Case Study of CAFE XARAGUA

Prepared by,

Names of Group Members Student ID

Dany Joshua 0989212
Robin Shokeen 0965749
Setu Mehta 0988605
Sandeep Kaur 0987341
Riya Shah 0984206
 17th March 2021

Q1. Every case has a problem, issue, or opportunity to be identified. What is it for this case and who needs to make it?
ANS. Problems:

1. it’s a new name of coffee and café in the market so most of the consumers and wholesalers don’t know about it.
2. As it’s a new company it would be obvious that this company have a Limited cash to take a position, its 3 partners have to arrange
cash from some market sources (angel investors, financial institutions)

Opportunities:

1. 65% of market section like and drink coffee daily as it is the integral part of the people’s life, so the more the consumer you have the more
the profit will increase.
2. There is a very good Growing demand of coffee in youth’s basically Colleges and Universities students. And if population keeps on
increasing then the rate of demand for the coffee in future has to rise and then company can be able to capture the large amount of market.

Q2. What qualitative (non-number: political, ethical, organizational culture or any topic other than accounting as examples) analysis need to be
done?

A2. Strengths

 The item is devoured by 65% of Canada, which can be utilized as solidarity to promote the item in the market by keeping up the great
quality.
 The taste of their product is very good compared to their competitors.
 Importing the excellent quality espresso from Haiti, consequently decreasing the expense too.
 Generally, less expensive ($3 for ordinary and $4 for Special)
Weakness

 Less Known/ New Brand Name

 Restricted cash to contribute to the business.
Opportunities
  The developing interest for espresso in youth (Colleges and Universities)
 65% of the market portion like and drink Coffee every day

Threats

 Existing contenders (Starbucks and Second Cup)

 Substantial marketing efforts from contenders.
 New contestant to the market

Since the area, Kensington, which was chosen in Calgary was profoundly great for business openings' along these lines the Café Xaragua needs to confront
some monstrous contenders like Starbucks and Second Cup. Starbucks is a universally perceived name in the Coffee business and has a cutting-edge retail
outlet network worldwide with a remarkable brand picture. They have a renowned contribution, uncommon and predictable taste of espresso by keeping
up the remarkable monetary position.
Regular drip Specialty Baked Bags of Additionally, Second Cup is a Canadian
Particulars coffee drinks goods coffee Total espresso retailer having activities of more
than 345 bistros across Canada and is very
Selling price 3.0 4.0 2.5 16.5 renowned for its forte in espresso. It was set
up back in 1975 and is a seriously experienced
Less: Variable cost -0.6 -0.8 -1.25 -6.6
contender.
Contribution per unit 2.4 3.2 1.3 9.9

Sales in Units 45625 45625 45625 9125 146000 Q.3 What quantitative analysis needs to be
done (what numbers need to be
Total Contribution 109500.0 146000.0 57031.3 90337.5 402868.8
calculated)?
Sales in Units 45625 45625 45625 9125 146000 A3.
50% of After studying the case, to analysis café’s
daily 10% of success we can do following quantitative
sales i.e. daily sales analysis to give clear picture to estimates
91250 i.e. 91250 and to conclude the decisions of partners.

1. Sales 136875 182500 114062.5 150562.5 584000 Required customer visits to Café Xaragua need to
break even in the first year.
2. Sales mix 23.44% 31.25% 19.53% 25.78% Required customer visits to Café Xaragua need to
break even in year 2.
PV ratio (Total contribution /
Total sales) 68.98%
 The partners estimated they could sell between 200 and 300 drinks per day evenly split between regular drip and specialty drinks.

So, it is estimated that average of that would be the sales per day that is 250 drinks per day.

I. First of all, Let us prepare a statement showing Contribution per unit:

II. Now we can prepare a Statement showing fixed cost and calculate Break-even analysis:

Particulars Amount (in $)

              
Lease Rent for 1571 Sq ft. Space pa 70,695.00

              
Lease hold improvements 35,000.00

Staff salaries [(16$ + 20% incentive) * 2 Professionals * 52 weeks * 126 $ per

week]             251,596.80

              
Salary for part time manager 25,000.00

              
Marketing & promotions prior to opening 10,000.00

              
Marketing & promotions after opening (12 * 1000) 12,000.00

              
Annual utilities 23,565.00

                
Telephone & internet charges 3,600.00

                
Insurance cost 3,000.00
                 
Administrative cost 4,200.00

              
Other upfront cost 10,000.00

              
Installtion & certification expense of professional for machine 10,000.00

                
Maintanance cost 6,000.00

              
Interest on debt (13% * 250000) 32,500.00

Total Fixed costs for year 1             497,156.80

              
Add: Increase in Salary (shifting from part time manager to full time manager) 35,000.00

Total Fixed costs for year 2             532,156.80

Break even Sales for year 1 = (Fixed costs/PV ratio) = 720,680.30

Break even Sales for year 2 = (Fixed costs/PV ratio) = 771,416.43
III. Now, we can calculate Customer visits to break even:

Regular drip Specialty Baked Bags of

Particulars coffee drinks goods coffee Total

Selling price 3.0 4.0 2.5 4.0

Break even sales Year 1 720680.30

Sales mix 29.13% 38.83% 24.27% 7.77%

Sales 209906.88 279875.84 174922.40 55975.17

Customer Visits for Year 1 69969 69969

Break even sales Year 2 771416.43

Sales mix 29.13% 38.83% 24.27% 7.77%

Sales 224684.40 299579.19 187237.00 59915.84

Customer Visits for Year 2 74895 74895

Q4. What other data would have been helpful for this case?
A4. Factors to be analyze:

• Firstly, Rob Lehnert requires identifying the potential market where the business of the cafe expands and becomes successful. Calgary was the
best city for this business. The reason to launch their business in Calgary was strong economy, higher prices with a premium product.

• Secondly, to know about the competitors in the market relevant data should be carried out. As competition is high and Starbucks is the main
competitor in Keningston district, Alberta.

• In addition, for proper planning assessment need to be made. It consists of details of Calgary city, economy and GDP. Partners need to find out
about political conditions, infrastructure projects and rules & regulations of the government.

• Furthermore, estimation of cost of the products needs to be done precisely and with accuracy. As there are chances of wrong estimation or
errors which can create further barrier in the business.
• Lastly, the most important factor is to find out the ways through which capitals will be raised for the business start up of Cafe Xaragua.

Q5. Role playing as the decision-maker in the case, what do you decide to do and why?
A5.