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Entrepreneurship

1.0  Executive Summary

To meet the demands of the market, Jarva Coffee Company (JCC), plans to start operations at Oregon. Jarva will provide a serene environment suitable to unwind, social gatherings where friends and relatives can meet to chat over a cup of coffee. The University of Oregon has created an opportunity suitable for JCC to exploit. The company will serve high quality and unique coffee for visitors. The service will be complimented with pastries and free books to the guests. The coffee house will be 2500 square foot. It will be situated close to the university to reach the targeted customers; the proximity from the university to the coffee bar will be a walking distance. The capital required is $170,000. $ 140,000 will be raised through contribution from individuals. The remaining $ 30,000 will be raised through an SBA loan. Through establishing the coffee bar at the Oregon University, JCC projects an increase in revenue from $ 585,000 in FYI to 705,000 in FYIII. The company also has a commitment to maintain 66% gross profit margin and reasonable operation cost, so that the net will increase to $125,000 from $ 100,000 in the same period.

1.1 JCC Objectives

·         Maintain a gross margin of 66%

·         Be the most preferred coffee bar in the locality  

·         Profit generation to start simultaneously with business operations 

1.2 Success Factors

·         The company will come up with appealing store designs, while at the same time offer services speedily and efficiently to the targeted customers to achieve excellence in business.

·         Staff members will get customized and adequate training on excellent delivery of services and the best methods of preparing coffee periodically.

·           The company will come up with marketing strategies with the aim of developing and building a strong clientele base. The strategy will take into account high margin products such as espresso drinks.

1.3 The Company Mission

The company will focus its efforts in building and developing a distinct coffee house with a serene and relaxing environment where visitors can enjoy their social interaction, while enjoying a cup of best-brewed coffee or espresso and pastries. Jarva aims at providing a peaceful coffee destination with a great ambience, competitive premium quality products, convenient location and customer service that will help he customers to relieve stress and have peace with the inner self. Profits earned will be used in building a competitive staff team and facilitate stable returns for shareholders. 

 

2.0  Opportunity: Market/ Business Environment of the Company

As noted by Nakamura et al (2002, p.12), in the past 10 years the population of coffee consumers in the United States has grown steadily with gourmet coffee being on the lead with 2.5% growth rate. 1994 saw a coffee sale of about $ 7.5 billion. Out of the total sales, gourmet coffee accounted for $ 2.5 billion, which translates to 33% of the total amount. The largest number of coffee consumers is found in the Pacific West. They consume great amounts of gourmet coffee and demand excellent service. The population experiences long seasons of rain and winter leading them to coffee bars, and during the long summer seasons, they seek for iced drinks. Therefore, Java has a significant market opportunity to develop a business establishment. 

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Populations living in the pacific west are known for their coffee selection. Businesses have to provide consumers with well prepared strong coffee-based beverages within a serene environment to be effective on the coffee market. Coffee consumers in the US are keen on the quality of coffee presented. This has significantly contributed to the growth of gourmet coffee (Tucker 2010, p.24). For coffee dealers to have a market share, they need to come up with something unique, something that will help quench consumers’ desire of small indulgences. Jarva therefore has an opportunity of building a customer base through providing exotic coffee in a serene environment in its strategic location at The Oregon University.   

2.1 Competition and the Purchase Patterns

2.1.1Competition

Competition will come from already established coffee houses and Eugene restaurants that provide alcohol free drinks and snacks. Starbucks, Café Roma, UO Bookstore and other food establishments providing coffee and related beverages are also sources of completion, as they are already established at Oregon University. The main competitor will be Starbucks because it has a substantial market share, has a strong market position and acceptable operational practices. This notwithstanding, Jarva has an opportunity to gain footage in the make. Majority of coffee consumers have an affinity towards smaller and independent coffee houses that provide affordable products in a cozy environment. Starbucks holds 35% of the market share, Café Roma 25%, UO Bookstore 10% and the remaining market share is split among the remaining coffee establishments. Jarva will strategically position herself to provide a coffee destination with high quality tasty coffee and pastries at affordable prices in a cozy environment. This environment is lacking in the neighborhood and other coffee establishments. Consequently, the business will meet both mental and physical needs of the customers, helping the company to grow its market share in a competitive environment (Nakamura et al 2002, p.16).   

 

2.1.2Purchase Patterns

Repeat purchases in respective coffee bars are a result of effective customer services in providing coffee with a great taste in a homely environment. Jarva has a pricing strategy that will result to be competitive in the market despite the fact that coffee consumption across different income segments is the same. Therefore, the company will focus on providing coffee to customers in a pleasant environment and with effective customer service to develop and build a concrete clientele base (Tucker 201, p.88). 

 

2.2 Segmentation of the Market

The company’s targeted market includes the university students, members of the faculty, sophisticated teenagers and people in offices near the coffee shop. The findings of the potential customer were a result of their tendency towards consuming gourmet coffee products. Situating Jarva coffee house adjacent to Oregon university is viable because there is a universal consumption of gourmet coffee products across different income categories, especially in high educational levels, that the university will offer (Hartline 2010, p.115).    

3.0  Strategy

The establishment will capitalize on growing the client base, increasing retention capacity, creating repeat purchases and increasing customer spending. The company will also focus on establishing and building a loyal customer base. It will play a significant role in increasing sales and in growing a clientele base through referral by word-of-mouth publicity on the quality of services (Timothy 2001, p.158).

 

3.1 Target Market Strategy

JCC will serve people with a desire to have great tasting coffee in a serene and cozy environment. Research has shown that customers have an affinity towards better-tasting coffee despite the fact that consumption of coffee vary with age. Members of faculty and college students will comprise the biggest percentage of the customer base thus locating the business adjacent to the university is strategic. Students prefer meeting in coffee shops that provide convenient study locations; students can conduct their studies without incurring cover charges (Hartline 2010, p.107).  

3.2 Sales Strategy

The company will employ two employees at the start of the business to ensure fast customer services; one employee will be preparing the order while the other will be in charge of sales transactions. JCC will adopt a computerized point-of-sale terminal in logging in the information for sale.  The company will use flyers and banners as advertising merchandise to build a clientele base further. It will distribute about 2,000 flyers in the university, the neighborhood, selected office buildings and malls two weeks before launching of the coffee house, to create awareness. Postcards with endorsement from Jarva Coffee will be printed to increase the visibility of the coffee establishment to its targeted market. Cross-promotions with other business establishments and word-of-mouth marketing is another marketing strategy that JCC will rely on. The company will also come up with customer retention strategies, which will promote repeat purchases and customer increase spending (Davids 2001, p.55).

4.0  Sustainable Competitive Advantage

JCC will provide a coffee house that has excellent customer services and perfectly brewed coffee in an environment conducive to spend more time. Relaxing background music, comfortable chairs and sofas and dimmed lights will provide an environment suitable for relieving daily stress. The stated factors will help Jarva to rise above the current competitors, because it has a great competitive advantage (Ponte & Daviron 2005, p.86).   

5.0 Competences of the Business

5.1 JCC products

JCC will acquire high quality coffee ingredients and strictly follow the preparation procedures that will help in making best coffee in the region. Store layout and marketing activities will focus on maximizing higher-margin espresso beverages sales.  The company will provide brewed teas/coffee and refreshment beverages from espresso. JCC will also offer pastries, small salads and sandwiches. Coffee beans will be used as substitutes for homemade coffee. Free magazines and books that guests can read within the premise will be used to supplement the menu (Davids 2001, p.92).   

5.2 Company Location & Facilities

The coffee house will be situated close to the targeted market segment. The company will have enough space to accommodate customers and a back office. The plan covers 250 square feet for the office, 2300 square feet for the coffee bar. It includes the seating area with 15 tables, a store, kitchen and two washrooms. The business facility offers convenience to the targeted audience because from the potential clientele to the coffee house is a walking distance. The business also connects South Eugene neighborhood, an affluent and busy commercial downtown. The location also has amenities such as electricity and water, which translate to reduced cost in remodeling to make it suitable for accommodating espresso bar, kitchen area and storage. The interior design will comprise modern wooden décor, that will help in communicating the quality of beverages and snacks served, providing an environment conducive for people to enjoy a cup of coffee while they relax. JCC will also make use of a clear window strategically to have passersby to observe customers while they enjoy their beverages. Electric signs will also be used to capture the attention of client’s traffic (Kleiner & Abrams 2003, p.135).    

5.3 Management of the Company

The management team will comprise of experts with skills and experience in managing businesses of this nature. One of the managers is a Business Administration degree holder and has 5 years experience working as an independent business consultant. The manager also has widespread business contacts within the market that JCC targets. The company can utilize the   expertise towards becoming successful in the business venture (Hartline 2010, p.88). The other team member is a Psychology degree holder from a recognized institution. The person has 5 years experience from working as a manager in a successful Italian restaurant. While working at the Italian restaurant, the person made sure there was a consistent sales increase and low operation cost. These skills are needed in starting up a business as regards managing suppliers, developing of marketing strategy, inventory, human resources and other managerial duties.

5.4 Access to Consulting Services

A combination of advantages derived from the managerial team and competent business consulting from ABC Espresso services will provide JCC with competent business advisory services. ABC consulting has a niche in addressing business matters like the ones JCC will encounter as a result of this venture. The consultancy has 20 years experience in the retail coffee industry having successfully assisted hundreds of coffee shops set up United Stated of America. The focus of JCC in employing the services of ABC will be to conduct market research, surveys on client satisfaction and any other input on valuation of new business opportunities (Hartline 2010, p.109). 

5.0  Financial Viability

The company increase revenue substantially through maximizing the strong high quality gourmet coffee (Hartline 2010, p.215). The coffee bar owners and a small loan from SBA will generate the start-up capital. Through the effective management team that JCC will have, the business establishment will create and develop a loyal client base. Consequently, the net worth of the company will double in a span of two years. This will help Java maintain a gross margin of 66%, that when combined with reasonable operational cost will result to adequate cash in financing for future growth.

Forecasted Revenue

 

5.1Cash Flow Projection

The company will have a strong cash flow position that will allow JCC to clear debts effectively, and create availability of funds to assist business development in future (Kleiner & Abrams 2003, p.118).

 

Pro-Forma Cash Flow

Pro-Forma Cash Flow

 

 

 

 

Year I

Year II

Year III

Cash Received

 

 

 

From Operations

 

 

 

Sales

$585,000

$640,500

$705,000

Total Operational Cash

$585,000

$640,500

$705,000

Total Cash Received

$585,000

$640,500

$705,000

Expenditures

Year I

Year II

Year III

From Operations

 

 

 

Cash Spending

$125,600

$143,800

$155,100

Bill Payments

$328,000

$390,000

$420,000

Total Operational Expenditure

$450,000

$530,000

$570,000

Additional Cash Expenditure

 

 

 

Principal Loan Repayment

$3,300

$3,300

$3,300

Principal Repayment of LT Liabilities

$0

$3,500

$3,900

LT Assets Purchase

$0

$2,000

$2,000

Total Cash Expenditure

$450,000

$540,000

$585,000

Net Cash Flow

$128,200

$100,000

$120,300

Cash Balance

$195,300

$290,300

$415,600

 

 

 

5.2 Projected Profit & Loss Account

The projected annual sales revenue for the business establishment is $585,000 in a financial year, and it translates to $250sales per square foot. It is not remarkably different from the industrial average of a coffee shop that size (Kleiner & Abrams 2003, p.224). Once the company is established in the market, the net profitability will rise from 17% in the first year to around 17.4% in the third year.  

 

Pro-Forma P&L

Year I

Year II

Year III

Sales

$585,000

$640,400

$706,000

Direct Sales Cost

$205,500

$225,800

$250,300

Total Sales Cost

$205,500

$225,800

$250,300

Gross Margin

Gross Margin Percentage

66%

66%

66%

Expenses

Payroll

$124,500

$140,800

$155,100

Sales & Marketing

$25,800

$27,600

$31,000

Depreciation

$5,500

$5,500

$5,500

Rent

$48,500

$52,800

$52,800

Rent

$6,000

$6,000

$6,000

Maintenance

$5,800

$6,500

$7,000

Utilities

$9,000

$9,500

$10,000

Taxes

$18,600

$21,500

$23,200

Total Operational Expenses

$240700

$270100

$290700

Profit before Interest & Tax

$135,800

$145,300

$168,500

Interest Expense

$2,800

$2,300

$1,600

Tax Incurred

$33,700

$35,500

$42,500

Net Gain

$99,300

$106,500

$125,500

Net Gain/Sales Percentage

17%

16.5%

17.6%

 

 

 

 

 

References

Davids, K 2001, Coffee: A Guide to Buying Brewing and Enjoying , St. Martin's Griffin Castle, New York.

Hartline, F 2010, Marketing Strategy, Cengage Publishers, Oakland.

Kleiner, E & Abrams, R 2003, The Successful Business Plan: Secrets & Strategies, The Planning Shop, USA.

Nakamura, A, Leibtag, E & Zeron, D 2002, Cost Pass-Through in the US Coffee Industry, USDA Journal Report,vol.1, no.38, pp. 1-21

Ponte, S & Daviron, B 2005, The Coffee Paradox, Zed Books, London.