Content
II. Environment Analysis & Internal resources to seek the PCS’s strategy
I.Case Overview
•Coffee culture emerged in China
•Coffee consumption growth in China >10%
•Potential
•Many competitors: Starbucks Coffee, U.B.C. Coffee↑¥15,000
by 2%
Year 2008
Shanghai Pudong —— China’s
financial and commercial hub
Li Wang —— has limited
business experience
Beverages and Food
•Low sales growth Rate
•At a loss in prior year
↓¥46,010
by 142%
II-1. External environment
A
Macro Environment (PEST）
 Economical factors
 Social factors
B
Industry Environment
 Five forces model
C
Business environment
SWOT
A. Macro environment (PEST）
Economical
factors
Social
factors
Rapid economic
growth
Huge
population
Changes in
the concept
of drinking
Shanghai
Pudong —China’s
financial and
commercial hub
Coffee culture
has emerged in
China
More foreigners
and culture
blending
☆ As we can see the economic and
social environment is favorable
B. Five forces model
· Low switching costs
· Low capital investment
· Lack of marketing
channel control
Barriers to entry the
market
-Comparatively high
customer loyalty
-The technology needed
· Many competitors
· High growth rate of
industry
· Low conversion cost
· Barrier to exit is not so high
· similar
products
· Similar
prices
· Low switching costs
· Alternative suppliers
· High demands in the
market
Not
mentioned
in the case
☆Competition situation is serious
C.SWOT Analysis
Strength
Superior geographical position
Steady source of customers
Weakness
Limited business experience
Similar products
Unskilled staff
Take-away sales
Online sales
High cost of sales
Opportunity
Threat
Coffee consumption in China
is growing fast
market share is potential
new market segmentation
Potential customers
Newcomers
price war
II-2. Internal resources
Tangible resources
Intangible assets
•Fixed assets：Furniture and fittings
•A very good reputation
•The manager has a deep understanding
of the European culture
Financial status
Debt paying ability
Asset management ability
Profitability
—Year 2009
Liquidity ratio
1.17
Quick ratio
0.96
Asset-liability ratio
53%
Equity ratio
112%
Number of times interest
earned
-42%
Inventory turnover
23
Asset turnover
1.05
Net profit ratio
-1%
Return on assets
-2%
Summary:
Through the above analysis we suggest that
the shop take the following strategy
Overall
strategy
Intensive growth
strategy
Competitive
strategy
focused-differentiation
strategy
In the next page we use Balanced
Scorecard to expatiate it
III. Balanced Scorecard
A strategic planning and management system
Vision and
strategy
i. Learning and Growth Perspective
Critical Success Factors
Key Performance Indicators
Working skills
Manager/staff learning hours per year
Corporate culture
Personnel turnover rate
Personnel management
Time to fill vacancy
Attractive Product
The frequency of new product introduction
•
Hold training programs regularly and set the least training hours per
year
•
Hold group activities regularly
•
Manager/executive attend to executive education course irregularly
•
Decision made by one person should be replaced with Brain Storm
Suggestions
ii.Internal Business Processes Perspective
Critical Success Factors
Excellent internal processes
Key Performance Indicators
The number of skilled staff
Work efficiency – average waiting time per customer
Comfortable environment and
atmosphere
Customer retention rate
Inventory management
Inventory turnover
•
Suggestions
•
•
Replace some PTE with FTE
Less than the
Average by
Refurbish the outlets to create a more comfortable environment
6%
Introduce new products with Chinese Feature
About 35% of other
coffee shops provide
wider product range to
improve their business.
iii. Customer Perspective
Critical Success Factors
Key Performance Indicators
Qualified services
Customer satisfaction/Number of customer complaints
Customer loyalty
Customer retention rate
Attract new customers
The new customers
Nearlyobtained
half of the
•
Suggestions
•
•
are between
The market customers
share
21-30Besides,
years old,
which
is of
about
30%
consistent
theshops
age
otherwith
coffee
of
office workers
increase
advertising to
improve
their business.
Set a suggestion box for
customers’
complaints and encourage the
adviser by coupon
Develop membership
- discounts.
While, programs
the customer
base of the Vouchers.little gifts for
special days… PCS —— local professionals and
expats
Carry through questionnaire survey
•
Attract the office workers nearby by developing “take-away” & network
business, which fulfill their needs
•
Attract new customers by advertising and promotion such as
distributing booklet and providing coupon
iv. Financial Perspective
Critical Success Factors
Key Performance Indicators
Keep the sales grow at a good rate
Sales Grow Rate
Control the operating cost of sales
Gross Margin Rate
Keep the cash flow reasonably and make
good use of the surplus
Overall cash flow
Investment Return Rate
Suggestions
•
Categorize the cost of sales by kind
•
Enhance the bargain capacity with suppliers
•
Consider the rationality of the assets depreciation policy
•
Make investment in facilities and innovations etc. which can
The revenue structure of
create future value
the Pudong Coffee Shop
is quite different from
others. To verify the
specific reason for low
GM, suggest to
categorize the cost of
sales by kind.
Strategy map— A tool for BSC
A logical, step-by-step connection between strategic objectives
Financial
Customer
Internal
Business
Processes
Learning and
Growth
Develop our
working skills
Develop corporateDevelop our
Improve strategy,
cultural attitudes capacity
governance and
to work together decision making
Improve internal Create the
processes
comfortable
environment and
atmosphere
Deliver quality
services
to customers
Provide
particularly
attractive
products and
services
Promote the
Pudong Coffee
Shop brand
Advocate with and Sustain the
Attract new
on behalf of
customer loyalty customers
customers
Improve strategy,
Develop
Develop our
governance and common attitudes
capacity
decision making
to work together
Develop our
skills
IV-1. Financial statements &Value evaluation
Price ↑3%
Volume ↑5%
Volume ↑5%
General inflation ↑4%
Fixed
General inflation
↑4%
Fixed
Under the
assumptions, the
PCS will have a profit.
IV-1. Financial statements - continued
Assumptions:
Inventory turnover rate
Trade credit terms
Same as Year 2009
IV-1. Financial statements - continued
Loss
↓
Cash flow
???
Assumptions:
No investing or additional
financing activities
As the depreciation cost is prepaid when
fixed assets were purchased.
IV-2. Break-even point Analysis
Variable cost
Cost of sales
Depreciation of tangible assets
Wages and remuneration
Rental
Cost
Mixed cost
Utilities (lighting and heating etc.)
Garbage collection
Advertising and promotions
Analysis
Fixed cost
Assumptions：
（1）Average spend per person is 50.
（2）consider the mixed cost as fixed cost
2009
BEP=(420,000+500,000+23,710)/50=18,875
2010
BEP=(458,640+508,720+20,066)/50=17,715
IV-3. The overall valuation of the coffee shop
Assumptions:
• As the consumption market in China was expanding at a rate
excess of 10 percent per annum, we assume that the sales growth
rate is 10%.
• Because the growth rate is 10% which is really high for a business,
we divide the life span of the coffee shop into two related periods,
within which, one is of high growth rate and the other is called the
follow-up.
• In the follow-up period, according to the competitive equilibrium
theory, the growth rate of sales roughly equal to the nominal growth
rate of macroeconomic, which is between 2%~6%. As China is highly
developing, we assume that rate is 6%.
•We assume that Li be able to borrow the loan with the same interest
rate .
• We assume that the growth of sales is smooth.
• Then we use the EVA method to value the shop.
•
Let the cost of equity equals the rate of net profit to equity.
IV-3. The overall valuation of the coffee shop
requity =net operation profit after tax/ Equity =38,435 /438,656=8.76%
rwacc  rdebt
D
E
 requity
V
V
=7%×180,779 /( 180,779 +438,656)+ 8.76% ×438,656/( 180,779 +438,656）
=8.25%
EVA (Economic Value Added )=net operation profit after tax-total capital cost
=38,435-438,656×8.25%=2,245.88
The value of the coffee shop
=Investment Capital +The Present Value of EVA
=681,000+ 2,245.88 /(1+8.25%)+ 2,245.88 ×1.1/(1+8.25%) ^2+ 2,245.88
×1.1^2/(1+8.25%)^3+ 2,245.88 ×1.1 ^3/(1+8.25%)^4+ 2,245.88 ×1.1^4/(1+8.25%)^5+
2,245.88 × 1.1^5/[(8.25%-6%) ×(1+8.25%)^5] = 799,864.8
V. Overall Summary
Urgent Task
Survival
Action NOW!
Take the suggestions to obtain a
profit & look forward to the future!