Presented by: Tahir Amlani Kristen Boese Adele Capjack Amy
Luchkovich Lindsey Marofke Casey Paulhus Slide 2 Agenda Industry
and Company Overview Operations Plan Human Resources Plan Marketing
Plan Financial Plan Conclusion Slide 3 60% of adults in Ontario
drink coffee daily and about 16% of adults will purchase coffee
daily Sales forecasted to grow by 6% after 2011 Markham, Ontario is
expected to increase from 287,000 to 386,000 residents by 2021
Slide 4 The Company Well-known brand name Largest Canadian-owned
specialty coffee retailer with 360 cafs Mission Statement Second
Cup strives to be the model for the quintessential, convenient
Neighborhood Coffee Shop by supporting and promoting positive
social interaction in the community In doing so we open our doors
to invite people from the surrounding area to meet, organize, and
get to know one another as a community Slide 5 Short-term Goals
Acquire necessary financing Become knowledgeable about Second Cup
operations and procedures Obtain and train competent, hardworking
staff Build reputation in the community Year 1: Create community
awareness of new franchise location to obtain 50% of potential
customers Year 2: Begin realizing profits Year 3: Achieve 2% market
share Slide 6 Long-term Goals Build a sustainable business that
provides financial support for Ken and Mary Maintain healthy
positive economic profits and cash flows Foster a loyal customer
base Sustain lasting presence in the community by building
relationships with local organizations and people Slide 7 Slide 8
Benefits of Franchising The Second Cup business model has proven to
be successful Established customer base and brand reputation
"Coffee College Minimal start up costs and guesswork involved
Established suppliers Ongoing sales and marketing assistance
Ongoing research development Site selection "My Second Cup
experience has incorporated the best of both worlds for me it has
given me an opportunity to be my own boss while providing me with
the franchisors invaluable support" - Shelly Sunderji, Slide 9
Disadvantages of Franchising Restrictions imposed They have a
proven strategy and have developed best practices in the industry
Ongoing costs 9% royalty fee Advertising is consistent and
effective Slide 10 Operations Sale of whole beans, merchandise and
pastries Sale of beverages produced Coffee/teas/ciders Specialty
coffees/hot chocolate Blended drinks Customer service Slide 11 Cost
of Sales Per unit gross margin ($) Specialty Coffees / Hot Choc
Coffee, Tea, Cider Blended Drinks Pastries Coffee Beans and Merch
Selling price per unit4.002.004.002.0015.00 Direct materials: Base
inputs (coffee, tea bags, powders, baked goods)0.15 0.201.005.25
Added inputs (syrups, whipped cream, milk)0.600.000.600.00 Lids,
Cups and coffee jackets0.25 0.300.00 Cost of sales per
unit1.000.401.101.005.25 Per unit gross margin direct materials
3.001.602.901.009.75 Gross margin % 75%80%73%50%65% Direct
labor0.55 Per unit gross margin2.451.052.350.459.20 Gross margin %
61%53%59%23%61% Slide 12 Summary - Capital Budget and Working
Capital Description*Total Cost ($) Capitalized Assets Equipment and
appliances 58,300 Furniture and Fixtures 46,800 Office 2,700 Total
Capitalized Assets107,800 Working Capital Cash192,700 Accounts
Receivable0 Inventories1,584 Accounts Payable(7,335) Total Working
Capital186,949 Total Capital Costs$294,749 *All purchases available
from suppliers in Marham, Ontario Slide 13 Till Staff Washroom Mop
Closet Mens Washroom Womens Washroom Drive-thru Storage Office
Cooler Blender, syrup ice machine, fridge Coffeemakers/ Italian
sodas/Sink Products Condiment Bar Bean Display Entrance Patio Couch
Fireplace Chair Couch Booths Food display case Tills Barista
machine Tables and chairs Floor Plan Slide 14 Slide 15 Slide 16
Slide 17 Slide 18 Second Cup Mary Hatch Manager/Owner Ken Hatch
Manager/Owner Sales associate / Barista Organizational Structure
Slide 19 Management Team Ken and Mary Hatch Ken Hatch Prior
experience Local high school caretaker (20 years) Managerial
expertise Responsibilities Administration Financial Marketing /
Promotion Slide 20 Management Team Ken and Mary Hatch Mary Hatch
Prior experience 8 years experience in coffee shop Various duties:
coffee equipment use, opening/closing procedures, customer service
Responsibilities Operations manager Staff Hiring, training,
evaluation Adherence to standard operating procedures Staff
scheduling Ordering of supplies Slide 21 Management Team
Pre-approved by Second Cup Management training Coffee College
Online e-learning training modules Slide 22 Support team Franchisor
Accountant Lawyer Investors (bank) Provide guidance and direction
Slide 23 Management Team Success (MTS) Experience + Training +
Support = Success Slide 24 Recruitment and Retention Compensation
Minimum wages Increased pay for key-holding employees Free coffee
Weekly expense account for non-coffee products Yearly account
increase Scholarship opportunities for students Paid training
programs Holiday pay Slide 25 Recruitment and Retention Friendly
culture / customer focus Focus on student recruitment Slide 26 Job
Descriptions Sales Associate/Barista Serve the "World's Greatest
Coffee" Cash handling Daily cleaning duties Entertainment of guests
with Barista Flair and positive energy Slide 27 Training Programs
Sales Associate/Barista Certified Sales Associate exam Barista
qualifications Customized customer care program On-the-job training
Opening/closing procedures Coffee equipment training Cash register
procedures Online e-learning training modules Slide 28 Compensation
Management Yearly salary of $30,000 Sales Associates/Baristas $9.50
per hour $11.00 per hour for key-holding employees Free coffee
Weekly expense account Paid training programs Holiday pay Slide 29
Human Resources Costs Slide 30 Products Coffee/tea/ciders Specialty
drinks/hot chocolates Blended drinks Beans and merchandise Pastries
Slide 31 Prices Set by head office No power to change prices
because of franchise Selling prices Specialty coffees/Hot chocolate
$4.00 Coffee/Tea/ Cider $2.00 Blended Drinks $4.00 Pastries$2.00
Coffee beans, merchandise $15.00 Slide 32 Promotion Head office
promotions covered by royalty fee In-house promotions Grand opening
Free drink trials Print advertising for grand opening Sponsorship
of local sports teams Other donations where possible Community
donations of leftover product Slide 33 Place Suburb between the
business community and an affluent residential neighborhood
Business people and residents with high disposable income can be
targeted Convenient location to attract commuters and draw local
residents Free standing store with drive-thru Slide 34 Segmentation
Two segments: residents and business people Average income level
higher in Markham Slide 35 Slide 36 Targeting Business community
and local residents coffee drinkers 1/50 = 2% market share
Residents of Markham287,000 Residents under 19(60,000) Adult
population227,000 Daily coffee drinkers Ontario 60% Coffee
purchased at eating places 16% Potential daily customers 21,792
Number of competitors50 Daily customers per establishment 436 Days
open for business362 Yearly customers157,774 Year12345 % of sales
46%75%100% Slide 37 Sales Quantity of sales Specialty Coffees, hot
chocolate 35% Coffee, tea, cider 45% Blended drinks 25% Pastries
20% Coffee beans, merchandise 2% Slide 38 Competitive analysis Two
groups: Basic coffee retailers: Tim Hortons, McDonalds, convenience
stores, etc. Specialty coffee retailers: Starbucks, independent
coffeehouses Basic coffee retailers not considered to be a close
substitute Personal taste, brand recognition play role in customer
loyalty Slide 39 Competitors in Close Proximity Starbucks Mall
location, no drive-thru, no outside seating, can be difficult to
find parking Independent coffee house Limited menu items, no
drive-thru Slide 40 Sales Quantity Financial Plan Slide 41 Unit
Metrics Slide 42 Financial Plan Gross Margin Slide 43 Financial
Plan Net Income Slide 44 Financial Plan Break-Even Net Income Slide
45 Financial Plan Break-Even - Economic Slide 46 Financing
Structure Bank Loan: $200,000 5 year term 10% interest rate
association with franchiser Equity Financing: $101,000 Common
Shares: $1,000 Preferred Shares: $100,000 Financial Plan Slide 47
Equity Investment External equity financing required: $100,000
Preferred Shares Dividends 15% of positive retained earnings
Callable as of the 5 th year of operations Return of capital:
$195,000 Priority upon liquidation External Rate of Return on
Equity: 20% Financial Plan Slide 48 Net Present Value of Equity
Investment (NPV) 180,477 Internal Rate of Return (IRR) 64%
Financial Plan Investment Analysis Slide 49 NPVIRR 67% Debt
Financing $180,47764% 100% Equity Financing $127,70834% Financial
Plan Leveraged IRR Slide 50 Financial Plan Cash Flow Slide 51
Financial Plan Scenario Analysis Slide 52 Financial Plan Scenario
Analysis Slide 53 Contingency Plan Worst Case Elimination of staff
Additional hours worked by the Hatches Increased marketing efforts
Pressure head office to increase prices Re-evaluate return of
capital and payout to investors in year 5 Paid out by year 10
Financial Plan Slide 54 Contingency Plan Best Case Capacity
limitations at peak hours Additional employees hired Additional
facilities added to the drive-thru window Barista machine, coffee
pots Financial Plan Slide 55 Opportunity Growing city and coffee
industry Customers Residents of Markham who live and shop in this
community Second home - great location with efficient service
Competitive Advantage Experienced management team, strong brand
recognition and loyalty, commitment to employees, customers and
community Risk and Return 64% IRR with a payback in the first 5
years Moderate risk that can be mitigated
