Café

Halcyon

BUSINESS PLAN
12.2.2017

Daphne Imperial
X - Congeniality

1
CHAPTER I. INTRODUCTION

1.1 Mission

Our goal is to be the coffeehouse of choice for the local community of coffee

lovers in Naga City, which include workers, visiLng tourists, and students by

providing a higher quality experience than any other compeLtor. As a result, we

intend to create a coffeehouse that quickly achieves profitability and sustain an

aQracLve rate of return (20% or more annually) for our investors.

We also want to make our contribuLon to the welfare of the local community by

supporLng charitable and civic acLviLes. We will support the farmers who

grow our coffee by using Fair Trade, Sustainable ProducLon and Organic products

whenever possible.

Café Halcyon also awards its business to as many local suppliers as possible,

keeping the business in the community and inside the city.

1.2 ObjecLves

The objecLves of the business are to become the number one desLnaLon for

coffee in Naga City, to achieve sales of P10,000,000 the first fiscal year,

P13,000,000 the second fiscal year and P15,000,000 the third fiscal year, to

achieve a 15% net profit margin within the first year and 30% by FY3, to achieve a

total net profit of P4,590,000 in FY1 and P5,000,000 by FY3, to be an acLve and

vocal member of the community, and provide conLnual re-investment through

parLcipaLon in community acLviLes such as the Chamber of Commerce and

financial contribuLons to local chariLes and youth organizaLons, and to create a

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solid concept in the industry and track performance in order to begin expanding

to other markets within six months.

1.3 Keys to Success

The keys to the business’s success will be a superior-tasLng product backed by a

unique quality store, a relaxing, upscale interior design, prime site selecLon with

an upscale affluent populaLon, year-round tourist acLvity, heavy pedestrian

traffic by the site, a dynamic student populaLon and a concentraLon of local

businesses, a market that exposes the Café to high-profile "trend-seQers" and

"key influencers,” ongoing, aggressive markeLng, highly trained and friendly staff,

mulLple revenue streams including gih items, gih baskets and coffee gih/

frequency cards in addiLon to coffee, pastry, chocolates, tea, juice, water and

soh drinks, and finally, a trendy, dynamic website with online sales capability and

online adverLsing.

3
CHAPTER II: COMPANY SUMMARY

Café Halcyon launches its first coffeehouse located in Magsaysay, Naga City. Café

Halcyon will offer residents and visitors of the said town a new and unique style

of coffeehouse which offers a uniquely flavorful menu of coffee drinks and a

comfortable, upscale environment for socializaLon, relaxaLon, or work.

• Variety: No other café in the area will provide the range of coffee drinks, tea,

cocoa, juice, smoothies and other products that Café Halcyon does.

• LocaDon: Café Halcyon will be located in the prime secLon of Magsaysay

Avenue, which is the heart of the city’s coffeehouse establishments as well as

the city’s nightlife district. Café Halcyon locaLons are designed for high

volume year round, with revenues and profits to match.

• Expansion: Assuming the coffeehouse is successful, it will be the first in a

chain of Café Halcyon coffeehouses located in other markets with similar

demographic profiles, significant traffic near the store, year-round tourist

acLvity and a sizable student populaLon.

The Café Halcyon Concept

At one Lme, Nokia was acknowledged as the quality producer of mobile phones

in the United States. Then other companies like Samsung and Apple started

producing more cukng edge mobile phones and Nokia fell into the background.

Café Halcyon intends to follow in the steps of Samsung and Apple for the

coffeehouse chain industry, offering a higher quality product and beQer quality

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service in an excepLonal environment. The only coffeehouse that comes close to

being as upscale as our concept in the Camarines Sur area is Infinitea, with its

varied menu, comfy interior, and mulLple branches naLonwide.

The first Café Halcyon is located in Naga City. Other Café Halcyon coffeehouses

will eventually be located in other affluent markets that support the business

model (such as Legazpi City, Metro Manila, Cebu City, Laguna).

Café Halcyon offers a first-rate coffee product, sumptuous pastries, fresh juices,

the finest tea, cocoa, exclusive chocolates and gih items.

The Café Halcyon baristas are highly trained and experienced. They know that

Café Halcyon serves only excellent and tasty coffee. We use the highest quality of

equipment and ingredients to deliver an undoubtedly superior product.

Café Halcyon’s design style is unique compared to all other coffeehouses, with an

upscale, classic look. It features stained glass decoraLons, art glassworks, Paris-

inspired furnishings and outdoor seaLng.

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2.1 Company Ownership

Café Halcyon is a privately owned corporaLon registered with the SecuriLes and

Exchange Commission (SEC) of the Philippines, with ownership shared by Daphne

Imperial and other outside investors.

2.2 Start-Up Summary

Start-up expenses for Café Halcyon are in line with those of other coffeehouse

chains. For instance, Starbucks spends approximately P19,000,000 on average to

build a new store locaLon. Our costs are esLmated at P17,000,000 for buildout

and P1,250,000 for the opening inventory and operaLng capital. Future stores

should cost at least P8,750,000 to build since many of the costs incurred in the

Undercounter Refrigerators P250,000

Service/Prep Counter P600,000

Ice Machine P175,000

Large Refrigerator P50,000

Milk Coolers (3) P50,000

Cash register (2) Point of Sale System P700,000

Espresso Machine P550,000

Fetco Coffee Brewer P125,000

Counters/Condiment bar/shelving P600,000

first store will not be repeated later on.

Tables, Chairs, Furnishings P600,000

Persian Carpet P50,000

Lighting Fixtures P100,000

The start-up requirements (below) include P3,850,000 for short-term and long-

term assets.

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 Long-term assets: P3,100,000

S h o r t - t e r m
Start-up
a s s e t s :

Requirements P750,000

Start-up Expenses
CONSTRUCTION START-UP —
Site design, architectural plan P500,000 Table
DemoliLon/ConstrucLon P1,250,000
Electrical, LighLng P600,000
Electrical, Other P500,000
Flooring/installaLon P250,000
Bathroom ConstrucLon P200,000
Plumbing P500,000
Fireplace ConstrucLon P250,000
PainLng P125,000
City permits/licenses/fees P325,000

LEGAL
AccounLng P100,000
Legal P200,000
Insurance P125,000

MARKETING
Opening markeLng/adverLsing P150,000
Graphic design for signage, menu boards P100,000
Outside Signage P75,000
Frequency Cards, Brochures P75,000

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 OFFICE
Office equipment P30,000
Computer, scanner, printer P25,000
Telephones/Fax/DSL P25,000
StaLonery etc. P50,000
Gih item displays (3) P75,000

APPLIANCES/OTHERS
PreparaLon equipment P50,000
Dishwasher P175,000
Blenders (3) P100,000
Microwave P25,000
Panini maker P35,000
Storage racks P50,000
Music system P40,000
Food display case P300,000
Storage room shelving P50,000
Bulk bean grinder P35,000
Sinks (2), prep counters P60,000
Menu board construcLon P125,000
Cups/Lids (50,000) P700,000
Total Start-up Expenses P7,350,000

Start-up Assets
Cash Required P75,000
Start-up Inventory P1,250,000
Other Current Assets P750,000
Long-term Assets P3,100,000
Total Assets P5,175,000

Total Requirements P12,525,000

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CHAPTER III: PRODUCTS

Café Halcyon sells high-quality specialty coffee drinks, tea, juice, soh drinks,

pastries, chocolates, and even gih items. Despite being an upscale coffeehouse,

our prices are in line with leading chains around the country.

3.1 Vendors

Coffee roasLng is provided by Jack and the Beans Coffee Company in Davao City.

Tea is primarily supplied by Single Ancestry, Naga City.

Water is provided by Snow River, Naga City.

Our juice vendor is provided by Ocampo Orchards, Ocampo, Camarines Sur.

Pastries are provided by local companies in the Metro Naga area such as

BreadTalk, Cheesecake House and Naga City Bakery.

Chocolates and cocoa are from the Natural Cocoa Farm, Pili, Naga City.

Soh drinks are provided by Coca Cola Company, Naga City Branch.

Gih items are supplied by various bouLques in Naga City, such as Simplicichic and

Style Hub.

3.2 The Café Halcyon Menu

The Café Halcyon menu sets us apart from other coffeehouses, giving us a

compeLLve edge.

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• We offer six different drink groups—coffee, tea, sodas, smoothies, juice and

cocoa—with several choices within each group of drinks. This enables us to

provide more variety than our compeLtors while simultaneously making the

preparaLon of the drinks easy to execute.

• We take advantage of the immense popularity of flavored drinks and Chai tea

by offering a mix of products that include items that other coffeehouses do

not offer, as well as some more familiar drinks.

• We are the only coffeehouse that has a wide range of gourmet hot cocoa

drinks.

• We carry the highest quality of fresh juices.

• We are a French-themed café. The menu is creaLve, uniquely refreshing

while also remaining clear and easy to understand.

Prices have been determined aher a thorough analysis of all food costs for every

item in each drink. In some cases, an average price has been calculated and

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applied to similar drinks in order to prevent the menu from becoming confusing

to costumers.

3.2.1. Coffee and Espresso Drinks

COFFEE

All coffee drinks are brewed with the finest Philippine specialty coffee.

Name DescripLon Regular Large

Expresso A double shot of straight espresso. P80
Le café Espresso combined with hot water, a
P90 P110
américain gourmet brewed coffee.
Le Espresso with a smooth topping of
P120 P140
cappuccino milk foam.
Espresso combined with steamed
Café au lait milk, topped with a small amount of P125 P145
velvety milk foam.
A Caffe LaQe combined with
Ghirardelli chocolate, topped with
Le cafê moka P130 P150
whipped cream and chocolate
shavings.
L’expresso A straight shot of espresso topped
P85 P105
macchiato with a spoonful of rich milk foam.
A straight shot of espresso topped
Expresso de
with a generous dollop of whipped P85 P105
la crème
cream.

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FLAVORED ESPRESSOS

Name DescripLon Regular Large

Vanilla Cappuccino made with vanilla
P125 P145
Cappuccino flavored milk foam.
A Caffe LaQe with vanilla essence
Vanilla La>e P150 P170
added.
Espresso, white chocolate flavoring
White
and steamed milk topped with
Chocolate P150 P170
velvety foam and white chocolate
La>e
shavings.
The Coffee. Raspberry and chocolate
Raspberry syrups. Half and half. Whipped cream P155 P175
Mocha La>e topping.
Espresso. Chai. Steamed milk and
Chai La>e P150 P170
whipped cream.

HOT COCOA DRINKS

All hot cocoa drinks are P90.

Name DescripLon
French
Vanilla Hot cocoa with vanilla and whipped cream.
Cocoa
White
Chocolate Hot cocoa with white chocolate and whipped cream.
Cocoa
Chocolate
Rich dark hot cocoa with whipped cream topping.
Truffle Cocoa
Peppermint Rich chocolate and refreshing peppermint. Topped with
Cocoa whipped cream.
OvalJne OvalLne Chocolate Malt and milk.

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SMOOTHIES

All smoothies are P80.

Name DescripLon

The Espresso
Chocolate A chocolate malt with a secret energy boost.
Malt

The Double
Dutch
Super chocolatey!
Chocolate
Smoothie
The Mocha
An all-Lme favorite.
Smoothie
The Vanilla
Rich natural vanilla flavor.
Smoothie

3.2.2. Teas

ICED TEAS

Classic Iced Tea, refreshing and sweet. P45 Small, P60 Medium, P75 Large

HOT TEA

All hot teas are P80.

• Earl Grey
• Peppermint
• Chamomile
• Lemon
• Tropical Green
• Darjeeling

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3.2.3. Juices

Name Regular Large

Freshly squeezed orange juice P45 P55
Old-fashioned Lemonade P45 P55
Genesis Juice P70
Apple Juice (regular and sparkling) P60
Freshly squeezed calamansi juice P40 P50

3.2.4. Snacks and Pastries

Item Price
Parisian Swirl Cheesecake P100
Fresh scones, hot from the oven. P125
Bagels P115
Brownies P100
Blueberry Muffins P90
Croissants P100
Black Forest Cake P200
Chocolate Chip Cookies $1.75

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Chapter IV: Market Analysis Summary

Café Halcyon launches with an exciLng new coffeehouse concept in a

recepLve and steadily growing market segment which isthe specialty coffee

retail business.

Despite economic downturns in recent years, the specialty coffee business

has been a bright spot. While literally hundreds of businesses in many

categories are facing poor sales, negaLve balance sheets and even

bankruptcy, coffee chains conLnue to show strong growth.

It's clear that people’s love for good coffee conLnues prevails during both

good Lmes and bad.

Naga City: The Perfect Launch Market


By launching Café Halcyon in the Naga City market, we maximize our

potenLal for success due to several factors:

• The highly affluent local populaLon

• Year-round tourist acLvity

• Ever-changing upscale student populaLon

• Excellent auto and pedestrian traffic by our locaLon

• Low media costs

• High number of local special events

• Prime site locaLon

Café Halcyon is located at what is arguably one of the best locaLons for a

coffeehouse in Naga City. It is in the heart of the tourist and business district,

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 adjacent to many fine restaurants, near the downtown area, and easily

accessible. Café Halcyon possesses all the ingredients necessary for

immediate and sustainable success.

4.1 Market SegmentaLon

Café Halcyon's customer base in Naga is composed of four target groups.

1. Affluent local residents

2. Tourists

3. Local business people

4. Students

These groups are all potenLally strong customer segments. The benefit

of this mix of customers is that it helps maintain consistent business

throughout the year. For example, while tourism is strong all year long in

Naga, it peaks during the summer months and during the Peñafrancia FesLval

in September. Conversely, the student populaLon is not as strong during the

summer. The other customer segments (local residents and local business)

provide a consistent foundaLon all year long.

By appealing to several market segments, Café Halcyon does not become too

dependent on any one consumer group. For example, several local

coffeehouses with primarily student customers do poorly during the non-

school months. They must also market themselves anew each year to the

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incoming students. Café Halcyon will avoid these business peaks and valleys

with a mix of customers.

• Affluent locals. Within the area of Naga City are some of the most

affluent people in America. Key influencers, trendseQers, arLsts, writers

and celebriLes have homes in Naga City.


• Tourists. Thousands of tourists visit Naga City every year. Most will pass

by the locaLon of Café Halcyon. Tourists come to the “Pilgrim City” in

devoLon to the Lady of Peñafrancia and for the different sights and

aQracLons within the city.

• Local business people. Café Halcyon is located on Magsaysay Avenue in

the heart of the city. It’s near the downtown area and not far from the

major residenLal areas, schools, and from Panganiban Drive which gets a

lot of pedestrian traffic. Magsaysay Avenue and Panganiban Drive are

some of the most traveled streets in the city


• Students. Naga CIty is home to a few big universiLes as well as dozens of

other schools, including many presLgious private schools and academies.

Naga City Science High School, Hope ChrisLan School, and Naga City

Montessori School are all within the Café Halcyon area.

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Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
PotenDal Customers Growth CAGR
Local residents 2% 75,000 76,500 78,030 79,590 81,181 2.00%
Tourists 5% 100,000 105,000 110,250 115,763 121,551 5.00%
Travelers on US 66 5% 20,000 21,000 22,050 23,153 24,311 5.00%
Students 1% 40,000 40,400 40,804 41,212 41,624 1.00%
Local businesses 1% 20,000 20,200 20,402 20,606 20,812 1.00%
Total 3.22% 255,000 263,100 271,536 280,324 289,479 3.22%

Local residents
Tourists
Students
Local business

11%
22%
11%

56%

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4.2 Target Market Segment Strategy

Overall, our strategy is to maintain a constantly high customer count by

leveraging our appeal to four groups of potenLal customers.

Local Residents. More than 195,000 people inhabit the area of Naga City

where Café Halcyon is located. It is a short drive or single-trip commute to

Café Halcyon for most of our potenLal local customers. Local customers form

the loyal core of our business. We will reach out to them through local

markeLng, involvement in the Chamber of Commerce, support of local

charitable organizaLons and sponsorship of events and youth sports teams.

Tourists. Naga City has excellent year-round tourist acLvity. Over a million

people will visit the area during the month of September alone because of

the Peñafrancia FesLval. While hotels are virtually sold out during the

summer months and during the week of the fesLval, tourism all year is

excepLonally strong. This is due in large part to the pleasantness of the city,

weekend or day-trip visitors from the greater Metro Naga area and an

unusually large number of special events scheduled throughout the year.

We will target these potenLal customers with ads in local tourism guides.

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Local businesses. Many local businesses are near the area of Café Halcyon.

SM City Naga, the prime shopping center of Naga, is only one jeep ride away.

The City Hall is also very close. Café Halcyon is in the heart of the shopping

and dining area.

We also offer coffee service to local restaurants, nightlife spots, and

businesses. Coffee service brings in addiLonal revenue and promotes Café

Halcyon among employees at these businesses.

We will also reach business customers through Chamber of Commerce

acLviLes and by personally visiLng the shops and businesses to

distribute discount coupons and menus.

Students. The area has thousands of students in several schools, including

nearby colleges and high schools. Students, most of whom are under the

drinking age, have few places they can go to meet their friends. Coffeehouses

have proven to be very popular with students—even high school students—

as an "in" place to go that's also affordable.

To reach students we offer special student discount cards, pass out free

coffee coupons at student events and offer entertainment on weekends.

Students represent an excellent customer segment for several reasons:

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 • Students bring an energy and youth to the coffeehouse

• By aQracLng students, we generate excellent word-of-mouth

• Students need an affordable place to hang out with their friends

4.3 Industry Analysis

The specialty retail coffee business as we know it today began in 1982 aher

Howard Schultz purchased the Starbucks name and began the expansion of

the modern Starbucks chain. Prior to his transformaLon of the business,

Starbucks sold only whole bean coffee.

Coffeehouses in America have existed as early as since the 1600s, and the

coffeehouse concept is more than 400 years old. In the United States, even as

recently as the 1970s, coffeehouses have been primarily independent

businesses, typically with an eclecLc Bohemian style.

Starbucks' success has encouraged others to enter this potenLally lucraLve

business. Today, there are more than 10,000 coffeehouses in the Philippines.

However, compared with Italy, which has 200,000 espresso bars and

coffeehouses, there is sLll much room for growth. The Specialty Coffee

21
Retailers AssociaJon believes the market has not approached maturity and,

as yet, no coffee chain has differenLated itself significantly from the others.

While overall coffee sales have not grown significantly in recent years, the

specialty coffeehouse segment is growing steadily at a healthy pace every

year. The low food cost of coffee drinks, relaLvely modest investment capital

requirements, and low overhead lead to high profit margins in the

coffeehouse industry.

There are 108 million coffee drinkers in the United States, according to the

NaJonal Coffee AssociaJon's report "2000 Coffee Drinking Trends." Coffee

drinkers consume coffee daily. Coffee drinkers can spend up to almost

P10,000 on coffee annually, and drink an average 3.1 cups daily. Since the

year 1990 up to year 2016, coffee consumpLon has increased from 710 bags

of coffee to 3,000 bags. In 2006, approximately one million 60kg bags of

coffee had been consumed in the Philippines. It's easy to see why coffee is

second to oil as the largest commodity in the world.

Twenty-five years ago, almost nobody consumed espresso or espresso-based

drinks in the United States. Now they account for more than half of all

specialty coffee consumed. Obviously, coffee-drinking habits around the

world are changing.

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 Starbucks, once known for quality and customer service, has recently come

under aQack by customers and business commentators for becoming too big.

Their size (6,300 stores worldwide) is the reason why Starbucks is now ohen

called the "McDonald's" of coffee chains. If Starbucks' image becomes one of

a "fast food" purveyor of coffee, it leaves the market open for a smaller, more

nimble compeLtor like Café Halcyon, where quality and service are

paramount.

4.3.1. CompeLLve Comparison

"UnDl everybody can walk to a coffeehouse and get a properly prepared

espresso drink, we're not even approaching market saturaDon." -- Mike

Ferguson, MarkeJng & CommunicaJons Director Specialty Coffee AssociaJon,

Long Beach. 2002.

Leaders in the specialty coffee chain category in the United States include:

Starbucks (6,300 stores). Started the specialty coffee chain phenomena in

America in 1982. 99% are company owned. Revenues exceeded $6 billion in

2002. Average store gross revenue is $805,000. Now in 30 countries. Same

store sales increased by 10% in 2002.

23
Caribou Coffee (260 stores). Second largest all company-owned chain.

Founded in 1992 in Minneapolis.

Tully's (103 stores). The third largest company-owned chain. Another SeaQle

company. The only coffeehouse chain that has not experienced excellent

growth every year; business.com cites poor management as the reason. New

management seems to be leading a turnaround.

Coffee Bean & Tea Leaf (210 stores). Oldest privately held specialty coffee

retailer in the U.S. (founded 1963). 90% of stores are franchises.

Peet's (58 stores) One of the few successful IPO's in 2001. 58% of

revenues come from sales of whole coffee beans. Gross profit last year was

49.5%.

Gloria Jean's (291 stores, 195 in U.S.). Only 19 stores are company-owned.

Diedrich Coffee Company Originally founded in 1916 when the owners

inherited a coffee plantaLon. Headquartered in Southern California. First

coffeehouse in 1982. Owns the Gloria Jean and Coffee People chain. 386

outlets total and 370 wholesale accounts. Although they serve an excellent

product they have operated "below the radar."

24
New World Coffee (33 stores). Mostly concentrated in the New Jersey/New

York area. All but three are franchises. A division of ManhaQan Bagel.

It's a Grind (86 stores). Fast-growing chain that began in Long Beach,

California seven years ago. Most locaLons are franchises. Concentrated in

Southern California and Las Vegas. Company reported $12 million in revenue

in 2002. Its stores average more than $500,000 gross revenue.

Dunkin' Donuts More than 800 outlets serving a surprisingly good coffee.

Many people think it's the best.

Although the specialty coffee industry is successful and expanding rapidly,

there is sLll much room for growth—especially in niche market segments,

according to The Specialty Coffee AssociaLon of America. Market maturity is

not expected to be reached unLl at least 2019.

Sources: Business.com, Yahoo Business, Dun & Bradstreet, Hoover's Business

Data, Starbucks CorporaLon, Specialty Coffee AssociaLon, NaLonal Coffee

AssociaLon. 2002.

25
 Local CompeDDon

Surprisingly, the global leading coffeehouse chain, Starbucks, has only one

mediocre store in the Naga City area. Its single store in the city is also at an

excellent locaLon on Magsaysay, but the store is unaQracLve, small, and lacks

adequate parking space.

There are many other coffeehouses in Naga City, such as Cafe Libro, KopiroL,

Travel Cafe, and Cafe Chicago, but none of these coffeehouses are chains or

have a menu as varied as Café Halcyon’s.

Infinitea is probably the most formidable compeLtor in town, with its

mulLple locaLons that quickly grew and sprung up, comfy and beauLful

interiors, but the Infinitea lacks a more varied menu with only tea drinks and

welcoming, friendly staff.

4.3.2. CompeLLon and Buying PaQerns

CompeLLon is dominated by the presence of Starbucks, fast becoming the

"McDonalds" of the specialty coffee industry. Other major chains are Infinitea

and cafes like Travel Cafe, KopiroL and etc. All of these chains are considered

"clones" of Starbucks. Few vary much from what is perceived as a proven

formula for success.

26
FACT: The coffeehouse business has grown every year since 1982.

Despite major economic recessions, and social issues and unrest, the

specialty coffee industry has grown every year. One industry observer said,

"When Lmes are good, the coffeehouse industry is great. And when Lmes are

bad, the coffeehouse industry is great.” People’s love for good coffee is

stronger than ever and increasing in size faster than any other industry.

Lifestyle factors converge to make the coffee industry strong at all Lmes. The

sLmulant effect of coffee is an important reason why many hard-working,

fast-paced Filipinos consider a stop at their local coffeehouse a necessary part

of their day. Conversely, coffeehouses provide a calm, inviLng environment

for people to socialize, relax or catch up on work.

Young people under the legal drinking age are one of the fastest-growing

segments of the coffee drinking market. Coffeehouses provide them with a

much-needed place to meet with their friends.

Entertainment on weekend nights draws a young group of enthusiasLc

customers. The surge in interest in coffee drinking among young people

assures a diverse, recepLve and sophisLcated customer base now and in the

future.

27
Older adults also enjoy the fact that for the relaLvely modest price of a cup of

coffee and snack, they can meet with their friends, relax, or work. Instead of

going to a bar and paying for an alcoholic drink or a restaurant where a meal

usually comes with a hehy price tag, the coffeehouse is an inLmate yet

inexpensive venue.

Quality is deterioraDng even as the industry is growing.

Coffeehouses need to produce a quality product to back up the perceived

"liQle luxury" image. Currently, most coffeehouses are bowing to the

pressures of growth and are cukng corners on quality by introducing fully

automaLc espresso machines, mass bean buying and other efficiency

measures.

Coffee drinking is now an all-day acDvity.

Once concentrated in the early morning hours or mid-ahernoon, in recent

years, coffee drinking has become an all-day acLvity. Even late at night, many

coffeehouses are packed with patrons. It's not unusual for a well-located

coffeehouse to exceed a daily average of 900 customers.

Customer guest check averages are rising.

As pastries, chocolates, tea, pre-packaged sandwiches, snacks, juice drinks

and gih items are added to the menu, the average customer expenditure has

risen. Many popular coffeehouses report averages in the P200-P300 range.

Café Halcyon expects that guest checks will average about P225.

28
Chapter V: Strategy and ImplementaDon Summary

Café Halcyon coffeehouse uses a strategy of total quality in product and

service. Our promise is in our locaLon, the products we sell, the people we

aQract and the atmosphere we create.

Strategic AssumpLons:

• People want a beQer-tasLng coffee drink

• Coffee drinkers want a more inviLng environment

• Coffee drinks are considered an affordable luxury

• The coffeehouse industry is largely unaffected by the economy and world

events

• Café Halcyon offers several unique advantages over all other coffeehouses

5.1 CompeLLve Edge

Our compeLLve edge, compared to the other coffeehouses in the greater

Pleasantville area includes the following:

• A significantly higher quality and beQer-tasLng coffee product.

• Our current locaLon can arguably be considered the best in the market

because it is in the heart of the downtown shopping, dining,

entertainment and cultural district in Naga City.

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 • An ambiance superior to all other coffeehouses in the area with upscale

French theme. It features stained glass decoraLons, art glasswork, Paris-

style furnishings and outdoor dining.

• The only coffeehouse downtown to provide regular weekend evening

entertainment.

• A wider variety of popular drinks than our compeLtors, including flavored

coffee drinks, tea, cocoa, and juice. We have several drink opLons for

people who don't drink coffee: tea, cocoa, juice, and smoothies.

• Our Internet website will include sales of whole coffee beans, tea,

chocolates, gih items and gih baskets.

5.2 MarkeLng Strategy

Other coffeehouses rely almost enLrely on word-of-mouth markeLng to

generate business. We will engage in an ongoing aggressive markeLng

program that will help us establish profitability quickly and set the stage for

conLnual growth.

Our strategy will be to posiLon Café Halcyon as the "Apple" of coffeehouses,

offering a high quality product and superb service in a superior environment.

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5.2.1. Launch MarkeLng

Most coffeehouse chains do liQle or no markeLng and adverLsing. For

example, Starbucks' philosophy is that their ubiquity in the marketplace is all

they need to sustain and grow their customer base. They spend less than 1%

of gross revenues on adverLsing, and when they do spend, it is usually to

introduce a new product.

The retail coffee industry is a sales-oriented business with very liQle

experience in markeLng and adverLsing. This is likely why liQle is done. As

yet, the major players have not been taken over by sophisLcated companies

like Pepsi Co., where markeLng is viewed as essenLal to gaining market

share.

An element of our differenLaLon from other coffeehouse chains will be our

use of adverLsing and markeLng to gain awareness, build customer traffic

and establish a strong brand image. We intend to create immediate customer

awareness and not wait for word-of-mouth. We are also building customer

traffic immediately with an aggressive Launch MarkeLng Plan.

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Launch MarkeLng

Launch markeLng will promote awareness, build instant traffic and establish

our brand image via several methods:

• Public relaLons/publicity

• Local print and broadcast media

• Design and packaging

• Community involvement

• Sampling

• Superior locaLon

• Desirable store ambiance

Public RelaLons

A strong public relaLons and publicity program uses as its primary hook these

three main points:

1. Café Halcyon is Naga City’s first true gourmet coffeehouse

2. Our unique quality products

3. Our disLncLve laQe "art"

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The goal of the PR/publicity is to achieve local market awareness and

establish the brand on a wider scale to set the stage for future expansion.

Local market awareness is vital because more than 50% of sales will come

from people living within a 5-mile radius of the store.

NaLonal awareness will help drive the expansion by generaLng opportuniLes

created by the media buzz and familiarizing people with our brand name. It

will help set the stage for future brand idenLficaLon.

Local Media

• Bicol Mail

• The Bikol Reporter

• Local blogs

• Feature progpramming (e.g. Marhay na Aga Kamapilya, MagTV Na)

• NX Radio

Regional/NaLonal Print Media

• Manila BulleLn

• Philippine Inquirer

• Rappler

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NaLonal Broadcast Media

• Feature programming (e.g. Umagang Kay Ganda)

• 1,500 radio staLons naLonwide

Website

Our website is fully e-commerce funcLonal and could easily become a

significant revenue source.

We will eventually sell the following items online:

• Whole coffee beans and tea bags

• Gih baskets

• Gih items

The website will also markets Café Halcyon with:

• A monthly newsleQer

• InteresLng informaLon about the coffee industry

• A map to our store

• Store hours

• Special events

• Coffee recipes

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Trend-seQers

Naga City and the Metro Naga area are home to thousands of individuals

who can be important to the success of Café Halcyon. One menLon on a TV

talk program or in a 'lifestyle' magazine can launch many successful careers

and businesses.

With hundreds of wealthy business people as local residents, the word-of-

mouth recommendaLons from these people can drive significant business to

us as well as generate favorable publicity.

Key individuals will be targeted with gih baskets from Café Halcyon

containing samples of our products to enLce them to visit and talk about us

with their friends.

Design style

The interior design of Café Halcyon is unlike any other coffeehouse chain.

While there are some upscale designs, they are all of the modern Italian or

Starbucks look. Our upscale stylized French-themed Paris-style designs,

featuring stained glass decoraLons and art glasswork, differenLates us from

all others.

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Gih Items

We carry a wide variety of quality gih items, including gih baskets. Gih basket

business could eventually grow to be substanLal. However, since it is difficult

to project at this Lme, they have not been included in the financial

computaLons.

Community Involvement

We will make ourselves an integral part of the local community. This will

generate goodwill, create opportuniLes to forge important contacts with key

people and live up to our company’s Mission Statement.

Some of these community involvement goals include:

• Take an acLve role in the Chamber of Commerce

• Supply complementary product to local chariLes for fund-raising acLviLes

• Sponsor local sports teams and schools

• Purchase fair trade coffee whenever possible

• Support Fair Trade, organic, sustainable farming

LocaLon

The locaLon of the first Café Halcyon in Naga is a prototype of future sites.

We will build Café Halcyon coffeehouses in the best locaLons possible, as this

is the key element in a successful operaLon.

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Site selecLon criteria include:

• High traffic locaLon

• Small or mid-size affluent market

• Year-round tourist acLvity

• Nearby student populaLon

• Outside dining

Other sites that meet these criteria include Pili, Legazpi City, Cebu City,

Laguna, and Metro Manila.

ExcepLons will be made for some sites if they are deemed to be potenLally

extremely profitable.

Outside Dining

The café experience is indelibly linked to its European origins, where al fresco

dining is a way of life. Naga City has not yet embraced sidewalk dining, but it

can become one of the growing addiLons to the Filipino dining scene.

Sidewalk dining also provides an excellent way for prospecLve customers to

see the coffeehouse for the first Lme.

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Sampling

We will engage in several sampling acLviLes to introduce potenLal customers

(and current customers) to Café Halcyon's range of drink opLons.

• Samples will be distributed at the coffeehouse

• Samples will be given to passers-by on the street

• Discount coupons will be distributed on the street and at special events

• Complementary coffee will be served at charitable and civic events

• Free coffee service will be provided to the Chamber of Commerce, a radio

staLon, the newspaper and at select government offices

Gih cards, frequency and discount cards

We will promote our program of gih cards and customer frequency cards to

drive business and sLmulate cash flow. Industry records indicate that 25% -

40% of all gih card amounts go unused. Also, gih cards have proven to be a

popular holiday item accounLng for more than 5% of total sales during

December.

Frequency cards rewarding the repeat customer with a free drink aher a

specified number of visits are popular and proven methods to forge customer

loyalty.

38
Discount cards are used to build goodwill among specific groups such as the

Chamber of Commerce members and college students.

By tying in with our computerized sales and inventory system, we will be able

to track usage and allocate the expense to markeLng.

The Future

The number of Café Halcyon locaLons could easily reach 20-25 within five

years. While the financials in this Business Plan only address the Naga City

locaLon, we can extrapolate from the store's performance—which will be

carefully monitored and tracked—to get a general idea of the chain's

projected profitability.

With ten coffeehouses, the gross revenues, when fully realized, would be

more than P500 million using the third year performance figures. Even

factoring in the cost of addiLonal staff and other resources, a 10-store chain

would likely generate a minimum of P50 million in profits annually, while

building significant valuaLon. A 25-store chain would easily top $125 million

in annual profits.

Café Halcyon’s start-up, implementaLon and operaLon in Naga City will be

the blueprint for future efficient expansion. Our new Mount Hill locaLon will

39
 incorporate the knowledge we gain with our first store as well as new

creaLve ideas, and become our flagship operaLon.

5.3 Sales Strategy

Our sales strategy includes:

• Staff salaries that are 10% above the industry average in order to aQract

the best people


• Hiring for aktude so that we always have a friendly, enthusiasLc staff to

make customers feel welcome and appreciated and constant staff training

to assure the best quality possible


• State-of-the-art sales/inventory system to reduce customer waiLng Lme,

and to create efficient product ordering


• Sell coffee and gih baskets on our website


• Establish coffee service at local businesses


• Sell gih cards and frequency cards and offer discounts to key groups


• Create an ongoing sampling program


40
 • Conduct a consistent, aggressive markeLng program


• Be an acLve member of the community and be visible at charitable

funcLons


• Solicit customer feedback to constantly improve and streamline operaLon

5.3.1 Sales Forecast

We are modestly forecasLng an average of 300 customers per day during the

first year with an average guest check expenditure for all items of P205. This

figure was arrived at by surveying the customer traffic at the nearest

compeLng coffeehouses which have a range of 150-500 customers per day

and an average customer expenditure of P205. We have esLmated our

customer expenditure to be slightly higher (2.5%) due to the premium price

we will charge for some of our items. Total cost of sales is approximately 25%.

We expect growth to occur across all categories at about 10% annually as the

business becomes more established and well-known, reaching more than 400

customers per day within a year and more than 500 within three years. These

esLmates are likely conservaLve. However, it is possible we could aQain a

1,000 per day customer count within three years.

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 Coffee drinks
Tea, smoothies, juice
Pastries, snack items
Events
Coffee service to businesses
Online sales
Gift items

Year 1

Year 2

Year 3

0 75 150 225 300

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Sales Forecast
Year 1 Year 2 Year 3
Sales
Coffee drinks P13,255,050 P17,231,550 P22,401,050
Tea, smoothies, juice P8,350,350 P10,855,450 P14,112,050
Pastries, snack items P7,706,300 P10,018,200 P13,023,650
Events P0 P0 P0
Coffee service to businesses P165,000 P181,500 P199,650
Online sales P425,000 P513,250 P664,050
Gih items P322,000 P386,400 P463,700
Total Sales P30,223,700 P39,186,350 P50,864,150

Direct Cost of Sales Year 1 Year 2 Year 3

Coffee drinks P2,191,400 P2,213,300 P2,235,450
Tea, smoothies, juice P1,302,700 P1,315,750 P1,328,900
Pastries, snack items P2,762,050 P2,789,650 P2,817,550
Events P0 P0 P0
Coffee service to businesses P38,000 P38,400 P38,750
Online sales P196,250 P198,200 P200,200
Gih items P505,450 P510,500 P515,600
Subtotal Direct Cost of Sales P6,995,850 P7,065,800 P7,136,450

Chapter VI: Financial Plan

Sales growth will be a minimum of 15% annually, margins excellent, profits at

approximately 20%-25%, cash flow adequate.

MarkeLng will remain below 5% of sales.

43
 The company will invest residual profits into financial markets or real estate.

• Future cash investments will use NPV projecLons to achieve maximum

return with limited risk.

6.1 Important AssumpLons

• The 20-year record of posiLve growth for specialty coffee drinking will

conLnue at a healthy rate. The Specialty Coffee AssociaLon says that the

market is far from saturaLon and will not reach maturity unLl at least

2019.


• The resilience of the coffeehouse industry to negaLve naLonal and world

events will conLnue. Despite social issues, the coffeehouse industry has

shown strong growth every year for the past two decades.


• The quality of naLonal chains will remain the same or decline slightly

rather than improve as they standardize their stores, increase automaLon

of espresso drinks and mass-produce the roasLng process.


• Coffee drinks will conLnue to be considered an "affordable luxury."


• 15% minimum sales growth rate over the next three years as Café

Halcyon becomes well known.

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 General AssumpLons

General AssumpJons
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 3.00% 3.00% 3.00%
Long-term Interest Rate 3.00% 3.00% 3.00%
Tax Rate 20.00% 20.00% 20.00%

6.2 Break-even Analysis

A break-even analysis table has been completed on the basis of average costs

and prices. With fixed costs of P1,320,000 and P225 average sale, we need

P1,750,000 per month to break even.

Break-even Analysis

Monthly Revenue Break-even P1,721,100

AssumpLons:
Average Percent Variable Cost 23%
EsDmated Monthly Fixed Cost P1,320,000

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6.3 Projected Profit and Loss

We project high net profits starLng in the first year. Our growth rate is based

upon industry averages, factoring in the local condiLons. We expect growth

of 15% annually for the first three years before leveling off at the 800-900

customer per day average traffic rate.

First fiscal year gross revenues are expected to exceed P10,000,000 and aher-

tax net profits of approximately P4,950,000—increasing to more than

P13,000,000 by the third fiscal year-end.

Our margins are very good. This is due in large part to the low direct cost of

sales as well as the low operaLng costs in general for coffeehouses.

Higher staff salaries, owner/operator salaries, markeLng costs and rent for a

premium locaLon depress profits but they also ulLmately contribute to

higher earnings and profits.

46