CASE B – Coffee Shop Co.

25 – 30 MINUTES

SPRING 2024

Nova Case Team 1

> PROBLEM STATEMENT NARRATIVE

Read the following prompt to the candidate:

• You’re having lunch with an old friend from university, and she’s looking for some business advice. She is
thinking of opening a coffee shop in Cambridge, England, a large university city an hour and a half away from
London. She sees potential in this business but wants your help in determining whether opening a coffee shop is
a good idea. What do you think?

Information for the interviewer & Brief overview of the case

• She hasn’t ruled out selling other products in the future but wants to focus on Coffee production for now.
• You can assume she hasn’t owned or operated a Coffeeshop before and needs sound business advice from you
• The population of Cambridge is approximately 100,000 people, but you will likely need to estimate the market size
later in the case.
• For the sake of this case you can assume no competition.

Nova Case Team 2

> QUESTION 1( 3–4 MINUTES)

What are the main factors someone should have in mind while opening a coffee shop?

Possible answer/structure/matrix:
• Location
• Target Market:
• Concept and Branding
• Menu and Products
• Licensing and Regulations
• Staffing
• Marketing and Promotion
• Financial Planning
• Customer Experience

Nova Case Team 3

> QUESTION 2( 5– 6 MINUTES)

How do you estimate the size of the market? Assume the market is in Cambridge and each
person has an average of 1 cup of Coffee a day

Possible answer/structure/matrix: Information to give if asked:

Market Sizing Exercise • Market Location = Cambridge,
*Note: there is no right or wrong answer! Market England
sizing is always an assumption* • Market Size = Approx. 100,000
Top-Down: • Percent of Adults in Population = 80%
100,000 people live in Cambridge • Percent of Coffee Drinkers = 50%
▪ 100,000 * 80% adult pop. Rate = 80,000 • Average cups of coffee per day = 1
▪ 80,000 * 50% of adult coffee drinkers = 40,000 • Percent of coffee brewed at home =
people 50%
▪ 40,000 people * 1 cup per day = 40,000 cups per • Days in a year = Approx. 350
day
▪ 40,000 cups * 50% made at home = 20,000 cups
per day bought at coffeeshops
▪ 20,000 cups per day * 350 days/ year =
7,000,000 cups of coffee per year
Total Market Size Approx. 7,000,000 cups/year

Nova Case Team 4

> QUESTION 3( 5– 7 MINUTES)

How much coffee does your friend need to sell to break even in the first year?

Possible answer/structure/matrix: Information to give if asked:

Breakeven Calculation (Units) • Price per coffee = £3 (£ = pounds)
• (Price * Quantity) - (Fixed Costs + (Variable Costs * • Cost to open shop = £245, 610
Quantity) = £0 • Cost to run shop each year = £163,740
• (3*Q) – (163,740 + 245,610 + (1 * Q) = 0 • Cost per cup of coffee = £1
• 2Q – 409,350 = 0
• Q = 204,675 cups to breakeven
Alternative Approach
• FC / Gross Margin (Gross Margin = Price – variable
cost)
• (163,740+245,610) / (£3 - £1)
• Q = 204,675 cups to breakeven

Nova Case Team 5

> Exhibit 1

Nova Case Team 6

 > QUESTION 4( 5– 7 MINUTES)

She requested our team to investigate whether the Coffee could also introduce a coffee
subscription model, in which customers pay a fixed monthly fee and receive a certain
number of coffees throughout the month. She has done some market research and have
identified two possible options, as illustrated in Exhibit 1. How would you decide between
these two options, and which one would you choose?

Step 1: Calculate the monthly revenue Upon performing calculations, candidates should
generated by each option identify that:
•Option 1 – £25 + £30/week x 4 weeks = £145
•Option 2 – £15 + £22/week x 4 weeks = £103 Option 2 is more profitable for the business and also
Step 2: Calculate the monthly costs associated generates better footfall, which might come in handy if we
with each option add new revenue streams
•Option 1 – £1 cost/drink x 2 drinks/day x 30 days + The main driver of profitability here is the cross-selling
£30/week x 4 weeks x 50% = £120 opportunity. We assumed the highest possible cost in our
•Option 2 – £1 cost/drink x 1 drink/day x 30 days + model (subscribers getting the maximum amount of coffee
£22/week x 4 weeks x 50% = £74 per day every single day). It would be interesting to see what
Step 3: Calculate the profitability per subscriber the utilization rate is, as that might influence how often
/ month customers will re-order our product.
•Option 1 – £145 - £120 = £25 Our decision should not be based solely on financial
•Option 2 – £103 – £74 = £29 variables, but also on non-financial ones. A cheaper, more
Step 4: Calculate the total monthly profitability accessible price, for instance, could increase the product's
of each option popularity and increase demand by triggering a halo effect.
•Option 1 – £25 x 30k people = £750,000
•Option 2 – £29 x 50k people = £1,450,000
Nova Case Team 7
> QUESTION 5( 3– 4 MINUTES)

What would be the final recommendation you would give to your friend?

Sample Recommendation:
• Our friend should definitely move forward with opening her coffee shop in Cambridge! Because there are
7,000,000
cups sold in Cambridge each year and the break-even point is 204,675, which is approximately 3% of total market
share, breaking even is very achievable. If we think more broadly, it would also be wise to bet on the $15/month
subscription as we would increasing profits substantially.
Sample Risks & Consideration
• Underestimating the competitive threats in the area
• Residual effect of COVID-19 pandemic and making coffee more frequently at home
• We would want to understand our friend’s investment timeline. Depending on how many years she plans to run
the
store, it may be difficult to recover the cost of opening
Sample Remaining Questions & Next Steps:
• Understand our friend’s investment and owner timeline
• Explore go-to-market strategies for CoffeeCo.
• Define how the organization will differentiate itself among its competitiors
• Understand if competitors are smaller or larger players and how competitive dynamics will work
• Understand if our friend has any interest in expanding beyond just her first shop
Nova Case Team 8
> Interview Feedback

Remember to provide some constructive feedback and be honest, but also don’t forget to
be kind 

Possible points of strength and weakness:

1. What are the candidate strengths demonstrated in case?
Structured/Problem Solving skills
2. Areas for improvement?

3. Was the structure and communication concise and easy to follow? Communication

4. How well did the candidate identify and prioritize key issues? Analytical skills and calculation

5. How well was ambiguity handled? Synthesis / Recommendation

6. Did the candidate make effective use of resources? Creativity

7.How realistic and detailed were the recommendation that was given? Confidence / Good Under Pressure

Nova Case Team 9