Business Plan For Second Cup Franchise
Edmund Mupondwa
Josephine McKay
Robert Daniels
Shankar Das
Outline
 Operations Plan
 Marketing Plan
 Financial Plan
Operations Plan
 Fresh Specialty coffee
 Cold Beverages
 Sandwiches and baked goods
 One Manager, one Full time, and four Part time
 High volume of traffic location
Location
Floor Plan
restrooms
Dining
Kitchen &
Storage
Service
Counter
Office
Average Business Day
 Manager opens store
 Administration and preparation
 Fresh Coffee is brewed
 Employee support arrives
 One full time shift
 Two part time shifts
 Manager assesses inventory throughout day and orders
Second Cup Daily Shifts
Manager
Full Time Staff
Part Time Staff
Monday
6am - 10am
8pm - 10pm
6am - 1pm
7am- 3pm (1)
2pm-9:30pm (2)
Tuesday
6am - 10am
8pm - 10pm
6am - 1pm
7am- 3pm (1)
2pm-9:30pm (2)
Wednesday
6am - 10am
8pm - 10pm
6am - 1pm
7am- 3pm (1)
2pm-9:30pm (2)
Thursday
2pm-10pm
6am - 1pm
7am- 3pm (1)
2pm-9:30pm (2)
Friday
2pm-10pm
6am - 1pm
7am- 3pm (1)
2pm-9:30pm (2)
Saturday
6am - 10am
6pm - 10pm
10am -2pm
7am- 3pm (1)
2pm-9:30pm (2)
Sunday
6am - 10am
6pm - 10pm
10am - 2pm
7am- 3pm (1)
2pm-9:30pm (2)
Capital Budget
Capital Budget
Equipment:
Full Size Refrigerator
Mini Refrigerator
Freezer
2 Blenders
10 Table ($300 per), 40 Chairs ($60 per)
Cups (36 tall: 36 short)
Plates (36: 6.5 inch)
Silverware
2 Coffee Maker (dbl)
Espresso Machine
Cappacino Machine
Frozen Drink Machine (dbl)
Coffee Grinder
Frothing Pitchers
Dishwasher
Cash Register (2)
Pastry Display Case
Refrigerated Deli Case
Office Equipment
Total Capital Costs
2008
2,500
600
3,500
2,000
5,400
160
35
4
6,000
10,000
1,500
2,200
1,100
130
3,800
5,000
209
2,748
3,098
49,984
2009
80
18
98
2010
2011
2012
2013
80
18
1140
80
18
80
18
80
18
98
1,238
98
98
Operating Expenses
Operating and Marketing Expenses
Advertising Royalty
2008
2009
2010
2011
2012
2013
52,785
59,457
66,972
75,438
84,973
95,714
9,285
9,285
9,285
9,285
9,285
9,285
30,000
30,720
31,457
32,212
32,985
33,777
Insurance
5,000
5,120
5,243
5,369
5,498
5,629
Repairs & Maintenance
4,950
5,069
5,190
5,315
5,443
5,573
15,000
15,360
15,729
16,106
16,493
16,888
127,728
128,730
160,951
174,190
187,971
202,313
52,785
59,457
66,972
75,438
84,973
95,714
250
40
40
40
40
40
27,500
-
-
-
-
-
1,200
995
775
536
278
0
326,483
314,233
362,615
393,928
427,938
464,934
Local Advertising
Rent ($30 @ 1000)
Telephone & Utilities
Compensation
General Supplies
Incorporation Fees
Franchise Fee
Interest on Long Term Debt
Total Expenses
Human Resources
 Entry level positions
 Shift work
 Happy, energetic, and committed
 Customer service
Organizational Structure
Owner and
Operator
Mary Hatch
Full Time
Ken Hatch (coowner
Part time
Part time
Part time
Part time
Marketing Plan
 Canadians drink over 15 billion cups of coffee a year, making coffee Canada's favourite
hot beverage
 Per capita consumption of coffee increased from 4.27 kg (beans) in 1990 to 4.52 kg in
1999
 The average coffee drinker consumes three cups per day
 Of all coffee consumed
 74% is roast and ground
 20% is instant
 6% is specialty
 Decaffeinated coffee represents 9% of total coffee consumption
 About 90% of Canadians drink tea and consume about 7 billion cups per year.
Projected Growth in Coffee Sales
 The specialty coffee sector accounts for 15% of the retail coffee market
 In the US, the retail coffee market recorded a growth of 157% in value between
2000 and 2005:
 2000 = $3,258 million
 2005 = $8,372 million
 This growth was driven by American consumer demand up-market and premium-
priced coffees
 Projected growth in coffee sales: 2005-2010 = 127%
$3,258 million
$8,372 million
$18,839 million
Specialty Coffee Demand Factors
 Coffee quality rather than price, customer demand, or convenience of supply is
considered to be the principal criterion for industry purchasing decisions
 According to the International Coffee Organization (ICO), most potential
specialty coffee markets are far from saturated
 Specialty coffee sales continue to expand by 5% to 10% per year
 The North American specialty market represents one of the largest and most
vibrant coffee markets in the world
 Second Cup has an opportunity to benefit from this market.
Competition
Product Competition
 Coffee and tea beverages compete with a variety of other beverages including flavoured soft drinks, milk, fruit
juices, bottled water, vegetable juices, soy beverages, hot chocolate, low alcohol wine coolers, and ciders
.
Direct Competitors
Second Cup faces direct competition from:
 Starbucks
 Tim Horton’s
 Locally-owned coffee shops:
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The Broadway Roastery,
The Co-op
Local restaurants.
McDonald’s and other fast food chains such as Dairy Queen, Burger King, and Subway.
Convenience stores such as 7-Eleven also provide direct competition.
Indirect Competition
 Supermarkets (Safeway)
 Purchase whole bean coffees directly from suppliers
 Indirect competition by enabling consumers access to specialty coffee for home consumption.
Customers and Target Markets
 Second Cup will be located at the new University Heights Shopping complex
called The Village Square.
 Home to one of Saskatoon’s fastest growing parts of the city
 Population of 30,000
 Expected to more than double to 62,000 by 2015
 These areas include Erindale, Silverspring, Arbor Creek, and the new
Willowgrove estate
 Willowgrove is an exciting new neighbourhood:


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Homeownership = 93.5%
Average value of dwelling = $218,357
An average family income = $81,774
Average household size = 3.2.
Location

The Village Square includes a strip mall with street-front coffee shops, boutiques, and other retail and community services.

Two elementary schools (Forest Grove School and St. Volodymyr School)

Two high schools (St. Joseph High School and Centennial Collegiate), with an additional high school recently announced.

This location is adjacent to the world class new SaskTel Indoor and Outdoor Artificial Turf Soccer Centre.

The SaskTel Soccer Centre is a great magnet for ancillary business development in this area.

Since 1998, the SaskTel Soccer Centre has been home to more almost 10,000 soccer players.

Provincially, Saskatchewan Soccer Association enjoys approximately 30,000 members including players, coaches, referees, managers,
administrators, clubs, leagues, and districts.

There are approximately 178 adult teams in the indoor season alone, or over 4,200 adult games.

There approximately 200 youth teams with over 8,000 youth games. There are 7,000 registered players in Saskatoon.

Second Cup is quite confident that it has identified a location that provides an important prerequisite for success when it comes to the food
service business.

This location offers has great visibility, high traffic pattern, convenient access, established retail shops in the area, enabling Second Cup to
consolidate its already well-known brand supported by its well-known line of fresh African, Colombian, and Brazilian coffee beans and other
beverages served in cleanest equipment, premium serving containers, and consistent flavours.
Product and Service Features
Second Cup’s franchise products are well established.
Its product line has also grown from simple whole bean coffee to more than 30 premium coffees
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Line 1: Specialty Coffee & Lattes
Line 2: Flavoured Lattes
Line 3: Specialty Tea
Line 4: Hot Chocolate
Line 5: Hot Milk Steamers
Line 6: Cider
Line 7: Soda
Line 8: Blended Sensations
Line 9: Creamy Fruit Smoothies
Line 10: Coffee Chillers
Line 11: Chocolate Chillers
Line 12: Tea Chillers
Line 13: Chocolate Vanilla Chillers
Line 14: Athletic Power Smoothies
Line 15: Specialty dry cake, desserts muffins, pastries, sandwiches
Product Quality
Second Cup prides itself for product quality based on the authentic sources of its coffee beans.
It will offer highly differentiated coffee blends sourced from prime coffee growing regions.
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Ethiopian Limu Roast
Rwandan Cup of Hope Roast.
Asian blends such as Sumatra Mandheling,
Latin American blends La Minita Tarrazu from Costa Rica
 La Minita Tarrazu is exclusive to Second Cup in Canada.
 La Minita Tarrazu is one of the most carefully processed and highly sought-after coffees in the
world
 Others are:
 Panama (El Toucan),
 Brazil (Fazenda Vista Alegre),
 Colombia (San Agustin and Colombia Supremo; Continental Dark, Colombian Supremo Swiss Water
Decaf)
 The Decaf blends are gently decaffeinated using a 100% chemical-free method of
decaffeination without removing the coffee flavour
 Multi-region blends are intended to integrate flavours from the four regions.
Pricing Strategy
 Second Cup prices will be competitive and comparable to major
competitors such as Starbucks and Tim Hortons
 Highly differentiated nature of its product based on product origin
and target, location advantage, and image will provide distinctive
value-added benefits to Second Cup customers
 Pricing structure is confidential for now
 Credit terms will be offered only in the form of valid credit card
purchases such as Visa or MasterCard
Promotion Strategy

Product launch – introduce inaugural First Second Cup Soccer Tournament

Low cost but effective advertising and promotion campaign and forge strong relationships with the Saskatoon Soccer Association,
schools, charitable organizations, civic organizations, and corporations by offering programs that support Saskatoon communities

Advertise in the local newspapers, direct mail ads

A "frequent drinkers club" discount

Second Cup merchandize will be offered at the store and via the web site. These include coffee mugs, soccer balls, caps, T-shirts,
bunny hugs, sweatshirts.
Marketing Expenses
Advertising Royalty
Local Advertising
Total Expenses
52,785
59,457
66,972
75,438
84,973
95,714
9,285
9,285
9,285
9,285
9,285
9,285
62,070
68,742
76,257
84,723
94,258
104,999
SWOT ANALYSIS
Strengths (Internal Factors)
 Strong brand identity
 Canadian leader, with more than 400 coffee houses, 43 of them in
Quebec
 Robust financial performance
 Large scale of operations
 Agreements with Air Canada, Via Rail and Delta Hotels, under
which it serves over 26 million cups of coffee a year
Weaknesses (Internal Factors)
 Second Cup prefers franchises or owner-operators who pay royalties on sales.
Owner-operators may have difficulty raising required start-up equity financing,
unlike Starbucks which usually prefers to set up company-owned outlets,
sometimes in partnership.
 Second Cup has signed a long-term agreement with a coffee multi-national for
supply of coffee beans. Competitors like Van Houtte and Starbucks have their
own roasting plants.
 Narrow product mix. Any reduction in consumer consumption of coffee for any
reason would have a negative impact company’s performance. High
dependence upon a single product represents a commercial risk
Opportunities (External Factors)
New markets
Growing specialty coffee market
Growing demographic segment in new location
Prime location close to highly visible and active
residential area
 New health benefits of coffee
 Organic coffee segment
 Speciality teas expected to attain strong sales growth.
Currently, specialty teas account for only a small share of
consumer purchases.
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Opportunities (External Factors)

Intense competition from established players like Starbucks:
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Over 13,000 locations in 39 countries
More than 44 million customer visits per week
Revenues of $7,787 million in 2006 against its competitors like Diedrich Coffee ($59.5 million) and GMCR ($225.3 million) during the
same period.
Large economies of scale provide a cost advantage to Starbucks in the marketplace and pose a threat to Second Cup

Highly volatile coffee commodity prices

Coffee industry faces social and environmental concerns associated with coffee supplies, including child labour in
developing countries and exploitative prices paid to developing country coffee producers. Corporate image can be eroded.

Emergence of low cost of brewers such as coffee presses (Bodum), mocha coffee-makers and filter coffee systems (Melitta)
will likely influence the purchase of whole beans and speciality coffees by prime target market of the 18 – 50 year age group.

Rivalry reaction from multinational coffee companies (e.g. Kraft and Nestlé) who have implemented a strategy to reposition
themselves more aggressively in the gourmet coffee market. The sale of coffee beans in grocery stores from major-league
players like Kraft, Proctor & Gamble (Folgers) and Nestlé.

Kraft and Starbucks announced the formation of a long-term partnership to sell Starbucks brand coffee beans and ground
coffee in stores throughout the U.S. and possibly internationally.

Strong competition and market leadership in the tea segment by the multinationals such as Unilever and Nestlé that
dominate the market. (Unilever and Nestlé).
Financial Plan
Sales, Gross Margin, Net Income
1,200,000
1,000,000
800,000
Sales
600,000
Gross Margin
Net Income
400,000
200,000
2008
2009
2010
2011
2012
2013
Operation Expenses
500,000
450,000
400,000
350,000
300,000
Marketing
Compensation
250,000
Operating
Interest on LT Debt
200,000
Total Expenses
150,000
100,000
50,000
2008
2009
2010
2011
2012
2013
Summary of
Financial Results
Year
2008
2009
2010
2011
2012
2013
Sales
527,850
594,570
669,724
754,377
849,730
957,136
192,948
222,141
250,220
281,847
317,473
357,602
334,902
372,429
419,504
472,530
532,257
599,535
326,483
314,233
362,615
393,928
427,938
464,934
8,420
58,196
56,889
78,601
104,319
134,601
1,389
9,602
9,387
12,969
17,213
22,209
7,030
48,594
47,502
65,632
87,106
112,392
Cost of Goods Sold
Gross Margin
Expenses
Income Before Taxes
Income Taxes
Net Income(Loss)
Net Present Value of Equity Investment 176,326
Internal Rate of Return on Equity Investment at 20% 94.4%
Risk Analysis
Break -Even Net Income
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
391
430
473
520
Net Income
572
630
Net Income
Net Income
140,000
120,000
100,000
80,000
60,000
40,000
20,000
400
440
Net Income
484
Cash on Hand
532
586
Dividends
644
Long Term Debt
LT Debt
140,000
120,000
100,000
80,000
60,000
40,000
20,000
400
440
Net Income
484
Cash on Hand
532
LT Debt
586
644
Questions?
Thank You,
Edward Mupondwa
Josephine McKay
Robert Daniels
Shankar Das