Sun after storm
A Case Study on Pudong Coffee Shop
Dream Chasers
Sun Yat-sen University
Manager:
Consultants:
LIU Mengning
ZHANG Wei
HUANG Peilong
PENG Weijian
Outline
A. Case Overview
B. Current Situation Analysis
C. Strategy Analysis
D. Utilization & Implementation
E. Net Cash Flow Forecast
•
A1 Storm before Sun
•
B1 A STORM Framework
•
C1 Strategy Positioning
•
C2 Strategy Map
•
D1 Learning & Growth
B •
S •
C
D2 Internal Process Perspective
•
D4 Financial Perspective
•
E1 Income and Cash Flow Forecast
•
E2 Break-even Point
•
E3 Overall Valuation
D3 Customer Perspective
Goal: To help Pudong Coffee Shop weather the STORM.
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
A1 Case overview
Social Conditions
Technical Conditions
Organizational Conditions
Revenue Conditions
Market Conditions
Strategy Analysis
Utilization &Implementation
Net Income Forecast
A STORM Framework Analysis
A SUN Solution
Net Cash Flow
Forecast
Case
Overview
B1
Current Situation
Strategy
Analysis STORM Framework
Analysis
Social Conditions
 Industry Retrospect:
Growing Coffee Consuming in China
 Broad Prospect:
Coffee: A symbol of fashion,
elegance and noble
 Huge gap in the market:
Chinese: 3 cups per year
American: 500 to 700 cups per year
Coffee has a blooming future in China.
Utilization &
Implementation
Net Cash Flow
Forecast
Case
Overview
B1
Current Situation
Strategy
Analysis STORM Framework
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Technical Conditions
Positive feelings
11.Relax and watch the world go by
Joyful
Comfortable
Satisfied
Common
11
5.Little waiting time
1.Wonderful
environment
5
1
2
2.Warm
welcome
Invalid
Bad
Awful
Negative feelings
12.magazines
3
3.Decoration
10
7
12
10.Taste and appearance
7. A variety of coffee
9
4
6
Higher price
4.Less flavor and background
music
13
9.Long time waiting for coffee
8
8. Employees, who are friendly , familiar with coffee
and professional in service
Customer Experience Flow- Process of Pudong Coffee Shop
Case
Overview
B1
Current Situation
Strategy
Analysis STORM Framework
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Organizational Conditions
• Company Structure
• Current situation
•Owned the coffee shop
Father
•Managed the shop without
salary and bonus from it
Son
Full-time
Employees
2 Persons
Part-time
Employees
• No training for the employees.
• No adequate performance evaluation.
Training and development of employee are urgent.
Case
Overview
B1
Current Situation
Strategy
Analysis STORM Framework
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Market Conditions – Customer Characters
Occupations
Time of
Consumption
Age
1.Professionals
2.International
students
3.Residents
Accessible
Young customers are
the majority
Target Market
Average expense of each customer
RMB 50
Average quantity of customers every day About 50
Lunch-time is the
busiest period.
Case
Overview
B1
Current Situation
Strategy
Analysis STORM Framework
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Market Conditions – Service Evaluation
Judging Criteria for Coffee Shops
(not listed in order of importance)
1. Beverages/food provided must be
of good quality
2. Décor, temperature and noise levels
3. Free WiFi
4. Friendly staff
5. Excellent customer service
6. Presentation of food and food
offering
7. Cleanliness and overall hygiene
8. Availability of space
9. Overall value for money
GE Matrix of Judging Criteria
Needed
improvement
Region
Sustained
advantages Region
high
Importance
of the criteria
5
3
9
7
low
8
6
2
low
Certain attention should be paid to Free
Wifi, Cleanliness and overall hygiene, &
Presentation of food offering.
1
4
high
Customers’ satisfaction
Of Pudong Coffee Shop
Case
Overview
B1
Current Situation
Strategy
Analysis STORM Framework
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Market Conditions – Competitors
Wages and remuneration
LOW
Depreciation of tangible assets
HIGH
Advertising and promotions
LOW
Wages , Advertising and Food
sales is weak compared with
average of Local Region
Ratio 
Pudong Coffee Shop
Average of Local Region
Beverage/drinks
HIGH
Food sales
LOW
Case
Overview
B1
Current Situation
Strategy
Analysis STORM Framework
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Revenue Conditions
Ratio
Liquidity
Activity
Profitability
Year 2008
Year 2009
Analysis
▪ Current ratio
▪ Quick ratio
▪ Net working capital
▪ 1.225
▪ 1.026
▪ 43000
▪ 1.169
▪ 0.957
▪ 35000
Good
▪ Inventory turnover
▪ Asset turnover
▪ 20.464
▪ 0.951
▪ 10.244
▪ 1.047
Good
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
Net profit margin
Gross margin
ROA
ROE
0.035
0.575
0.034
0.075
-0.015
0.548
-0.015
-0.033
Solvency
▪
▪ 2.125
▪ 0.61
▪ 0.422
▪ 0.1
quick ratio are near 1
Has adequate net
working capital
▪ Inventory turns over
at fairly high rate
Poor
▪ Made small profit in
▪
Poor
▪ Times interest earned
▪ Debt service coverage
▪ Current ration and
2008, but net loss in
2009
Decreased
profitability
▪ Interest payment was
quite large compared
with net income
Financial Situation: Poor profitability but good liquidity.
Case
Overview
C1
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Strategy Positioning
Intertype
Starbucks
UCC
Pudong
Coffee
Intratype
Italian-style
restaurant
Ice-cream
Café
Others
In the intertype, Pudong Coffee Shop has to
compete with various coffee shop. Thus,
Pudong Coffee Shop should cut down its
cost to jostle for the similar demanders.
In the intratype, Pudong Coffee Shop has to
satisfy the local customers. Thus, to
compete with other local family-owned
cafes, Pudong must find its own features
Cost Leadership FOCUS STRATEGY Differentiation
Enhance Profitability
Case
Overview
C2
Current Situation
Analysis
Strategy Map
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Use Balance Scorecard to Implement the strategy
Enhance Profitability
Differentiation
Financial
Perspective
Balance Gross
Margin Rate
Customer
Perspective
Boost
Market
Shares
Internal
Perspective
Cost Leadership
Boost Sales
Growth
Enhance
Customer
Satisfaction
Enhance Service
Level
Enhance Asset
Utilization
Retain
Customer
Loyalty
Wider Product
Range
Budgeting
Control
Continuous Improvement of Internal Process
Learning & Growth
Perspective
Increase Labor Productivity
Adjust Employee
Structure
Improve Employee
Competence
Enhance Employee
Satisfaction
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Utilization & Implementation
Measure Level
Indicators
Actual
Average in
Industry
Target*
Beverages/Drinks
28.5%
21.9%
22%
Food sales
26.3%
32.9%
33%
Sales Change from Prior Year
1.6%
5%
5%
Adverting Intensity
3.2%
5%
4.8%
Customer Value
Revenue Per Customer
5-
43.2
50
Satisfaction
Satisfaction Survey
>90%
87.2%
95%
Market Shares
Revenue/Total Consumption in the
Local
33.3%
33.3%
43%
Utilities as % of Total Revenue
5.2%
5%
5%
Utilities change from prior year
23.1%
15%
15%
Service Required
Revenue of take-away/total
>1%
N/A
10%
Employee Structure
Part-time staff/full-time
4
N/A
4
Employee Competence
Revenue/per employee
232,500
N/A
320,000
Employee Satisfaction
Satisfaction Survey
>80%
N/A
90%
KSF
Gross Margin Rate
Finance
Sales Growth
Customer
Operation
Learning
&Development
Budgeting control
To transfer KSF into targets using Benchmarking Approach
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
D1 Learning and Growth Perspective – Action Plan
Improve Employee Competence
Employee training plan
Train employees for at least 10
hours per month and invest ￥300
per month.
Performances recording
Rank the performance results and
give the best one 10% bonus
Enhance Employee Satisfaction
1.Salary
Basic Wage:2700
Use the Proportionate Commission related to
every customer serviced (3%)
2.Work Hours
Full-time employees: 8h is required.
Arrange them to 2 shifts:
8:00---16:00
Adjust Employee Structure
To employ one more full-time employee
Keep the current structure
14:00---21:00
Part-time employees: 6.5h is required.
Arrange them to 4 shifts:
Morning
8:00---12:30
Noon
12:30---14:30
Afternoon
14:30----18:30
Evening
18:30----21:00
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
D2 Internal Process Perspective - Action Plan
Purpose
Service
required
Save Utility
Targets
Action
Utilities as % of Total
Revenue: 5.2%
5.0%
Utilities change from
prior year:
23.1%
15%
• Redesign layouts
additional expense of ￥3000
• Bio-material and lower-wattage bulbs
• Energy-saving idea
• Personal responsibility system
• Encourage Take-away Service
Budgeting
Control
Boost Takeaway Rates
Take-away Rate:
>10%
<1%
• Reduce Customers’ Waiting Time
Check the waiting time though observing
• Provide Take-away Service to Passers-by
Set an employee particularly
In the morning (8:00-9:00)
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
D3 Customer Perspective - Action Plan
Enhance Customer
Satisfaction
Customer retention
and absorption
Boost Market
Shares
Provide light music
Found a member club
Do customer satisfaction
survey of 200 samples
every 3 month
Develop campus agent at
the cost of ￥300 per
month
Decorate the walls and
bar counter with ￥2000
to￥3000
Set ￥1000 to hold coffee
culture competition once a
year
5% off for old patrons’
bringing new customer.
Enhance Profitability
Develop 3 new types of
coffee flavor every 6
month
Provide 3 special offers
every week
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Enhance Profitability
D4 Financial
Perspective
Balance Gross
Margin Rate
Beverages
/Drinks
 Decrease the drinks’ price lightly to 3% to expend its sales.
Pay attention to the invest, develop 5-7 different types of
blend coffee
 Encourage take-away service with the budget of ￥2000
for packaging
Food sales
Increase the price to 5%
Develop 3 types of coffee every 6 months
Enhance the variety of breakfast, add 3-4 kinds of food
Sales Change
from Prior Year
Boost Sales Growth
Enhance Asset
Utilization
Consider all aspects when starting a renovation
Advertisement
Increase invest in marketing promotion and advertising to
and promotions
4.8%
as % of Total
Irregular preferential price with 20% off
Revenue
Depreciation of
tangible assets
Keep the depreciation rate
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
E1
Statement
for year ended:
E1Forecast
ForecastIncome
Balance
Sheet
Cash Flow statement for
year ended:
31st December
31st December
Revenue (beverages/drinks)
Operating(food
cash sales
flow )
Revenue
Goodwill
Operating
for year
Total
revenue profit
(food (loss)
and beverages)
Furniture
and fittings (net)
Add:
depreciation
Cost
of sales
31st December
2009
2008
31st
31stDecember
December
31stDecember
December 2010 31st December
31st
2010
2009
2008
2010
2008
¥
¥
¥
¥465,000
¥¥
¥¥
¥
427,800
485,000
641,700 400000.00445,000
450,000
400000.00
400000.00
60669.0 1,069,500
10,000930,000
61,000
915,000
164000.00
246000.00
328000.00
82,000.0
82,000
82,000
(441,000)
(389,000)
The forecast
of these
accounts
is(420,000)
based on the forecast
assumption
142,669.0
92,000510,000
143,000
628,500 44000.00
526,000
42100.00
38000.00
Gross
profit
Inventories
assumption
income
statement
Liforhas
made
andand
forecast
forother
2010.
balance
sheet.
Li has made
2010,
accounts
are predicted
Changes
in
working
capital:
Less Operating expenses:
Cash at bank
227700.00
198000.00 before. 196000.00
based on
the set targets mentioned
Less: Increaseofintangible
inventories
1,900.0
(6,000)(82,000)
(38,000)
Depreciation
assets
(82,000)
(82,000)
Total
assets
833800.00
962000.00
Wages
and remuneration
(130,000)
(110,000)
Add:
Increase
in trade payables
(14,869.0) (155,520) 888000.00
16,000
191,000
Rentalequity
(200,000)
(200,000)
111,331.3 (200,000) 418590.00
102,000
296,000
Owner’s
460890.30
432300.00
Utilities (lighting and heating etc.)
(53,475)
(48,000)
(39,000)
Keeping positive
net working 262410.00
capital is of importance,
which
Bank loan payable
180778.70
338700.00
Garbage
collection
(11,100)
(10,000)
(9,000)
Investing
activities
Nil
Nil
Nil
guarantees the healthy(51,336)
operation of the
company (25,000)
Advertising
Trade
payablesand promotions
192131.00
207000.00(30,000)
191000.00
Generalactivities:
and administrative expense(training and
Financing
Total liabilities
and owner’s equity
833800.00
962000.00 0
(14,400) 888000.00
0
development)
Repayment of loan includingWith
interest
(100,000) above, Pudong
(100,000)
all the (100,000.0)
implementation mentioned
Total operating expenses
(567,831)
(500,000)
(465,000)
=Overall cash flow (deficit) for year
29,700.0
2,000
196,000
Coffee
Shop
will
have
promising
net
income
in
2010
Operating
year
60,669
10,000
Withprofit
thefor
increasing
profitability, total assets and
owners’ equity
will enlarge61,000
Add: Opening bank balance
198,000.0
196,000
Nil
Interest
payable
on loansafter 2012 when depreciation
(18,368.7)
(23,710)
fast,
especially
of tangible asserts
finished (28,700)
Equals:(loss)
Closing
bank balance
227,700.0
196,000
Profit
for year
42,300.3 198,000(13,710)
32,300
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
E2 Break-even Point Analysis
Cost Behavior Analysis
Fixed cost: Depreciation, Rental, Utilities and Ad & Promotions
Variable cost: Cost of sales, Garbage collection
Mix cost: Wages and remuneration,
BEx= TFC/(p-VC)
Assumption:
Based
on the assumption
and
the analysis above ,we can calculate:
Labor
Equivalent
:
1
part-time
=
0.5
full-time
Assumption:
• In the year 2009, half of the sales volume comes from part-time employees,
Unit
cost
35half
yuan
Year
2009
and
the
other
comes from part-time ones.
(According
the case,
The averageiscost
a cup
coffee
these
Total
Fix cost(TFC)=82,000+65,000+200,000+48,000+30,000=￥425,000
•Half
of thetowages
and remuneration
fixedofcost.
Theofgraph
of in
cost
behavior of
international
chainsVolume(BEx)=425,000.00/(50-35)=
amounts
to between
wages and remuneration
is shown
below: Yuan 30 and 40.) ￥ 28,333
Break-even
Sales
of wages and
Thus, sales volume should be countedTheasformula
:
remuneration :
Year
2010
The
Year 2008: Sales Volume=￥915,000÷35=￥11,114.27
Total
FixYear
Cost(TFC)=
The
2009: Sales Volume=￥930,000÷35=￥12,000.00
82,000+65,000×1.2+20,000+53,475+51,336+14,400=￥479,211
Break-even Sales Volume(BEx)=479,211/(50×1.05-35)=27,383
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
E3 Overall Valuation of Pudong Coffee Shop
Period
• n=5
Net Cash Flow
Make forecast
cash flow
statement in the
next five years.
Discounted Rate
Choose the
interest rate of
long-term bank
loan 7% as the
discounted rate.
Assumption:
1. Free from going concern;
2. Run at the same growth rate of 2010 in the next five years.
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
E3
Statement
for for
the
Next
Five
Years
E3Forecast
ForecastIncome
Cash
Flow
Statement
the
Next
Five
Years
Balance
Sheet
for the
Next
Five
Years
Year
Year
2010
2010
¥
Revenue (beverages/drinks)
2011
2010
2011
¥
¥
¥
427800
2012
2011
¥2012
¥
491970
565766
975945400000 1122337 400000
42100
82,000
48339
82,000
Cash
bankexpenses:
Lessat
Operating
142,669
227700
225,267
368978
236,779565449
(82000)
899317
(82000)
1016206
Changes in working capital:
1229925
82000
(463050)
766875
1414414
236,779
0
(486203)
0
50756
928211
1626576
419,883
(510513)
0
1116063
¥
0 1870562
531,319
58370
(536038)
0
1334524
419,883 1012969 531,319
(82000)
833800
Less:
Increase
in inventories
Wages
and remuneration
1,900
(155520)
(6,239)
(189734)
(2,417)
(235271)
(7,613)
(296441)
(11,674)
(374112)
Add:
Increase in trade payables
Rental
(14,869)
(200000)
22,250
(200000)
(19,900)
(200000)
35,250
(200000)
11,487
(200000)
Owner’s
equity
Utilities (lighting and heating etc.)
460890
129,700
(53475)
BankGarbage
loancollection
payable
180779
(11100)
93433
(12321)
Advertising
Investing
activitiesand promotions
Trade
payables
General and adminstrative expense
Total liabilities and owner’s
Total operating
Financing
activities:expenses
equity
Nil(51336)
192131
(61496)
Nil
214381
Operating profit for year
Repayment of loan including interest
Interest payable on loans
=Overall cash flow (deficit) for year
Profit (loss) for year
833800
(567831)
591503
241,277
(61496)
(16560)
899317
(623608)
821725
214,462
(70721)
(13676)
0
(70721)
Nil
194481
(19044)
1016206
(691432)
0
1471339
1241608
447,519
(81329)
70044
0 2014144
531,132
(93528)
1772927
0
(16851)
0
(81329)229731
Nil
(93528)
Nil
241217
(21901)
(25186)
(15181)
1471339 (803205) 2014144
(696180)
60669
143267
236779
419883
531319
42300
130613
230222
419883
531319
(100,000)
0
1544100
TotalDepreciation
assets of tangible assets
(14400)
¥
¥
Inventories
Add: depreciation
628500
748225
400000
848648
143,267
Gross profit
650630
¥
60,669
(441000)
¥2014
¥
400000
737955
Total revenue (food and beverages)
Furniture
and fittings (net)
Operating profit (loss) for year
Cost of sales
2014
¥
400000
641700
1069500
164000
2014
2013
¥2013
¥
Goodwill
Revenue (food sales )
Operating cash flow
2013
2012
(100,000)
(100,000)
0
0
Increasing
totalfor
revenue
and
profit.
Satisfying
flow
the(6557)
next
five
years.
(18369) cash (12655)
0
0
141,277
114,462as the owner’s
447,519
531,132
Total assets29,700
rapidly increase
as well
equity.
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
E3 Overall Valuation of Pudong Coffee Shop
2009
￥
￥27,757
￥117,301
￥198,586
￥363,572
￥436,357
Total PV: ￥1,143,574
2010
￥29700
2011
￥134298
2012
￥243277
2013
￥476569
2014
￥612014
1/(1+7%)-1
1/(1+7%)-2
1/(1+7%)-3
1/(1+7%)-4
1/(1+7%)-5
NPV=￥1143574
Though the shop experience a financial storm this
year, it has a profitable future.
Case
Overview
Current Situation
Analysis
Strategy
Analysis
Utilization &
Implementation
Net Cash Flow
Forecast
Uncertainty
New Entrants in the local region
Mitigation:
Use CRM system to enhance
customer loyalty
Rapid Inflation
Mitigation:
Increase the price
Increasing Price of the
Materials
Mitigation:
Develop new non-coco
products
Summary
A. Case Overview
B. Current Situation Analysis
A STORM framework Analysis
Social Conditions
Technical Conditions
Organizational Conditions
Revenue Conditions
Market Conditions
C. Strategy Analysis
D. Utilization & Implementation
E. Net Cash Flow Forecast
Learning &Growth Perspective
Internal
Process Perspective
A
SUN Solution
Customer Perspective
Financial Perspective
Management Accounting Approaches such as Benchmarking and Balance
Scorecard are applied to help Pudong Coffee Shop go from storm to sun.
Thank You for Your Time!
Dream Chasers
Sun Yat-sen University