Business Plan
Café - Hut
Khalid Alshurayhi, Hao (Henry) Chen
Executive Summary
This report presents a comprehensive business plan for a Café Hut Cup to be established in
Saskatoon, Saskatchewan. The Café Hut Cup will be located in the Willow Grove area near
the intersection of Attridge Drive and Heal Avenue. This location is also home to one of
Saskatoon’s newest and fastest growing areas in the city, with an estimated population of
7,600 and expected to double to 15,000 by 2017. The average value of a dwelling is between
$300,000 and $450,000; average family income of $81,774. The Village Square includes a
strip mall with street-front one coffee shop (Tim Horton’s), boutiques, restaurants and other
retail and community services. This location is adjacent to the world class SaskTel Indoor
and Outdoor Artificial Turf Soccer Centre. The SaskTel Soccer Centre is a great magnet for
ancillary business development in this area. Café Hut will provide high quality specialty
product lines in five categories: coffee, specialty tea, specialty beverages (hot and cold),
sandwiches buffet and soups, Shisha (fruit flavors water pipe smoke).
The operating and marketing strategy is backed by a sound financial analysis that
demonstrates the viability of this plan. Key financial projections are as follows:

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Total revenue for 2012 is projected to reach $393,900 with slightly increase in the
next five years.
The gross margin from total revenue is estimated at 74%, this margin is expected to
be remain consistent year over year.
Net income, after taxes, in the first year of operations is expected to be $35,500
however it is going to increase in the second year and then start to decrease due to the
increase of the managers’ salaries (owners) from $26,000 in the first year to $60,000
in the fifth year.
The ROI 20%, for every $1 invested there is an earning of $0.20.
The Net Present Value is $12,625.
The expected internal rate of return on this investment is 23.8%.
These are very positive returns given an initial equity investment of $200,000
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Table of Contents
1. Introduction ............................................................................................................................ 3
1.1. Description & Purpose of the business concept........................................................... 3
1.2. Vision & Mission ......................................................................................................... 3
1.3. Value Statement ........................................................................................................... 3
1.4. Major Goals ................................................................................................................. 4
2. Operating plan ........................................................................................................................ 4
2.1. Economic Environment .............................................................................................. 4
2.2. Industry analysis ......................................................................................................... 5
2.3. Place ............................................................................................................................ 5
2.4. Operating time ............................................................................................................ 6
2.5. Business activities ....................................................................................................... 6
2.6. Organization Structure ................................................................................................ 8
2.7. Main suppliers and Service Provider .......................................................................... 8
3. Human Resource Plan ............................................................................................................ 9
3.1. Schedule and Wages ................................................................................................... 9
3.2. Recruiting .................................................................................................................... 9
3.3. Training ..................................................................................................................... 10
3.4. Health and Safety ...................................................................................................... 10
4. Marketing Plan ..................................................................................................................... 11
4.1. Positioning ................................................................................................................ 11
4.2. Customers & Target Market ..................................................................................... 11
4.3. Products and Services ............................................................................................... 12
4.4. Competition............................................................................................................... 12
4.4.1. Weekdays’ Morning....................................................................................... 13
4.4.2. Weekdays’ evening and Weekends ............................................................... 13
4.5. Pricing Strategy......................................................................................................... 13
4.6. Promotion Strategy ................................................................................................... 14
5. Financial Plan....................................................................................................................... 14
5.1. Sales Revenue and Net Income: ............................................................................... 14
5.2. Total Operating Expenses ......................................................................................... 15
5.3. Working Capital Estimates ....................................................................................... 15
5.4. Cost of Capital .......................................................................................................... 16
5.5. Risk analysis ............................................................................................................. 16
5.6. Financing Budget ...................................................................................................... 17
5.7. Dividend Policy ........................................................................................................ 17
5.8. Financial and Investment Analysis ........................................................................... 17
6. Critical variables .................................................................................................................. 17
6.1. Quantity of Sales ....................................................................................................... 17
6.2. Competition............................................................................................................... 18
6.3. Word-of-Mouth ......................................................................................................... 18
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1. Introduction
1.1. Description & Purpose of the business concept
Café Hut is an incorporated specialty coffee shop whose owners are Khalid and Henry. This
name will give customers a cozy and relax feeling when they stay in our coffee shop. The
location of our coffee shop will be near the intersection of Attridge Drive and Heal Avenue.
Café Hut will service two different sets of customers in different time periods. In the
weekday morning time, Café Hut offers coffee, tea, hot and cold drinks and, sandwich buffet
and soups to residents and workers in Willow Grove area; in the weekday evening time and
weekend, Café Hut provides coffee, tea, hot and cold drinks and Shisha in exotic
environment to customers who are looking for a sociable place.
1.2. Vision & Mission
Our vision is to become an outstanding café for residents and workers in Willow Grove area
in the weekdays’ morning time; and to become an outstanding third place for youthful
customers in the weekday evening time and weekends.
Our mission is to provide our clienteles with reasonable-priced daily fresh buffet and drinks
in a sociable environment.
1.3. Value Statement
We provide drinks and foods:
On one hand, we provide special and customized food for regular workers in the morning
time of weekdays. Residents and workers in the Willow Grove area can come to Café Hut to
purchase drinks and customized sandwiches for their breakfast and lunch with relative relax
environment. On the other hand, we offer exotic environment and premium service in the
evening time and weekends to youthful customers who are looking for a place to meet
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together can come to Café Hut to have coffee, tea, hot and cold drinks and Shisha in a
pleasant atmosphere.
We offer relaxing feeling
In the workdays’ morning, customers can choose Café Hut to purchase their breakfast and
lunch while avoiding the crowded places and relax in the comfortable and exotic environment.
In the evenings and weekends, customers who want to meet together in a fascinating lounge
with trendy music background can choose Café Hut to hang around.
1.4. Major Goals
1.
To supply clients an alternative café shop with much less stressful and crowded
atmosphere
2.
To remain competitive in Willow Grove area for the first five years and expend in near
future
3.
To increase our net profit each year over the course of the first 5 years as we are going to
increase our salaries as well.
2. Operating plan
2.1. Economic Environment
In recent decades, there is a dramatic personal disposable income change around the world,
especially western countries such as Canada. This increase in personal disposable income
strengthens people’s purchasing power. Moreover, as the economy grows increasingly fast,
people are more and more willing to purchase their breakfast and lunch in coffee shops rather
than prepare themselves.
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2.2. Industry analysis
As modern society develops and average income increases, Saskatoon citizens are having
breakfast; lunch and dinner in restaurants are more often than before. In the meantime, there
is a significant increase in the food industry and more different restaurants and cafés are
operating in Saskatoon. As a result, we should evaluate the café industry as a thriving and
competitive industry in Saskatoon.
Store Map
2.3. Place
We will locate in Willow Grove area, which is a thriving place in
Saskatoon. In this location, there is a new-built strip mall in the
village square, which has only one Tim Horton’s. In addition to
the shopping mall, a high-class residential area is always around
this location. People who live within this region typically have
higher income than average, which makes the purchase power,
matches our prices. The floor plan will accommodate 12 tables
and 40 chairs in different shapes; the layout includes an office,
washroom, and kitchen area for minimal food preparation and inventory storage and a cooler
room. In addition, we are going to provide a sectional table for our buffet.
Floor Plan
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Pictures of the store
2.4. Operating time
Days
Open Hours
Total Hours
Monday - Thursday
7:00 – 21:00
14 Hours
Friday & Saturday
7:00 – 23:00
15 Hours
Sunday
9:00 – 20:00
11 Hours
Our operation hours are demonstrated as above. To be specific, from Monday to Thursday,
we open from 7 o’clock in the morning until 9 o’clock in the evening because in these week
Mondays people need to go to work next morning which will makes our business really slow
in late night. Friday and Saturday are our busy days, we assume that people can stay a little
late than weekdays. On Sunday, we will open late and close early so our employees can take
a rest.
2.5. Business activities
Daily Work Schedule
Opening of the store
Administration and
front
float
Make fresh coffee
Two staff works counter
Prepare fresh buffet
4 part time shifts
on
Manager assist close
Cash drop by Manager
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The above components are explained further below as follows:
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The full time employee will open the store along with the manager.
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The manager will attend to any administration duties including staff schedule,
inventory, and prepare the day’s cash float.
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Fresh buffet items will be placed into the display unit for the customers.
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The full time employee will get the fresh coffee brewing and ready to open for 7:00
am. The first part time employee starts their shift at 7:00 am, so until this time the
manager and the fulltime employee work the counter.
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Throughout the day two more part time shifts will start with at least one employee at
any given time. See the schedule for a breakdown of the shift schedule, including
start and end times. The schedule has been formatted to ensure safety and a smooth
running operation.
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At 8:00 pm the Manager returns assist with the closing the storefront and deal with
any issues that may arise during the day. Inventory is assessed and orders are place as
soon as possible the following day.
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The cash drop occurs after closing at the Bank located next door.
In terms of activities, we divided our regular activities into four categories, which are daily
activities, weekly activities, monthly activities and yearly activities. In each day, Henry will
be in charge of business activities such as market research, record business volume and so
forth while Khalid is helping serving customers. Weekly, Henry will reschedule employees’
shifts and Khalid will account weekly business. Monthly, Yearly, Henry and Khalid will use
one week to discuss the business achievement from last year and if the Café-Hut should be
expanded.
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2.6. Organization Structure
In our Café shop, the two owners will also be two managers. Henry will mainly be in charge
of business activities such as market research, record business volume while Khalid is
helping serve customers with another full-time employee. Alex Chu will be hired as our full
time employee other than Henry and Khalid because Alex has worked as a McDonald’s wing
manager for two years so he has the experience to lead employees. In addition, six part-time
employees will be hired to help serve customers in peak time such as weekdays’ mornings.
2.7. Main suppliers and Service Provider
Suppliers:
Coffee: Maduro Coffee Company Saskatoon
Tea: T&T Calgary
Buffet & other Supplies: Costco and Whole Seller Saskatoon
Shisha: World Shisha Montreal
Service Providers:
Machines Maintenance: Diversified Electric Ltd
Plumbing: Mr. Rooter Plumber
Accounting/Taxes: Marlet Accounting & tax service
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3. Human Resource Plan
3.1. Schedule and Wages
Manager
Full Time Staff
Part Time Staff
Monday
6:00 – 14:00 (H)
6:00 – 14:00
7:00 – 14:00 (1)
To
14:00 – 22:00(K)
14:00 – 21:10 (1)
Thursday
Friday
6:00 – 14:00 (H)
&
14:00 – 24:00(K)
7:00 – 14:00
14:00 – 21:00 (1)
17:00 – 24:00 (2)
Saturday
Sunday
7:00 – 14:00 (1)
8:00 – 14:00 (H)
14:00 – 21:00(K)
Off
8:00 – 14:00 (1)
14:00 – 21:00 (1)
Wages: are going to be $ 26,000 for each manager for the first year and then start to increase
substantially every year to reach $60,000 in the fifth year. Also, staring for year two we are
going to increase our wages for full employee and part time ones by constant $0.50 each year.
3.2. Recruiting
As mentioned in the organization structure section, for the first five years, due to the capacity,
Café Hut will have two managers which are also the two owners, one full time employee and
six part-time employees. Before Café Hut started, the two owners have met Alex Chu who
was a wing manager for McDonald’s for last three years. Alex Chu and the two managers had
a contract agreement that Alex will be the full time manager for the first five years. He will
mainly in charge of the training program and daily operations because he has sufficient
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experiences. Café Hut will also recruit six part time staff. The six part time staff will mainly
be high school/university students for two reasons. First, they will not have too much
expectation on their wages so that Café Hut will offer them with minimum required wage
which is $9.50/ hour. The second reason is that students are potential customers for Café Hut
in the evening period. Recruiting high school/university students will accelerate the word of
mouth advertising.
3.3. Training
In terms of training program, the two managers will be trained first. In particular, since the
full time employee, Alex, was a wing manager in McDonalds’ for three years, we plan to
create our own training program. In particular, the two managers will be trained with Alex.
The most important sections are brewing coffee, making specialty beverages, sandwiches
buffet preparation and cleaning. The whole training program is schedule for one week. After
that, each part time employee will be trained with one full time staff in the work. This process
will take advantages of the slow sale in the first week. Part time employees will service
customers with a full time staff in the first week. Also, we plan to implement a work skill
evaluation every half-year. Each employee and employer will be evaluated 360 degree by
other workers and customer complaints.
3.4. Health and Safety
The occupational Health and Safety Regulations from the government of Saskatchewan will
be adhered to. All employees and managers will be clearly informed during the training
program and will have access to this file in Café Hut. Moreover, we will request a regular
equipment check from our service provider in order to increase safety.
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4. Marketing Plan
4.1. Positioning
Café hut is an independent business, which provides variety products (coffee, tea, soups and
sandwiches buffet, specialty drinks) in premium quality and convenient prices in the daytime.
Moreover, provides eastern cultural climate (shisha, eastern music) in the evening period for
our youthful-spirit clienteles. Although Tim Horton’s is opened in the same area, we are
offering more convenient and more choice of sandwiches in the daytime; also, we differ from
Tim Horton’s as a friendly place that customers can socialized in the evening.
4.2. Customers & Target Market
Café Hut’s main target market will be different between daytime and evening time. In
specific, in the daytime, which includes the breakfast and lunch period, Café Hut is primarily
target people who live or work in Willow Grove area, with relatively high-income level. For
evening period, as we are going to continue serving drinks, we will target those customers
who are looking for sociable environment to meet and young people who want to smoke
Shisha.
Since Café Hut is located in the Willow Grove, which has a relatively higher income and a
steady population and business growth, we are expecting our primary target markets for
daytime will involve:

Condo residents

Business white-collar
And for the evening time, we are excited to serve our youthful-spirit customers (includes
university students); our different fruit flavors shisha smoke as well as enjoying our specialty
drinks menu.
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4.3. Products and Services
Café Hut serves two distinct categories of products and services in daytime and
evening-period. In the daytime, which includes breakfast and lunch period, Café – Hut
provides coffee, tea, specialty drinks and soups and sandwiches buffet. Customers can come
into the story order the coffee or teas they want and while waiting; they can go to the
sandwich buffet to make up their favorite sandwiches. After they finish the sandwiches
making, their drinks will be ready so that they can go to the counter pay for their sandwiches
and drinks together. The customers can choose to stay in or take the food and drinks with
them so this will be very convenient and suitable for all kinds of customers. The soups &
sandwiches buffet will be closed after four o’clock in the afternoon, instead, Café Hut will
start to offer Shisha in the evening period.
Not only the products themselves are attracting, but also the environment in Café Hut will
provide customers a distinct, comfortable, relaxing and exotic feeling during their stay. In
specific, in the morning time, instead having a crowded and noisy atmosphere, Café Hut will
play some relaxing music so that customers can feel release from the busyness, but still the
drinks will be ready in short time. During the evening, customers will enjoy their spare time
in an environment full with exotic eastern music.
4.4. Competition
Café - Hut will have two sets of competitors. In the morning time, our competitors will be
Tim Horton’s and McDonald’s in Willow Grove area. They also offer sandwiches and coffee,
but with a relatively crowded and noisy environment. In the evening period, we will have
only two competitors in Saskatoon for Shisha so far which are “306 Lounge” and “Turkish
restaurant”. In terms of coffee and drinks, Tim Horton’s, McDonald’s and Starbucks in the
entire Saskatoon will be viewed as our competitors because people are more willing to travel
further for a nice place in the evening.
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4.4.1. Weekdays’ Morning
In the morning time, Café Hut is offering the sandwiches buffet and drinks to customers.
Hence, our near competitors will be Tim Horton’s and McDonald’s, which are already open
in Willow Grove area. Those two competitors are also offering sandwiches and coffee, but
since they are large franchise stores, it is always crowded and customers need to spend
approximately ten to fifteen minutes in that noisy circumstance for their food and drinks.
Some customers who are not in a rush will also be reluctant to stay in Tim Horton’s or
McDonald’s due to the environment. Café Hut also has some far competitors who include all
other restaurants that offer breakfast and drinks in daytime.
4.4.2. Weekdays’ evening and Weekends
In the evening period, Café Hut will start to offer Shisha instead of sandwich buffet. This is
a very rare product in Saskatoon, which leads to very limited number of competitors.
Currently, there are only two stores, which offer Shisha in Saskatoon, 306 Lounge that
located in airport area and Turkish restaurant that is located in downtown. In terms of drinks,
Café Hut’s near competitors are Tim Horton’s, McDonald’s and Starbucks. Since Tim
Horton’s, McDonald’s do not offer the staying in environment in the store, Café Hut’s true
competitor is Starbuck which is currently not open in Willow Grove area.
4.5. Pricing Strategy
Café Hut will be using penetration price strategy for the first year. In particular, to compete
with direct near competitors, Café Hut is willing to make the amount of money just to cover
the expenses. By doing this, Café Hut can use some time to gain market share and reputation
in Willow Grove area first and then eastern and north eastern of Saskatoon. From the second
year, Café Hut will be using competitive pricing strategy so that more and more customers
from eastern Saskatoon will be attracted to our Café.
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4.6. Promotion Strategy
Café Hut will be implementing some low cost but efficient method of promotions. The focus
of the promotion will be in Willogrove area, but will also extend to other popular places such
as University of Saskatchewan. There will be three core promotions: first, flyers of Café Hut
will be sent to those popular places. The flyers will contain products information, location,
hours and so forth. Second is “discount season”. Along with the flyers, the first three months,
each flyer will have a discount coupon on the right bottom corner. Every customer who holds
a flyer with that coupon can have a 20% on discount rate on each sandwich or 30% on each
drink. This promotion is intended to drive as much as people’s attention and motive them to
come to Café Hut to try products, services, and environment with little cost, in other word,
little risk. The third promotion will be a Facebook Ad. In recent decades, Internet is a very
popular media, especially Facebook. Different from other coffee shops, Café Hut will not
create its own website in first five years, instead, a Facebook Ad will be available to show
necessary information. Everyone in Saskatoon can have a clear view of our Ad.
5. Financial Plan
This section reports detailed financial projections for the next 5 years.
5.1. Sales Revenue and Net Income:
All products and services are furnished in five categories: coffee, tea, specialty beverages
(hot and cold), sandwiches buffet and soups, and Shisha.
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Sales Revenue
Coffee
Tea
Hot beverages
Cold Beverages
Soups
Sandwiches
Shisha
Total
2012
117,000
19,500
23,400
15,600
15,600
124,800
78,000
$393,900
2013
128,700
21,450
25,740
17,160
17,160
137,280
85,800
$433,290
2014
128,700
21,450
25,740
17,160
17,160
137,280
85,800
$433,290
2015
141,570
23,595
28,314
18,876
18,876
151,008
94,380
$476,619
2016
141,570
23,595
28,314
18,876
18,876
151,008
94,380
$476,619
Total revenue for 2012 is projected to reach $393,900. It is also projected to increase every
two years by 10%. The gross margin from the total revenue is estimated to be 74% in 2008
meaning that 26% is accounted for cost of goods sold in this year.
As expected, net income after tax is very low, at $35,500 in the first year of operations.
However, it is going to increase in the second year and then start to decrease due to the
increase of the managers’ salaries (owners) from $26,000 in the first year to $60,000 in the
fifth year.
5.2. Total Operating Expenses
Total operating expenses are estimated to be approximately $253,569 in 2012 followed by a
slightly increase in 2013 to a just over $267,864 given that expected cash on hand will be
greater than $200,000 dividends will not be paid instead we are going to increase our salaries.
5.3. Working Capital Estimates
As far as inventories are concerned, the store will carry a 7-day inventory of all the products.
All sales are on cash basis. Therefore, there are no account receivables. Accounts payable are
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also paid within 7-days.
The store’s net working capital for year 2012 is as follows:
Cash + inventories + accounts receivable – accounts payable
= $15,000 + $2,222 + 0 – $2,222=$19,444 this amount is not enough to run the store for one
year. Therefore, an Operating Line of Credit is required.
5.4. Cost of Capital
Capital budget, the total capital cost in 2012 is a major expenditure ($102,588) on equipment
and related items in the year of establishment, subsequent years have little additional capital
spending. As shown in Schedule 10 of the Financial Plan in the average capital cost
allowance (C.C.A.) or depreciation is 20% on all equipment. The items will be depreciated to
two-thirds of their original prices in five years.
5.5. Risk analysis
The risk analysis provides a list of critical success variables, which determine the success of
the Café in both short and long run. The critical variables are:
units of sales, selling prices,
supply and/or cost of direct material inputs. Units of sales and selling prices of the products
are the most critical success factors, while the cost of direct materials is important for
financial performance.
Both units of sales and selling price will determine if the shop will be financially feasible in
the long run. In addition, several intangible factors such as quality and the environment are
also equally important for success, as the Café will compete with other competing shops such
as Starbucks and Tim Horton’s.
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5.6. Financing Budget
The financial commitment will come entirely from an equity investment of $200,000 from
the owners Henry and Khalid.
5.7. Dividend Policy
Dividends will not be paid to equity investors as the managers are the owners of the business
and they get paid every month. However, we are going to increase our cash account and leave
it for potential expansion in the future.
5.8. Financial and Investment Analysis
Café Hut’s financial analysis is positive (schedule 12 in financial plan). The NPV shows a
value of $12,624 in future cash flows and net payback of $115,834. These are very positive
returns given an initial investment of $200,000. The expected return on this investment is
20%. And the internal rate of return is 23.8%.
6. Critical variables
In our business, there are three main critical variables.
6.1. Quantity of Sales
The first one is the quantity of sales. As a Café, we consider the quantity of sale as the most
important variable because basically all of our revenue is coming from our sales. As long as
Café Hut can hit certain level of quantity of sales, we will be profitable over time.
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6.2. Competition
The second critical variable is competition. Willow Grove area is thriving place in Saskatoon;
Café Hut will be under great pressure if big coffee shops such as Starbucks start stores in that
area before we become well known. In that case, people who purchase drinks to go may
choose them instead of us.
6.3. Word-of-Mouth
Last, the word-of-mouth is also very important for Café Hut. As we mentioned in marketing
section, Café Hut will focus on its in-store environment and premium service in order to take
advantages of word-of-mouth advertisement.
7. Conclusion
Taking into account all the factors we have analyzed above, we strongly believe that Café –
Hut has a great potential to become a successful specialty coffee shop in Willow Grove area
of Saskatoon. In particular, we deem that it is important to start up this business as soon as we
are ready because gaining sufficient market share in Willow Grove area before large coffee
shop chain open is very critical for Café – Hut.
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