Maryan Matloub 1
Lab #2 - Joe’s Java Case Preparation Questions
1. What is the immediate issue of the case?
The immediate issue of the case is that Joe’s Java’s profit has been stagnant for 3
years, despite the fact that Joe’s profits have experienced healthy growth in the first 4
years of opening his coffee shop. As outlined in Exhibit 1, Joe’s total revenue has been
increasing significantly in the first 4 years. However, after the 5th year, Joe’s total
revenue has experienced revenue growth of <1% (less than 1%).
2. Look at Exhibit 1 of the case and identify 3 interesting insights about Joe’s
that are relevant to the problem or the solution.
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● Joe’s net income has been decreasing after 2017 and it continues to drop further.
● The total cost of sales has been increasing since the start of his business, and it
continued to increase throughout the last 3 years despite the steady profitability.
● Joe has cut back on advertising expenses in the last 3 years, and it has been
only accounting for 1.7% of his revenue as compared to 3.0% for the rest of the
industry.
3. What are the models/concepts/theories that apply to analyze/explain the
problem and/or develop a solution?
sh
Th
● Diamond-E Model
○ Management Preferences:
■ Joe prefers to stick with filter coffee with interesting flavours rather
than having generic coffee types and flavors. This is because Joe
believes that the high costs and employee training that is required
is not worth the purchase of equipment for fancier coffees.
■ Joe sells his coffee at competitive prices - not as expensive as
Starbucks but not as inexpensive as regular one-flavor filter coffee.
■ Filter coffee is the one of the only beverages sold at Joe’s Java espressos, cappuccinos, baked goods are not on the cafe’s menu.
○ Organization:
■ The company is organized in such a way that Joe is delegated as
the business owner/manager of the company who has recruited 2
full-time and part-time staff.
■ Joe and his employees all built close relationships with customers
and they truly cared about the success of the business.
■ Joe and his employees considered each other family - therefore
they have corporate culture.
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Maryan Matloub 2
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○ Resources:
■ In terms of human resources, Joe’s Java has 4 employees in total,
2 of which work part-time, and 2 who work full-time.
■ In terms of capital resources, the cafe is a small restaurant space
leased by Joe, that is located in the center of the Toronto Beaches
neighborhood.
■ In terms of financial resources, the cafe is making steady profit, but
not enough to purchase better coffee equipment.
○ Strategy:
■ Joe’s strategy is to rely on filter coffee with interesting flavors to
build profit.
■ Joe’s aim is not necessarily to grow big, but he wanted to keep up
with profit growth of his competitors.
■ Joe relied on building meaningful relationships with customers to
drive profit rather than improving menu options.
○ Environment:
■ Joe’s cafe is located in the heart of the Toronto Beaches
neighbourhood on Queen Street, a unique, middle-income
neighbourhood filled with small shops and local establishments with
one-of-a-kind window displays and merchandise.
■ The community is a fairly lively and interesting one, as residents
liked to meet for coffee at local cafes and connect socially with their
friends and the shop owners.
■ Down the street lies a Starbucks and a bakery, which residents
often visit as well.
sh
Th
● Porter’s Five Forces
○ Rivalry among existing competitors
■ Joe’s cafe is currently competing with Starbucks that is across the
street from Joe’s.
■ Starbucks is a much more well-known and reputable coffee shop
and it owns a much larger share of the market than Joe’s cafe does
- this also means that consumers are more loyal to Starbucks’
brand.
■ In terms of growth rate in the industry,coffee and beverages are
more profitable than food items. Additionally, customers regularly
stroll through the neighborhood and look for small cafes to go to
with their friends.
■ Starbucks sells beverages ranging from cappuccinos to iced lattes
to lemonades to smoothies, as well as a variety of baked goods in
comparison to Joe’s cafe which only sells filter coffee with a few
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Maryan Matloub 3
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○
flavors. Therefore, product differentiation between Starbucks and
Joe’s Java is quite significant.
Threat of new entrants
■ Cumulative experience is a necessity when it comes to the coffee
shop market, because Joe started his business when he wasn’t the
most knowledgeable about starting a company. Although
profitability was prevalent for the first 4 years, Joe is now struggling
to grow his profits, therefore, experience is needed to succeed in
this market.
■ In terms of capital requirements, it isn’t too difficult to lease a small
space in the neighborhood, however leasing and insurance costs
are high which may act as a barrier for new entrants.
■ The biggest threat to new entrants in the cafe market is Starbucks
due to the immense brand loyalty that exists between the brand
and the consumer.
Bargaining power of suppliers
■ While Joe relies on a single coffee supplier for his cafe, Starbucks
relies on a large number of suppliers to bring their coffee to the
store.
■ Starbucks’ supplier product is unique in its coffee/beverage type
and flavor which can overshadow Joe’s coffees.
Threat of substitute products
■ The substitute products available are the food and beverages sold
at Starbucks, and the baked goods sold at the bakery down the
street.
■ Consumers may substitute buying filter coffee from Starbucks to
buying it from Joe’s due to the discrepancy of prices.
■ However, despite the affordability of Joe’s coffees, some
consumers may value quality and choice over price, therefore a
drink from Starbucks may substitute a coffee from Joe’s.
Bargaining power of buyers
■ The neighborhood receives a decent amount of customers as
residents like to stroll down the street with family/friends and grab a
coffee from one of the cafes.
■ Because of this, the size of consumer’s orders are not big, as they
only consist of a coffee/beverage plus a sweet delight/baked
product.
■ Since it is a middle-income neighborhood, residents look for items
that are moderately priced - not too expensive but not too cheap to
balance price and quality of products.
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4. What is the underlying issue? Use an issue tree to decompose the
problem.
The underlying issue is that Joe’s Java is unable to meet customer’s needs and wants.
Profitability
Reven
ue
Price
Volume
Immediat
e Issue
Cost
Fixed
Variabl
e
The coffee’s priceNot as much
is average
customers as
This price makes Starbucks
them more
Low customer
competitive to
purchases Starbucks’ coffeesthey might be
Joe’s prices is
unaware of the
what may drive Joe’s cafe
consumers to his Limited coffee
cafe rather than flavor variety
visiting Starbucksdrive
customers to
seek
substitutes
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Rent costs Employee wages
are high
are higher than
Insurance average
costs are
Cost of goods
increasing sold are fairly
Underlyi
The location high
ng Issue
of Joe’s Java Decreasing these
in the
costs means Joe
upscale
can spend more
Beaches
money on
area of
advertising for
Toronto
example
account for
the high
costs Joe is trying to achieve with his decision
5. What are the outcomes/objectives
- i.e., are there any good solutions that will satisfy the following objectives?
(Hint: consider case facts and course concepts).
sh
Th
Joe is trying to achieve:
● Increased profitability
● Increased number of customers
● Increased coffee/beverage/food variety
● Building meaningful customer relationships
Some good solutions to achieve these objectives are:
● Partnering with the bakery next door
● Expanding the menu to a wider variety of coffees, beverages and food items
● Training and recruiting more employees so they are better able to handle coffee
equipment
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● Creating social media pages on Joe’s Java to advertise their cafe/hiring a
marketing team to spread consumer awareness
6. What are the alternatives given in the case? Are there any other
alternatives you can think of?
The alternatives given in the case are selling the shop, keep doing what Joe is already
doing with the business and adjusting his product offering to include a wider variety of
coffees and/or bakery products. The alternatives I would give are to open patio seatings
outdoors in the warmer months, and to administer deliveries through delivery services
like Uber Eats for example, and to set up a Drive Thru for customers that are always on
the go.
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7. What assumptions, if any, are you making?
● It is assumed that Starbucks is the only cafe that competes with Joe’s Java in
their neighbourhood.
● It is also assumed that the population in Joe’s neighbourhood has not increased
in size.
● It is also assumed that customers are less likely to visit Joe’s cafe due to the
wider coffee variety offered at Starbucks.
Analysis:
List the answers you came up with in answer (6) across the top of the chart, and the
alternatives you listed in answers (4) and (5) in the first column. Briefly note how each
alternative compares to the rest on each decision criterion.
Alternatives
Decision Criteria
Increased
number of
customers
Increased
coffee/bevera
ge/food
variety
Building
meaningful
customer
relationships
Partnering with
the bakery
Yes
Yes
Yes
Yes
Expanding menu
items
Yes
Yes
Yes
Yes
Training/recruiting
No
No
No
Yes
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Th
Increased
profitability
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Maryan Matloub 6
more employees
Yes
Yes
No
No
Offer patio
seating
Yes
Yes
No
Yes
Offer delivery
services (Uber
Eats)
Yes
Yes
No
No
Set up a Drive
Thru
Yes
Yes
No
No
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Working on
advertising/marke
ting
8. What solution do you recommend? What are the best, worst, and expected
outcomes of your recommendation?
I recommend that Joe invests in cappuccino and espresso machines in order to
diversify the coffee options on the menu. Another recommendation is partnering with the
bakery down the street because the partnership is what will enable Joe to have
sufficient funds for the new coffee machines.
● Best outcome: Joe’s Java’s revenue exceeds that of competitors and profitability
increases.
● Worst outcome: The partnership may be unsuccessful and consumers remain
reliant on Starbucks’ coffees and baked goods.
● Expected outcome: There will be more customers at Joe’s cafe, however the
revenue may not compare to Starbucks’ revenue.
Th
9. What could go wrong that would make your solution difficult to implement
or not satisfactory? What would you do in that situation?
sh
The partnership may be costly initially, which can impact the prices of products sold at
the cafe. The price of coffees may increase slightly on the short-term which can drive
consumers away from the coffee shop, defeating the purpose of forming the
partnership. In this situation, prices of goods can be lowered as consumption rates drop.
Another hurdle could be the fact that the bakery may not choose to partner with Joe’s
Java as they might deem it as not beneficial for their business. If this is the case, Joe
can rely solely on new machinery to yield profit.
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Maryan Matloub 7
10. What steps should Joe take immediately, in the short-term, and in the longterm to implement your recommendation?
In the short-term, Joe can visit the bakery and negotiate an agreement that benefits and
promotes both businesses equally - they can both input equal contributions for this
partnership. In the long-term, Joe can make use of the revenue generated from the
partnership to invest in cappuccino and espresso machines and employee training.
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11. How will your recommendation affect Joe’s financial performance? What
items would you expect to change (and in what direction) as the result of
implementing your solution? What other effects might your
recommendation have on Joe’s Java?
sh
Th
My recommendation will significantly improve Joe’s financial performance, as it would
increase revenue and Joe can attain profitability growth once again. Although it may
increase costs in the beginning, partnering with the bakery is a decision that is
beneficial to both parties. Since Joe would be working jointly with the bakery, costs and
revenues will be reduced as they would be split evenly between the two businesses,
however profits will still rise because they would have a much larger number of
customers combined than they would have had individually. In addition, the company
would build its reputation in a positive light, as product variety would increase and so
will customer loyalty, therefore the company’s value will grow greatly.
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