Second Cup – Markham
Ken and Mary Hatch
Second Cup – Markham
Business Proposal
Prepared for: Ken and Mary Hatch
Prepared by:
Amlani, Tahir; Boese, Kristen; Capjack, Adele
Luchkovich, Amy; Marofke, Lindsey; Paulhus, Casey
Table of Contents
1.0 Executive Summary 4
1.1 Introduction 7
2.0 Operations Plan 8
2.1 Description of Operations 8
2.2 Franchising Process 9
2.3 Hours of Operations 9
2.4 Daily Activities 10
2.5 Weekly Activities 13
2.6 Quality Control 13
2.7 Suppliers 14
2.8 Service Providers 14
2.9 Environmental Issues 15
2.10 Location 15
2.11 Site Plan 16
2.12 5 Year Development Plan 16
3.0 Human Resources 18
3.1 Management Team 18
3.2 Organizational Structure 21
3.3 Recruitment and Retention 22
3.4 Job descriptions 23
3.5 Training Programs 23
3.6 Store timings 23
3.7 Total Salaries, Wages and Benefits Costs 24
4.0 Marketing Plan 25
4.1 Products 25
4.2 Pricing 26
4.3 Promotion 26
4.4 Place 27
4.5 Segmentation 28
4.6 Targeting 28
4.7 Positioning 29
4.8 Competitive Analysis 29
4.9 Franchising Restrictions 31
4.10 Opportunities 31
5.0 Financial Plan 32
5.1 Sources of Financing 32
5.2 Base Case Results 32
5.3 Contingency Plans 37
List of Appendices
Appendix 1 – Organizational Chart 41
Appendix 2 – Product List 42
Appendix 3 – Anticipated Look 45
Appendix 4 – Floor Plan 48
Appendix 5 – Markham Demographics 50
Appendix 6 – Detailed Financial Model 51
Appendix 7 – Financial Plan 52
1.0 Executive Summary
“Second Cup has become the largest Canadian-owned specialty coffee retailer. And since its inception, Second Cup has grown to more than 360 cafés across Canada and over 15 cafés internationally, making Second Cup a second home to hundreds of guests every day.” (Second Cup, 2008a)
Operations
Hand selected by the Second Cup Real Estate Department, Second Cup – Markham is the potential next location for this fast growing enterprise. Situated in Markham, Ontario, the proposed location is located in a power centre intersecting two major roads and is embedded in a business community and an affluent residential neighbourhood, a prime location to capture the future growth of the Toronto suburb. The proposed franchise will continue to sell the favorites of Second Cup: premium coffee, pastries, whole beans, non-coffee beverages, and a variety of merchandise while providing the highest levels of customer service.
The business will maximize business traffic by opening early each day to attract the morning traffic and remaining open later on weekends to take advantage of the social weekend groups. Each day the staff will perform a number of duties to ensure that customers are provided with high quality products and a high level of customer service. Daily activities will include opening procedures, beverage preparation, order-taking, payment acceptance, and closing procedures. On a weekly basis, other activities such as product ordering, staff scheduling and facility cleaning will be performed to keep the store running at optimal levels. Local suppliers will be used to promote community support and will include various service providers for barista cleaning, internet service, accountancy services, and legal services.
The future Second Cup site will be able to seat 40 customers and will promote neighbourhood oasis atmosphere and will include couches, a fireplace and additional patio seating. Although there are no immediate expansion plans, the site can be upgraded to support higher drive thru traffic levels and increased seating.
Human Resources
The proposed owners for the site are Mary and Ken Hatch. As local residents of Markham, they have the knowledge and understanding of the local coffee market and are familiar with the local competition. Their direct coffee industry knowledge and experienced managerial skills will not only result in an efficient store, but will contribute to their successful ownership. Ken will be responsible for the administration, finances and marketing of the company while Mary will oversee the operations of the business.
Ken and Mary have been approved by Second Cup Head Office and will undergo an intensive 3-week training program called ‘Coffee College’ provided by Second Cup. The program will empower the owners with the business tools and product knowledge to be successful. Additional training will be taken through online e-learning training modules.
The company will setup as a corporation to take advantage of tax deferral opportunities. The organization will consist of the management team (Ken and Mary) and the support staff. Second Cup – Markham will use an attractive compensation package including unique benefits to attract and retain staff, with a focus on recruiting students. Managers will be responsible for overseeing staff and performing operational duties. Sales Associates/Baristas will be the front line workers who will be responsible for serving customers effectively and efficiently. Training at each level has been customized for each level and will require the successful completion of certificate programs.
Marketing
Second Cup – Markham will sell five categories of products: a) coffee/teas/ciders b) specialty coffees/hot chocolate c) blended drinks d) beans/merchandise and e) pastries. All drinks will be made to order and the beans and merchandise will be obtained from Second Cup Head Office. The prices of the products are pre-set by Head Office to ensure consistency between stores.
Although Head Office will conduct advertising and promotion on behalf of Second Cup – Markham, the owners will promote their store by: giving free drinks for the grand opening of the store, sponsorship of local children’s sports teams, donating leftover pastries to local community charities, and developing customer relationships. Promotion of the store will also occur due to its store front location of a busy intersection in Markham.
Markham is a fast growing municipally with a population of over 287,000. With above average income levels compared to Ontario and Canada, the location will be exposed to higher levels of disposable income. As such, the focus will be to draw open business workers and the local community, specifically women and students. Although Markham has a number of competitors including Starbucks, Tim Hortons, independent coffee houses, McDonalds and other restaurants and convenience stores, Second Cup has a unique and growing product and image.
Second Cup – Markham will position itself to focus on three main areas by promoting: a) the ‘good for you’ image b) the neighbourhood oasis image and c) a community-oriented business. This strategy will appeal to the target market and will result in capturing the maximum future growth of the city which is expected to grow to 386,000 people by the year 2021.
Financial
Second Cup – Markham will require $301,000 in financing to start the business which will be financed from debt and equity. Debt will account for 66% or $200,000 of the financing while the remaining 33% or $100,000 will be financed from equity. Ken and Mary Hatch will receive Class A common shares for a nominal value of $1,000. Preferred shares worth $100,000 will be issued and will entitle holders to dividends of 15% of positive retained earnings. These shares will be callable in the 5th year for a lump sum amount.
Analysis has shown that Second Cup – Markham expects to have higher gross profit margins than the industry average beginning in the second year of operations and higher net profit margin after the third year. The company will have a higher current ratio than compared to the industry starting in year 1 which will allow to company to meet its obligations in a timely manner. Net income is expected to be ($104,371) in the first year and growing to $129,075 in year 5.
The NPV (net present value) of the business plan is $180,447, which indicates that the plan is viable using a 20% required return on capital for the equity investors. Due to low capital start up costs and strong gross margin percentages on each of the product categories, as well as low operating costs, Second Cup – Markham will produce positive cash flows, positive net income and a strong internal rate of return for the investors and for Ken and Mary.
1.1 Introduction
Second Cup is a well-established coffee shop franchise in Canada that sells coffees, pastries and merchandise to its customers.
Ken and Mary Hatch have decided that they are going to invest in a franchise of Second Cup in the city of Markham Ontario. They have already gone through the process Second Cup has of choosing the franchise owners and they are ready to start up their own coffee shop.
Mission statement
Second Cup strives to be the model for the quintessential, convenient “Neighbourhood Coffee Shop” by supporting and promoting positive social interaction in the community. In doing so we open our doors to invite people from the surrounding area to meet, organize, and get to know one another as a community.
Short term goals
· Acquire the necessary financing
· Achieve a 2% market share by year 3
· Build our reputation in the community as a neighbourhood coffee shop
· Become profitable within the first 2 years of operations
· Become knowledgeable about Second Cup operations and procedures
· Createcommunityawarenessofthenewfranchiselocationtoobtain
50%ofpotentialcustomersinyear1.
· AppropriatelyobtainqualitystaffandtrainthemonSecondCup
operationsandproducts
Long term goals
· Build a sustainable business that can support Ken and Mary
· Maintainhealthypositiveeconomicprofitsandcashflows
· Increasecommunityawarenessofthenewfranchiselocationtoobtain
100%ofpotentialcustomersbyyear3.
· Obtainaloyalcustomerbase
· Enjoyworkandbuildingrelationshipswithpeopleinthecommunity
2.0 Operations Plan
2.1 Description of Operations
Second Cup purchases high-quality whole bean coffees and sells them along with fresh, rich-brewed espresso beverages, a variety of pastries, and coffee-related accessories. Therefore, there are three main components to the business: selling purchased beans, pastries and merchandise, preparing and selling beverages and offering great service.
2.1.1 Sale of whole beans, merchandise and pastries
Whole beans are purchased and stored behind the “bean counter” for customers to then purchase to use at home when making coffee. A variety of different roasts ranging from 1 – 5, 1 being the lightest roast and 5 being the darkest roast, as well as a variety of flavors are kept on stock to ensure customer needs can be met. The beans are weighed and sold in either ½ pound or 1 pound bags, either grinded or non-grinded, according to customer needs.
Second Cup franchisees order merchandise from head office to sell in the individual stores. Although a variety of accessories can be ordered from the parent store, common merchandise sold includes travel coffee mugs, tea pots and ceramic coffee mugs.
Pastries are also purchased from suppliers and sold to customers. The assortment of pastries available depends on the time of day. In the mornings, a variety of muffins, croissants and danishes are offered. As the day progresses, many of the breakfast pastries are sold and the display case gets refilled with squares, cookies, and coffee cakes to accommodate the changing desires of customers throughout the day.
2.1.2 Sale of beverages produced
Second Cup prepares both coffee and non-coffee beverages. The main categories of drinks made and sold are:
· Coffee/teas/ciders
· Specialty coffees/hot chocolate
· Blended drinks
2.1.3 Customer service
Second Cup prepares drinks fresh and quickly made to order, thereby allowing them to accommodate customer requests. This personalized service coupled with an atmosphere that has a friendly neighbourhood feel is what customers expect of Second Cup. In addition, the potential owners, Ken and Mary Hatch, of Second Cup – Markham will offer wireless internet which will be provided by a contract internet provider.
2.2 Franchising Process
The franchising process started with a seminar held by Second Cup where they discussed the business opportunity of opening a new franchise store. An application was then submitted by Ken and Mary and after a pre-screening of qualifications and numerous interviews they were approved for a Second Cup. The location was agreed upon in Markham, Ontario, as the application is for a Second Cup franchise, not a particular location, wherever the location may be. Currently Ken and Mary reside in Markham and are considering the opportunity.
There are many benefits to opening a franchise such as the large support it provides and the assurance that the business model is successful. The franchisor provides product knowledge and business advice and in addition offers guidance. Second Cup already has established supplier relationships, product reputation and a loyal customer base. However, there are standards franchisees must adhere too and therefore these rules must be followed in order to own a Second Cup franchise. In addition to not having complete independence in decision making, new franchisees typically work many hours to successfully establish the business.
2.3 Hours of Operations
Although Second Cup is a franchise, the stores set their individual hours. The hours of operation for Second Cup – Markham will be:
· Monday – Thursday: 6 am – 11 pm
· Friday: 6 am – 12 pm
· Saturday: 7 am – 12 pm
· Sunday 7 am – 11 pm
The hours set attempt to accommodate target markets. The store must be open early in the morning during the week to service the customers on their way to work, however it can open later during the weekend as less people desire coffee at early hours. Second Cup – Markham will be open until 11 o’clock at night during the week as many people go for coffee as a social event and students sit and study. The hours are extended on Friday and Saturday nights as even more customers are looking for an activity for weekend enjoyment.
2.4 Daily Activities
2.4.1 Opening activities
One staff member will be required to come into the store 30 minutes before opening to prepare for the day. This person will be one of the few key holders and will be a responsible, trusted employee. The duties to be performed by this employee will include:
1. Opening the safe where the float is stored, re-counting the money and placing it into the tills
2. Measuring the required beans for the day. This requires weighing the whole beans in a coffee filter and transferring this filter containing the beans to a “coffee drawer” where the days worth of coffee is stored and ready to be brewed
3. Grinding coffee beans and brewing coffee
4. Taking the muffins out of the supplier containers and transferring to the display case
5. Setting the patio furniture outside
6. Ensuring behind the counter is stocked and tidy