AFM433 Group 36 Team Submission 5 – Little Red Roaster’s Case

AFM 433 Team Submission 5 – Group 36

Christopher Cheung 20782935

Amisha Kaushal 20843420

Angela Mai 20775608

Yipeng Mao 20758432

Rohun Bhardwaj 20779095

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AFM433 Group 36 Team Submission 5 – Little Red Roaster’s Case

1) SWOT Analysis
Strengths Weaknesses
 Loyal customer base with a product that is  Can only take on a limited number of
well known orders for catering side
 Coffee bean contract that locks in the  Further expansion would be very capital
purchasing price extensive
 More profitable compared to those in the  Low cash ($670) compared to the high
industry debt that they have ($25,026)
 Friendly / knowledgeable employee base  Note payable of $10,928 to pay off, not
and owner liquid enough to invest in projects
Opportunities Threats
 Current area is considering revitalizing the  Prices and quantity depend on the
downtown area (London) supplier as there is higher switching costs
 London has an annual growth rate of 3.6%  Many substitutes for the products
and the employment rate continues to  Many competitors exist in this industry-
improve customers can shift
 Demand for specialty coffee is expected to  In store demand can change over to drive
grow as customers become socially through operations
conscious  City is introducing non-smoking bylaws
 Coffee places are transitioning to meeting/ for restaurants and bars
entertainment areas

2) SWOT Analysis – Implications on each Strategic Possibility

 SQ – No expansion: If LRR chose not to expand any of their businesses, they could remain
profitable by having their existing loyal customer base, knowledgeable staffs, and great
locations. But at the same time, they will miss some opportunities they could further
strengthen their financial position and brand reputation. For instance, they would miss the
opportunity of expanding specialty coffee offerings to increase sales. On the other hand, LRR
will keep facing high threats from suppliers, substitutes, and competitors.

 SP1 – Expand wholesale operations: Under SP1, LRR would be able to utilize one of their
potential opportunities since coffee places are transitioning to meeting/entertainment areas by
offering extra wholesale services. Meanwhile, LRR could stand out of their competitors by
benefiting from its local distribution company partnership. In addition, given that further
expansion could be capital extensive and LRR currently have low cash on hand, a SP that
bears lower capital cost would be more beneficial for LRR.

 SP2 – Expand catering operations: Under SP2, LRR would be able to utilize one of their
potential opportunities since demand for specialty coffee is expected to grow as customers
become socially conscious. LRR’s catering customers mainly came from their existing retail
customers. Given that LRR already has a large loyal customer base, SP2 seems to be more
beneficial for LRR. But since LRR can only take a limited number of catering orders, the
company must spend a great capital cost for catering operation expansion, which is estimated
to be higher than the capital cost for SP1.

3) Decision Matrix
DC #1 DC #2 DC #3 DC #4 DC #5
Incremental Impact on Time to Return Risk Alignment
EBITDA ROI Implement with mission
SQ $1,098 0% None Low High

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AFM433 Group 36 Team Submission 5 – Little Red Roaster’s Case

SP #1 $24,705 177% One to three Medium Medium

Inhouse months
Wholesale
SP #2 $13,497 60% Three to six High High
Catering months

DC #1 – Incremental EBITDA is considered as it gives a clear picture of the additional

EBITDA that are created from each SP compared to the SQ.

DC #2 – Impact on ROI is considered to estimate the profitability of each SP.

Note: The numbers for DC#1 and #2 come from financial analysis from Team Submission #4

DC #3 – Time to implement is considered to indicate how long it will take before each SP can
begin to make earnings.

DC #4 – Return risk is considered because LRR is a family-owned business where the owners
take on personal liabilities which may prefer lower risk investments compared to multinational
corporations.

DC #5 – Mission alignment is considered to ensure that LRR maintains the brand image and
mission that they have developed.

4) Recommendation
I recommend that LRR proceed with SP#1 and expand with the inhouse wholesale operations
because:
o Highest incremental EBITDA and ROI indicating that the high investment brings secure
future income
o Shorter time to implement than SP#2
o Medium return risk acceptable to family businesses
o Medium alignment with mission ensuring little disruption to current operations while
maintaining expectations from customers

5) Risk Event Card

Risk Event Outcomes/Impact Risk Indicators Mitigation/Actions
Wholesale Revenue LRR will not meet Wholesale revenues Hiring sales experts
targets are below ROI target and won’t may be low a certain with experience in
expectations have additional month, or LRR may gaining wholesale
EBITDA despite a struggle to gain customers and
heavy investment. additional clients marketing
Owners may
lose/write-off a
portion of their
personal liabilities
(investment)
LRR takes an LRR can potentially Logistical issues Consistently monitor
unexpectedly longer become financially may arise as this is a wholesale orders,
time to implement distressed as they are new strategy they potentially add a
SP #1 waiting months to get are implementing. distribution centre,
their return on May have a hard hire an operations lead

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AFM433 Group 36 Team Submission 5 – Little Red Roaster’s Case

investment back time keeping track to make sure processes

of orders. are done at maximum
efficiency
LRR’s new strategy This may damage the See a decrease in Make considerable
may not align with reputation of the coffee shop efforts to maintain
their brand image company, may harm customers, negative exceptional customer
and mission as well sales in their current reviews on the service to wholesale
revenue streams company, customers customers as well,
(coffee shops) may not return to offer discounts to
LRR for additional influence wholesale
wholesale orders customers to return,
send out surveys to
customers to see if
customer satisfaction
remains strong and
figure out areas for
improvement

6) Implementation Considerations
 Hiring experienced staff to handle the increase in wholesale orders and handle the logistics of
delivering orders
 Leverage their relationship with Global Spectrum and pursue many sports & entertainment
centers managed by them to gain more wholesale customers.
 With the local distribution company partnership, they can come up with a strategy that will help
them fulfill their wholesale orders at the lowest cost possible
 Choose delivery truck costing $13,995 of the highest quality which doesn’t require much repair
work in the future and can last for at least 5-10 years
 Change their organizational structure to distribute responsibilities between the managers and have
an individual in charge of their wholesale business and another for the retail and catering side of
the business.