Bain - Coffee Shop Co
Establish understanding of the case
My friend wants to know the key factors when deciding whether opening a
coffee shop in Cambridge, England or not.
Setting up framework for the case
Strength & Opportunity:
- Geographic advantage: Potentially carve out a significant portion of the
coffee shop market in Cambridge considering how enormous the demand
is in a large university city adjacent to a prominent financial hub – London.
- A capacity to put herself in customers’ shoes when it comes to brand
designing and marketing as she was being a university student before.
Threat & Weakness:
- Pit against scores of competitors in the fiercely competitive market
- Research - overall coffee shops market in Cambridge: competitors’ market
sizes and market shares?
Profitably sell coffee under fierce competition? Given the fixed costs involved,
how much coffee does she need to sell in order to break-even in the first year?
Analysis
How do you estimate the size of the market?
- The number of commuters who travel back and forth Cambridge and other
regions daily. (a)
- The average cups of coffee residents of Cambridge would consume per day
(b)
- aXb
Approximate the market size - Base your estimations on your reasonable
assumptions about the market：
100,000 ppl in Cambridge
80% adults: 80,000 adults
50% of adults will drink coffee daily: 40,000 adults will drink coffee daily
20% will have self-made coffee at home: 20,000 adults will buy coffee
50% will buy it at coffee shops: 10,000 adults will buy it at coffee shops
1 adult drinks 1 cup of coffee per day: 10,000 cups / day
The market size per year = 365 days X 10,000 cups/ day = 3,650,000 cups / yr
How much coffee does she need to sell to break even in the first year?
Break-even: (P X Q) – [FC + *(C X Q)] = 0
Assume Q = numbers of coffee she needs to sell in order to break even in the first
year
3Q – (245,610 + 163,740 + 1Q) = 0
2Q = 409,350
Q = 204,675
*VC = C X Q
*( = opening parenthesis
Case Recommendation
After running through the calculations, I think it's reasonable for her to open up a
coffee shop.
The market size per month = 31 days X 10,000 cups / day
= 310,000 cups / mth
That means she could break even in the first month she opens her coffee shop.
Because when we reduce the break-even point from the market size in the first
month, we’ll get
: 310,000 - 204,675 = 105,325 cups left over
Other factors to consider before proceeding (always summarize the points
mentioned in the framework):
Strength & Opportunity:
- Geographic advantage: Potentially carve out a significant portion of the
coffee shop market considering how large the demand is in a large
university city adjacent to a prominent financial hub – London.
- The capacity to put herself in customers’ shoes when it comes to brand
designing and marketing as she was being a university student before.
Threat & Weakness:
- Pit against scores of competitors in the fiercely competitive market
- Research: competitors’ market sizes and market shares?
*Go-to-market strategy: Unique Selling Point -- Space
Blending open area (like common coffee shops) & meeting rooms together:
Open area – relaxing ambience like Starbucks
Meeting rooms – particularly well-suited for University students who generally
have an outrageous amount of group projects to do. They could now find a place,
my friend’s coffee shop, to brainstorm ideas for their projects together and enjoy
coffee in the meantime.
*The coffee shop could provide breakfast, tea time & dinner as well.
*Go-to-market strategy:
The plan of an organization, utilizing their inside and outside resources (e.g. sales
force and distributors), to deliver their unique value proposition to customers and
achieve competitive advantage.
