bad. They need to test the strait espresso every morning before entering to make sure that everything is correct. For production, this station is the ms important, what happen with the coffee depicts the taste of the coffee and it crucial to have the same taste constantly. Another station dealing strictly with coffee is the Drip Station. At his station it is important for the employee to check filter and water quality to ensure a quality cup of coffee. Once again it is important that every employee understand the current grind for the coffee in order to use it in the drip coffee. If it is wrong it will give the drip coffee either a weak taste or a very strong bitter taste. The cold Station is mainly the area that contains the products needed to create cold drinks. Here it is important to know what measurement and ingredients go into the array of different drinks. This station has fewer technical properties instead it is an area that completes the product. If a drink is o be altered by the customer it would most likely be accomplished in his area. Its a more artistic area and allows he staff to be creative and decorative. The backroom is the washroom, all the equipment is washed along with in house cups It is important for the Caf-box image to have clean utensils and equipment. The store room and inventory room are also in the back. General knowledge of the backroom is important more for upper management than customers. In order for the company to operate, they need to make sure the employees are efficient in taking inventory and communicating with the headquarters. There is a pastry case in the front of the store that is also a station. The must pass a test showing that they understand how to set up the pastry case; this is an important task when opening the store every morning. The staff must know the price of each product display even there are board price for all items offered by the store. Another station is the cash register region. The employees are trained on the computer system and test to make sure they understand operation and money

issues. The system for this would be Point-of-Sale (POS) that records all transaction in real time. The lobby is the most important station to the employees. Caf-box would like its staff to be friendly as possible and to be noticeable in the lobby. This will make sure the customers happier and allow the staff to give off a friendly and warm feeling. Also in the lobby area, the staff has to make sure the coffee bar is correctly set up and clean. This is the area that houses the straws, napkins, sugar ad extra milk. 2. Physical Plan a. Description of location Cafe-box will operate in a commercial establishment. The company will rent a 40 square meter lease area that is located at the second floor of the establishment. It is located at the center of the town, Teresa in specific. It is near St. Rose of Lima Parish, towns market and other establishment. It is very accessible that people can choose to either walk or take a public transport to reach the shop in walk.

b. Layout of production/ operation area

Figure 1.0 Lay-out plan for Caf-box 3. Labor requirements Caf-box is a simple and small organization, thus the labor requirement is relatively few. In fact it need only 3 personnel, one Store Manager who oversee all store transactions, one Barista to do the coffee preparation and one shop keeper who do the back room chores and lobby maintenance. 4. Machinery and Equipment requirement. Coffee shop supplies like machinery and equipment are directly purchase to Pythagoras Enterprises, a domestic corporation in the Philippines that offer quality coffee equipment at a reasonable price. Coffee Machine Demonstrate how simple the enjoyment of a perfect cup of coffee can be. One of its most outstanding features is the smart operation: a whole range of coffee specialties can be made using a single control. Price: 17,000.00

Freezer Keeps food inventory and cubes for ice coffee and frappe. Price: 12,000.00

Coffee-maker Built in 4 minutes cooling cycle, durable coffee maker that hold up to 1 cup of beans and roast and cools in less than 20 minutes. Price: 6,000.00

Coffee Grinder Self service application that grinds coffee in high speed level. easy maintenance and very user- friendly. Price: 3,500.00

Microwave Oven Use for warming the selected pastries and ready to eat pasta. Price: 2,500.00 Coffee Blender Bend the coffee and ice for frappe. Price: 4,000.00

Coffee Decanters Warm brewed coffee. Price: 235.00

5. Raw Materials requirements and potential sources Raw materials, like beans, sugar in different variances, creamer in liquid form and granules are to be likewise purchased to Pythagoras Enterprises unless there would be a shortage that Caf-box need to purchase the same to other suppliers.

6. Production/ Operation Cost Production cost as estimated would be 55% of sales. Monthly production cost would be as follows: Blended coffee

V. Financial Plan The Caf-box Companys financial picture is quite promising. Since it is operating a cash business, the initial cost is significantly less than many start-ups these days. The process is labor intensive and Caf-box recognizes that a higher level of talent is required. The financial investment in its employees will be one of the greatest differentiators between the cafe and its competition. For the purpose of this pro-forma plan, the facilities and equipment are financed. These items are capital expenditures and will be available for financing. There will be a minimum of inventory on hand so as to keep the product fresh and to take advantage of price drops, when and if they should occur. 1. Total Project/ Investment Cost The total investment for the shop includes machinery and equipment, coffee supplies and the improvements of the rentable area, salaries for the personnel which is good for 2 months which is the opening of the shop and start-up cost. Below are the breakdown of the initial production and investment cost: Coffee machine Freezer Coffee maker Coffee grinder Microwave Oven Coffee Blender Coffee decanters (3 17,00 0.00 12,00 0.00 6,00 0.00 3,50 0.00 2,50 0.00 4,00 0.00 705.00

units) Coffee Beans Arabica 465 per kilo Excelsa 505 per kilo Robusta 455 per kilo Chairs and Table Coffee supplies Rent for the year Food inventory Salaries Administrator/accoun tant Store manager Barista Customer specialist Start up cost Leasehold Improvements Total 2. Sources of Financing The capital requirement would be 1,500,000.00 the sources of financing would be a combination of capital investment and long-term financing to carry-out the business. This will mean growing a bit more slowly than might be otherwise possible, but it will be a solid, financially sound growth based on customer request and product demand. Capital Investment Total Capital Requirement P 1,000,000.00 P 1, 000,000.00 2,79 0.00 3,03 0.00 2,73 0.00 44,25 0.00 5,92 5.00 80,00 0.00 35,00 0.00 40,00 0.00 30,00 0.00 26,00 0.00 12,00 0.00 7,50 0.00 125,00 0.00 459,9 30.00

3. Pro forma Financial Statements

a. Projected Income Statement

Caf-Box Projected Income Statement For the Years Ended December 31, 2012 to 2016
Caf-Box Projected Income Statement For the Years ended December 31, 2012

Sales Coffee Side Dishes Coffee Beans Total Sales 31 .57 .64

1,351,974. 303,327 18,927 1,674,22 9.52 596,475

Cost of Service

.00 1,077,75

Gross Margin Operating Expenses

4.52

7,500 Start-up cost Coffee utensils Rent Depreciation of chairs Depreciation of LI Ad and Promo Total Operating expenses .00 .00 .00 .00 .00 .43 483,18 9.43 594,565 Net Income before tax 32% tax on individual Net Income after Tax .09 .83 404,30 190,260 10,705 180,000 8,850 25,000 251,134

4.26

b. Projected Balance Sheet Caf-Box Projected Balance Sheet As of December 31, 2012
Assets Cash Coffee machine Freezer Coffee maker Chairs and Table Leasehold Improvements Accumulated Depreciation Total Assets Liabilities & Equity Income tax Payable Capital Total Liabilities & Equity 190,260.83 1,000,000.00 1,190,260.83 1,028,710.83 17,000.00 12,000.00 6,000.00 44,250.00 125,000.00 (42,700.00) 1,190,260.83

c. Projected Cash Flow Statement

Caf-Box Projected Cash Flow Statement For the Year Ended December 31, 2012 Operating Activity: Net Income Add (Deduct) Reconciling items: Interest Payable Income Tax payable Depreciation Expense 65.09

594,5

60.83 50.00

190,2 40,8

Organizational Cost Net Cash from Operating Activity Investing Activity: Purchased of equipment & machineries Net Cash From Investing Activity Total Cash Flow Cash Balance, April 30, 2012 Cash Balance, Dec 31, 2012 4. Break Even Analysis

407,2 84.91 1,232,96 0.83

(204,25 0.00) 0.00) 0.83 1,028,7 10.83 (204,25 1,028,71

A calculation of the approximate sales volume required to just cover costs, below which production would be unprofitable and above which it would be profitable. Break-even analysis focuses on the relationship between fixed cost, variable cost, and profit. Given the formula, Breakeven would be as follow: Breakeven= Contribution Margin- Fixed Expenses Breakeven= 1,077,754.52-483,189.43 Breakeven= 594,565.09 5. Profitability Indices a. ROI/ ROE These measures indicate how effectively a company uses each peso that is invested in assets to generate profits. It is fairly easy to learn how to calculate each of these components and the overall ROI ROI = Net Profit after Taxes Total Assets ROI =404,304.26 1,190,260.83 ROI = 0.34 b. Profitability Ratio

 Return on Sales (Profit Margin) Ratio This ratio measures the profits after taxes on the year's sales. The higher this ratio, the better prepared the business is to handle downtrends brought on by adverse conditions. This ratio is calculated using the following formula: Net Profit After Taxes Net Sales ROS= 404,304.26 1,351,974.31 ROS=0.30

Return on Assets (ROA) Ratio

This ratio shows the after tax earnings of assets and is an indicator of how profitable a company is. Return on assets ratio is the key indicator of the profitability of a company. It matches net profits after taxes with the assets used to earn such profits. A high percentage rate will tell you the company is well run and has a healthy return on assets. This ratio is calculated using the following formula:

Net Profit After Taxes Total Assets ROA= 404,304.26 1,190,260.83 ROA= 0.34

Return on Net Worth Ratio

This ratio measures the ability of a company's management to realize an adequate return on the capital invested by the owners in the company. This ratio is calculated using the following formula: Net Profit After Taxes Net Worth RONW= 404,304.26 1,000,000.00 RONW= 0.40

c. Payback Period
d. The length of time required to recover the cost of an investment. The payback period of a given investment or project is an important determinant of whether to undertake the position or project, as longer payback periods are typically not desirable for investment positions.

Calculated as: Cost of Project / (Annual Payback Period=

Sales/12)

459,930.00/ 139,519.13

Payback Period= 3.30 years

VI. Organizational Plan 1. Form of ownership. Caf-box will be established as sole proprietorship, wholly owned by the proponent herself. Thus, she solely responsible for any liability incurred and to be incurred in the future, likewise as to enjoyment of net profit, she had the 100% entitlement of the profit. 2. Organizational Structure The organization will be a relatively flat one, since the majority of personnel are involved in production and there will be a relatively low headcount in management. There are three functioning groups within the company: Production, Sales and Marketing, and General and Administrative. For purposes of this plan--and to show the details of adding senior level management--The Caf-box has broken management down as separate segment, but it is an integral part of the General and Administrative function. Production involves the Baristas, or Customer Service Specialists, who will be manning the Cafe and blending the beverages for the customers. Sales and Marketing will handle the promotion and oversee the overall production process of the Caf. General and Administrative manage the facilities, equipment, inventory, payroll, and other basic, operational process, that is to be performed by the owner.

3. Management System Management system ensures the goal that management style and implementations are properly executed and controlled. It is a very effective tool in managing and running the business. Caf-box uses management system called ISO 9000, that look for meeting the need of customer that would

give them the feeling of extra ordinary sip experience. In managing the Cafbox, shop personnel had various steps to make awareness for the existence of the business. The same creates a more efficient, effective operation. It likewise increases customer satisfaction and retentions. That eventually creates profit, the ultimate goal of the shop.

4. Job Description and Specification of Personnel Caf-box consists of four people, the owner who acts as administrator and accountant. She handles all financial concerns like payable, recording of cash receipts, tax concerns and other governmental requirements, treasury function, and other similar duties. While Store Manger was the one who oversee the caf operation, from recording of daily sales up to trouble shooting once there are problem rises, next is the Barista, who do the coffee preparation, he or she must be well equipped and knowledgeable about the trend. Last is the customer service, who must be the jack of all trade of the business, for he or she must know how to entertains, catering the needs of the clients.

5. GANTT Chart of Activities

JAN Business Conceptualization Registration of the business Working with site Looking for potential suppliers Hiring of Personnel Furnishing the coffee shop Completing the coffee supplies and requirements Soft Opening Conducting feedback from customer FEB MAR APR MAY

Opening of the coffee shop